In March of this year the Florida legislature passed HB 989. The law, which is set to go into effect on July 1, takes significant steps to inject more state government interventions into the business of national banks (already heavily regulated and supervised at the federal level), and that could have sweeping implications for getting loans, making deposits in checking accounts, and accessing financial products more broadly in the future. Beyond the practical consequences, this law is even more confounding given Florida’s historically pro-business.
HB 989 is premised on the odd notion that banks “debank” customers for political, social, or religious views, after which the bill superfluously and unnecessarily decrees that banks can’t close accounts based on the political, social, or religious beliefs of the account holder. Unknown is who would disagree with this, particularly the banks HB 989 is directed toward, and whose entire business model is about courting customers, not chasing them away. Not only is closing accounts without legal and regulatory rationale prohibited under law, it’s bad for business.
Worse, the law goes further than a decree. It inserts an entirely new regulatory regime on top of and in conflict with the existing federal laws governing national banks. A failure to comply comes with a steep price tag that could ultimately force a national bank to choose between which opposing laws to follow: those in Florida or the national laws under which national banks already operate.
To make matters even more complicated, Florida isn’t the only state that has passed, or intends to pass, specific state laws by which national banks must abide. Tennessee passed a similar law to Florida’s HB 989 that will also go into effect on July 1, and then it’s no reach to suggest that other states for reasons political, bureaucratic or both will seek legislation meant to dictate how national banks can operate in their states, too.
To the above, some will say that’s good, let’s make states “laboratories” of ideas related to banking legislation. Except that the National Bank Act already indicates that banks operating around the country are first and foremost subject to federal law. This doesn’t render states toothless when it comes to nationally chartered banks by any means, but it does protect national banks from having to answer to fifty different masters on the matter of simple bank policy. The National Bank Act was intended to ensure national banks could offer products and services to customers across state lines. Hopefully readers can see the value of this blanket national protection, and it’s rooted in states’ rights.
The simple truth is that California legislators will be different from Florida legislators who will be different from those in New Hampshire and New York. If state laws supersede national, the inevitable result will be that national banks will be forced to choose which states they can operate in, and which ones they can’t, or they may choose to get our of a line of business altogether. The losers in this scenario will be customers who suffer reduced competition for their business, while bank health will be harmed via smaller customer bases in concert with reduced diversity of loan exposure.
Not only are these misguided laws a solution in search of a problem as the “debanking” narrative unwittingly reveals, they’re actually bad bank policy. A conflicting patchwork of state laws – however well intentioned – will only create confusion and legal uncertainty, insert more layers of government interventions that contradict existing laws, and ultimately harm the affordability of and access to products and services banking consumers rely on.
