Fed Rule Bars Banks From Targeting Gun Manufacturers

Admin rebukes Obama-era Operation Choke Point

Getty Images
January 15, 2021

The Trump administration adopted a new rule to prevent big banks from denying services to gun manufacturers and other industries in a rebuke of an Obama-era financial program.

The Office of the Comptroller of the Currency (OCC) rule, which was finalized on Thursday, will instruct large financial institutions to only deny services to specific clients on a case-by-case basis instead of making industry-wide blacklists. The regulation came as a rebuke to Operation Choke Point, which sought to pressure big banks to cut ties with businesses disfavored by the Obama administration, including the gun and payday lending industries.

Operation Choke Point—coupled with public pressure from gun-control activists—led some of the biggest lenders in the country to drop their clients in the gun industry. Citibank and Bank of America cut ties with gun businesses after warnings from the operation that they could face reputational harm from doing business with legal but disfavored industries.

"It's the banking version of cancel culture," Dave Kopel, research director at the Independence Institute, told the Washington Free Beacon.

The Trump administration ended Operation Choke Point in 2017. In its waning days, the White House is attempting to prevent future presidents from restoring the Obama-era program. The finalization of the rule sets up a showdown with the incoming Biden administration, which has promised to pursue strict new gun regulations and an adversarial stance toward gun makers.

Kopel said there is no question gun-control supporters in and outside the Biden administration would continue to pressure banks to deny services to gun-rights advocacy groups and the gun industry at large. He noted the finalization of the rule, however, provides only two avenues for repealing it. Either opponents of the rule can go through the lengthy rulemaking process over again or Congress can repeal the rule within 60 legislative days using the Congressional Review Act.

Using the Congressional Review Act would require a majority of both houses of Congress, which means every Democratic senator would have to vote in favor of it. Kopel said it would be difficult to get more moderate Democrats on board. He said such a legislation battle would provide insight into how aggressively the Biden administration and incoming Democratic majorities will pursue gun control.

"If they do try to do that, it's a sign that their administration is serious about not just adding regulation but destroying the firearms industry in the United States," Kopel told the Free Beacon.

OCC head Brian P. Brooks said in a statement the rule is necessary because "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," Brooks said. "Moreover, elected officials should determine what is legal and illegal in our country."

Some financial interest groups have campaigned to preserve Operation Choke Point's legacy. The Bank Policy Institute sent a letter to OCC decrying the rule and complaining that not being able to use "subjective judgment and qualitative considerations, including reputational risk, in deciding whether to provide a financial service" would require them to take on more risk. A dozen Democrats sent their own letter accusing the agency of "forcing banks to lend where the risk does not justify."

The National Shooting Sports Foundation, the trade group for the gun industry, celebrated the new rule as "the end of unfair and politically motivated discriminatory practices by banking institutions that have a legal duty to service all legal businesses." Lawrence Keane, the group's senior vice president and general counsel, framed it as a win over "woke" politics.

"This rule will ensure large financial institutions that are supported by taxpayer-funded resources like insurances must provide fair and equal access to services based on their objective financial creditworthiness, and not based on 'woke' political considerations," Keane said in a statement.