Over the last several weeks, I have seen on forums references to what many believe is a resurgence of the old bank discontinuance. Some are even referencing its old “Operation Chokepoint” name although this isn’t really accurate. So, are banks actually ramping up the shedding of their “high-risk” accounts? The short answer is, yes, at least from the uptick in volume I am seeing in calls for my services.
Why is this happening? Well, there are a couple of reasons, but first let’s identify what is really occurring. Operation Chokepoint was an underhanded program borne during the Obama/Holder administration that was officially stopped years ago. After the program was put out to pasture, the banks continued to engage in two behaviors that were (and are) detrimental to us as pawnbrokers. The official term used was “de-risking”. As pawnbrokers, we were either flat out cancelled by our banks for ‘no reason’, or we were denied services and accounts strictly because of our industry.
Many of you reading this either have been a victim of de-risking or know someone who has. In January 2020, I was asked by a CA pawnbroker to help their company find a bank after Wells Fargo “de-risked” them. It took us calling twenty-six banks before we found one that would actually talk to and eventually bank them. Twenty-six banks said “no” over the phone. Twenty-six! All because of the industry.
De-risking has gotten so bad that the reasons behind which the banks hide to shed these unwanted customers have been kept top secret. Most of you, if your account was cancelled, were never given a reason. The fact is, the bank had to jump through extra hoops to bank you due to your status as a “high-risk” business. It costs them money to perform the due-diligence required to satisfy the regulators and it was just easier to tell you they could not do business with you. In reality, they were being told by the OCC and regulators that they what they were doing was counter to the banking rules and guidelines. However, there was no enforcement provision behind the rules, so the behavior went on for ten years. Of course, it was all about the banks bottom line.
The OCC (Office of the Comptroller of the Currency) finally had enough when 6 of the 7 major banks in Alaska weaseled out of providing funding and services for those in the oil and gas exploration industry. This of course was strictly political, but the banks had the power (and audacity) to weasel and weasel they did. It would be the straw that broke the camels back. Imagine the majority of the major banks in the Mid-West saying they would no longer support the farming industry?
In November of 2020, the OCC proposed the Fair Access Rule which is set to become effective April 1. “The rule codifies more than a decade of OCC guidance stating that banks should conduct risk assessments of individual customers, rather than make broad-based decisions affecting whole categories or classes of customers, when provisioning access to services, capital, and credit”.[1]
The rule requires, “covered banks (those with $100 Billion or more in assets) to make those products and services they choose to offer available to all customers in the communities they serve based on consideration of quantitative, impartial, risk-based standards established by the bank.”[2] The banks covered by the rule are ironically the same bad actors that were (and currently still are) cancelling accounts. Think B of A, Wells Fargo, Chase, Capital 1, US Bank, etc.
Further, the OCC states, “As Comptrollers and staff in previous administrations have made clear in speeches, guidance, and testimony, banks should not terminate services to entire categories of customers without conducting individual risk assessments. It is inconsistent with basic principles of prudent risk management to make decisions based solely on conclusory or categorical assertions of risk without actual analysis.”[3]
So, this is good news, right? Well, it is, but you need to know that like all good things, there is almost always an offset. It will likely now be an offense punishable by a monetary fine for a large bank to either discard you without giving you a chance to measure up, or to ignore you outright just because you are a pawnbroker. Small banks are exempted, however, there will be pressure for them to follow the same guidance without the possibility of a monetary fine hanging over them.
The catch is that if the banks are required to perform their due diligence, and they will, the very first thing on their list will be to make sure that any precious metals business has an AML program in place. It should go without saying that the program will need to actually be current and not sitting in the bottom of a file cabinet somewhere with 10 years of dust on it. There is little else separating you from the other businesses they bank, so the only tool they have to discard you is the AML program.
The program that has been required since 2005 and has been widely ignored in the pawn industry is now going to be pivotal in helping you maintain your banking relationship. Risk going without and it is a matter of time before the hammer comes down. So many wait until the bank asks to see the program and then in a panic make the frantic call. To date, we have been able to help every single customer in that situation that has called our firm. We believe, however that will be evolving and that banks will have the ability to determine that a brand new program does not make one compliant since they were supposed to be compliant long ago.
Programs require annual training and reviews. Reviews, by the very nature of the word, are backward looking processes. You cannot review the future; only the past. Ergo, if you have a new program it is impossible to review your adherence to what it prescribes because you did not have it in place over the period in the past under review. Remember, they set the rules and can still boot you with the slightest infraction if they so choose. The good news is they have to let us know the rules, and we can hold them accountable to their own Fair Access Rule. The rules are changing, and they will continue to be more challenging, not less. If you think back 20-25 years, if you have been in the industry that long, you know that the whole Compliance piece was not a thing that you had to worry about. Well, now you do. You are kidding yourselves if you think that the industry will have less compliance requirements directed its way in the future. At best we can hope for the status quo.
How do we help minimize future regulatory burdens? Take the time to get involved with your local and state legislators. Do it now. Proactively. Build relationships with them now. Before you need to ask them for a favor. Hiding in your store does not in any way influence legislators. At least it doesn’t allow you to influence them in a positive way. Rather it allows them to formulate their own opinions.
Our industry has a perpetual black-eye. That means our industry still has not done enough to change our image. That image is going to cost us in many ways if we don’t stop being ignorant. It is why we have to fight to prove we are essential. It is why we end up on a high-risk list when the banks who can cast aside in an instant are the ones who are high risk.
Decide to do now what it takes for your business, and your industry. Get your compliance house in order (It is far easier than you can imagine but you will never know if you do not reach out) and get your advocacy hat on like your life depends on it and you will be fine. Or, keep doing the same thing but remember…
If you always do, what you’ve always done, you will always have what you’ve always had.
The Fair Access Rule has been put on hold to allow the incoming Comptroller of the Currency the courtesy of reviewing it before it takes effect.[4]
[1] OCC News release 2021-8 | January 14, 2021 2nd paragraph
[2] OCC News Release 2021-8 | January 14, 2021 5th paragraph
[3] OCC News Release 2021-8 | January 14, 2021 3rd paragraph
[4] OCC News Release 2021-14 | January 28, 2021
