OCC Exposes Banks’ ’Inappropriate’ Customer Distinctions Across Multiple Sectors - A Wake-Up Call for Finance

Banks are drawing lines in the sand—and regulators are calling foul. The Office of the Comptroller of the Currency just pulled back the curtain on what it deems 'inappropriate' customer distinctions, revealing a practice that cuts across multiple industry sectors.

The Core Issue: Selective Service

It's not about risk assessment or compliance—it's about banks quietly deciding who gets full service and who gets the bare minimum. The OCC's findings suggest a pattern, a systematic filtering that bypasses traditional credit checks in favor of more opaque criteria. Think of it as financial profiling, with algorithms making judgments that used to require a human's biased eye.

Why This Matters Now

In an era where digital finance promises democratization, old-guard institutions are building digital moats. They're creating tiers of access, often invisible to the customer, that determine everything from loan approval speed to fee structures. It's personalization gone rogue—tailoring services not to fit needs, but to fit profit margins.

The Regulatory Reckoning

The OCC isn't just issuing a warning; it's signaling a shift. Watch for tighter scrutiny on how banks segment customers, especially when those segments look suspiciously like the old discriminatory practices wearing new, algorithmic clothes. Compliance departments are bracing for impact—and their legal budgets are about to get a workout.

A Cynical Take

Here's the finance jab: Banks have always distinguished between customers—they just used to call it 'private banking' for the rich and 'basic checking' for everyone else. The innovation isn't in the distinction, but in how efficiently they can now automate the process of figuring out who's worth the white-glove treatment.

The bottom line? When traditional finance talks about 'knowing your customer,' they might know a little too much for comfort. And in the age of decentralized alternatives, that knowledge gap could become their biggest vulnerability.

Trump administration probes the banks

The findings follow months of heightened attention to the issue from the Trump administration. In August, the president signed an executive order alleging that financial institutions had restricted access to services based on customers’ political or religious beliefs. 

The order directed regulators to eliminate reputation risk as a factor in banking decisions and require banks to base their determinations on individualized, objective, and risk-based analyses.

The OCC began sending letters to major Wall Street lenders in September demanding details on their practices, after Trump and other Republicans repeatedly raised concerns about banks depriving certain individuals and businesses of services. 

The Wednesday report represents the first formal findings from that inquiry, though the agency said it is still reviewing thousands of complaints to identify instances of political and religious debanking.

At the conclusion of its review, the OCC intends to hold banks accountable for any unlawful debanking activities, including by making referrals to the Attorney General as required by the executive order.

Industry defends risk management approach

Banking industry representatives have pushed back against the description of their practices as discriminatory. The Bank Policy Institute, a trade group representing many of the named institutions, said in a statement that banks have a strong incentive to serve as many customers as possible to drive economic growth.

“The industry supports fair access to banking and is already working together with Congress and the administration to ensure banks are able to serve law-abiding customers,” the group said.

Citigroup, PNC, BMO, and U.S. Bancorp, and the other accused banks are yet to comment on the matter, according to representatives for the other lenders. 

Some bank executives have previously called for greater regulatory clarity around reputational risk, saying they do not discriminate based on political affiliations while maintaining that they must manage various forms of risk.

Debate over scope and causes

Consumer advocates contend there is little evidence to show that the debanking issue is widespread, with former Fed Vice Chair Michael Barr stating in February that he had not seen evidence of political debanking and describing account closures as appropriate risk management.

However, critics argue that bank examiners have pushed lenders to sever ties with politically sensitive clients even when they posed no threat to the bank’s safety and soundness. 

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