Here’s how Iowa is involved in stopping controversial ‘debanking’

Many Americans have recently been exposed to the troubling reality that their government may be encouraging banks to withdraw financial services from people or firms that make their money in ways that politicians consider unsavory.

This problem gained even more attention when venture capitalist Marc Andreessen appeared on a November episode of The Joe Rogan Experience charging that at least 30 tech founders have been cut off from banking services due to actions by Biden-appointed regulators.

This phenomenon, known as debanking, refers to the practice of financial institutions refusing services for political reasons to individuals, companies, or organizations. Andreessen’s remarks went viral, prompting many in the digital asset space to post online about their own experiences of being debanked.

Debanking is a problem that impacts people nationwide. Earlier this year, Iowa Attorney General Brenna Bird joined a 15-state coalition demanding that Bank of America stop its debanking practices. The coalition's letter highlights that Bank of America has denied services to politically unfashionable institutions, such as firearm or ammunition manufacturers, and accuses the bank of labeling “conservative and religious Americans as potential domestic terrorists.”

The relationship between a firm’s discretion, preference, and behind-the-scenes governmental pressure has grown more intertwined since the 2008 financial crisis. Following the crash, laws like the Dodd-Frank Act and the Basel III international banking agreement increased regulatory scrutiny of banks’ risk management practices and created new pathways for the government to pressure financial firms. It’s also worth nothing that current regulations forbid banks from telling customers why they’ve been debanked in certain situations, which means that banks may be getting the blame for regulatory actions they have little influence over.

One of the most notorious examples of debanking was the Obama administration’s “Operation Choke Point,” which pressured banks to cut off services to industries such as firearms manufacturers. Thanks to the efforts of the Competitive Enterprise Institute and other groups, the behind-the-scenes activities of regulators promoting Operation Choke Point were exposed, and the program was eventually killed by the first Trump administration. However, the Biden administration quickly resumed the pressure on banks. Recently, regulators have pushed banks to deny services to crypto-related businesses, a move now being referred to as Choke Point 2.0.

President-elect Trump is likely to prioritize addressing debanking, especially given that his wife and son were personally affected, as mentioned in Melania’s memoir. Debanking has also been of concern to some high-ranking congressional Democrats, further increasing the likelihood of bipartisan legislative action.

Earlier this year, Sen. Elizabeth Warren (D-MA) and others expressed concern at allegations that J.P. Morgan Chase was disproportionately closing accounts belonging to Muslim Americans and other minority groups. Similarly, Rep. Maxine Waters (D – CA) said an a Politico interview that she doesn’t “believe that an American citizen should have their bank accounts closed down, and nobody tells them why, or you have nowhere to appeal.”

Bank of America infamously debanked constitutional law scholar John Eastman after he took on President Trump as a client following the 2020 election. The bank also voluntarily provided the FBI with a list of customers who made transactions in the days around the January 6, 2021 near our nation’s Capital and those who purchased firearms with the bank's credit and debit cards.

In response to the volume of debanking stories being shared online, The Institute for Justice (a free-market public interest law firm) is considering legal action to challenge this federal surveillance system, arguing that the Fourth Amendment protects Americans against unreasonable searches, including financial records. They are currently seeking individuals whose bank accounts were closed without explanation or who were blocked from other financial services to share their experiences.

Lawmakers have introduced bills aimed at curtailing regulators’ overreach, such as the Financial Institution Customer Protection Act. Although this bill has not become law, it indicates a growing awareness and willingness to address the problem. The start of the new Congress in January is an opportune time for policymakers to take action to protect consumers and restore confidence to customers that their money and financial data will remain safe and secure.

Waterloo native and Loras College graduate Patricia Patnode is a Research Fellow at the Competitive Enterprise Institute focusing on banking, finance, and consumer freedom issues.