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H.R. 766 (114th): Financial Institution Customer Protection Act of 2016

The Financial Institution Customer Protection Act, H.R. 766, would establish requirements for federal regulators to request a bank to close any customer account, except in some cases of national security. In order to do so federal regulators would need to submit a written request to the bank with an explanation of why such termination is needed. It specifies that regulators must have a material reason not based solely on the reputation risk of the account holder. The bill would also require federal banking agencies to report the number of accounts they requested to be closed each year and the legal authority with which they did so.

The bill passed the House with a partisan 250–169 vote. 240 of the supporting votes were cast by Republicans, and all opposing votes were cast by Democrats. The President has threatened to veto the bill if it were to pass in the Senate.

####Why is it partisan?

H.R. 766 characterizes a typical disagreement over government intervention. Republicans argue that too much federal authority will result in an abuse of power, while Democrats argue that increased regulation is necessary to prevent financial crimes.

House Republicans explain Operation Choke Point, a Department of Justice (DoJ) initiative to prevent businesses believed to have committed consumer fraud from accessing the financial system. According to House Republicans, the DoJ “identif[ies] merchants that pose a ‘high risk’ for consumer fraud, reportedly, without regard to whether or not these merchants were operating their businesses legally,” leading to instances of banks shutting down accounts of legal businesses.

Democrats argue that H.R. 766 would restrict federal ability to prevent money laundering and financial fraud. In its veto threat, the White House wrote that “Requiring Federal banking agencies to satisfy a written materiality requirement is unnecessary, overly burdensome, and could impede the Federal banking agencies’ ability to ensure financial institutions comply with important regulatory obligations.” The White House also noted that a written explanation could disclose sensitive information.

Last updated Feb 14, 2016. View all GovTrack summaries.

The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress, and was published on Feb 4, 2016.

Financial Institution Customer Protection Act of 2016

(Sec. 2) This bill prohibits a federal banking agency from formally or informally suggesting, requesting, or ordering a depository institution to terminate either a specific customer account, or group of customer accounts, or otherwise restrict or discourage it from entering into or maintaining a banking relationship with a specific customer or group of customers, unless: (1) the agency has a material reason to do so, and (2) the reason is not based solely on reputation risk.

The "material reason" criterion shall be satisfied if an agency believes that a specific customer or group of customers poses a threat to national security, including any belief that they are involved in terrorist financing.

Unless the appropriate agency determines that the customer or group of customers has used due diligence to avoid doing business with any entity described below, the bill deems the criteria addressing "material reason" to be met if the agency believes a customer or group of customers is, or is acting as, a conduit for an entity which:

poses a threat to national security; is involved in terrorist financing; is an agency of the government of Iran, North Korea, Syria, or any country listed from time to time on the State Sponsors of Terrorism list; is either located in, or subject to the jurisdiction of, any of such countries; or does business with any entity located in such countries. If an appropriate federal banking agency orders a depository institution to terminate a specific customer account or a group of customer accounts, the depository institution shall inform the customer or customers of the justification for the termination.

No notice may be given to the customer, however, if the agency requests or orders a depository institution to terminate a customer account (or a group of customer accounts) based upon a belief that customer or those customers pose a threat to national security or are otherwise described above.

(Sec. 3) The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 is amended to revise requirements for summoning witnesses and requiring production of books or other records the Attorney General deems relevant or material to a civil investigation in contemplation of a civil proceeding which may result in civil penalties for specified violations.