WASHINGTON, Feb 5 (Reuters) - U.S. banks and their regulators faced scrutiny from lawmakers on Wednesday over allegations of selectively denying services to specific industries or political groups.
The Senate Banking Committee convened a hearing on the issue known as debanking, hearing testimonies from experts and business owners who claim they were unjustly denied access to banking services.
Both senior Republicans and Democrats acknowledged the potential improper denial of services by banks to certain customers, but they disagreed on the underlying causes. Republicans largely criticized regulators, attributing the issue to unclear and overly stringent rules and oversight discouraging banking activities within sectors like firearms manufacturing and cryptocurrency.
Senator Mike Rounds, a South Dakota Republican, expressed, "These banks want to seek business opportunities but have been forced to weigh whether to engage with certain industries due to the regulatory environment they face."
Democrats focused on industry missteps and advocated for stronger oversight. Senator Elizabeth Warren, the top committee Democrat, pointed out thousands of complaints logged in a regulatory database in recent years by individuals unable to open accounts or experiencing sudden closures.
She stated, "Big banks are relying on black-box algorithms and intermediaries, and closing accounts without conducting thorough due diligence," citing groups like Muslims, cannabis enterprises, and recently incarcerated individuals as victims of such practices.
Although the banking sector vehemently refutes claims of ideological bias in service denials, it argues that cumbersome, antiquated, and opaque regulations sometimes impede service provision or make explanations challenging.
Testimonies were given by the head of Anchorage Digital, a cryptocurrency platform affected by debanking, and Old Glory Bank, a newly established bank in 2022 positioning itself in response to criticisms about debanking by major lenders.
Republican-led states aim to discourage perceived discriminatory practices by banks, highlighting challenges arising from the array of laws meant to ensure fair lending and causing frustration within the industry.
In a dispute in January, the President accused Bank of America and JPMorgan Chase CEOs of refusing banking services to some conservatives, echoing grievances of "woke capitalism."
The banks refuted these claims, denying any political basis for service refusals. They advocate for clearer guidelines, pushing for a definitive national standard ensuring fair access to financial services, clear anti-money laundering regulations that often lead banks to account closures, and streamlined bank supervision to enhance firms' understanding of their service provision scope.
During his testimony, Aaron Klein, a senior fellow at the Brookings Institution, highlighted that banks are mandated to report any cash transactions exceeding $10,000 to the government—a threshold set in 1972 and now outdated. Adjusted for inflation, this threshold would be over $75,000 today.
He also pointed out the significant increase in reports filed by banks with regulators to identify suspicious activities in compliance with anti-money laundering regulations. In 2003, banks filed 288,000 suspicious activity reports, a number that spiked to 2.5 million by 2023.