```

[House Report 115-414]
[From the U.S. Government Publishing Office]

115th Congress    }                                     {      Report
                        HOUSE OF REPRESENTATIVES
 1st Session      }                                     {     115-414

======================================================================

 
         FINANCIAL INSTITUTION CUSTOMER PROTECTION ACT OF 2017

                                _______
                                

 November 16, 2017.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 2706]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 2706) to provide requirements for the 
appropriate Federal banking agencies when requesting or 
ordering a depository institution to terminate a specific 
customer account, to provide for additional requirements 
related to subpoenas issued under the Financial Institutions 
Reform, Recovery, and Enforcement Act of 1989, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Financial Institution Customer 
Protection Act of 2017''.

SEC. 2. REQUIREMENTS FOR DEPOSIT ACCOUNT TERMINATION REQUESTS AND 
                    ORDERS.

  (a) Termination Requests or Orders Must Be Valid.--
          (1) In general.--An appropriate Federal banking agency may 
        not formally or informally request or order a depository 
        institution to terminate a specific customer account or group 
        of customer accounts or to otherwise restrict or discourage a 
        depository institution from entering into or maintaining a 
        banking relationship with a specific customer or group of 
        customers unless--
                  (A) the agency has a valid reason for such request or 
                order; and
                  (B) such reason is not based solely on reputation 
                risk.
          (2) Treatment of national security threats.--If an 
        appropriate Federal banking agency believes a specific customer 
        or group of customers is, or is acting as a conduit for, an 
        entity which--
                  (A) poses a threat to national security;
                  (B) is involved in terrorist financing;
                  (C) is an agency of the Government of Iran, North 
                Korea, Syria, or any country listed from time to time 
                on the State Sponsors of Terrorism list;
                  (D) is located in, or is subject to the jurisdiction 
                of, any country specified in subparagraph (C); or
                  (E) does business with any entity described in 
                subparagraph (C) or (D), unless the appropriate Federal 
                banking agency determines that the customer or group of 
                customers has used due diligence to avoid doing 
                business with any entity described in subparagraph (C) 
                or (D),
        such belief shall satisfy the requirement under paragraph (1).
  (b) Notice Requirement.--
          (1) In general.--If an appropriate Federal banking agency 
        formally or informally requests or orders a depository 
        institution to terminate a specific customer account or a group 
        of customer accounts, the agency shall--
                  (A) provide such request or order to the institution 
                in writing; and
                  (B) accompany such request or order with a written 
                justification for why such termination is needed, 
                including any specific laws or regulations the agency 
                believes are being violated by the customer or group of 
                customers, if any.
          (2) Justification requirement.--A justification described 
        under paragraph (1)(B) may not be based solely on the 
        reputation risk to the depository institution.
  (c) Customer Notice.--
          (1) Notice required.--Except as provided under paragraph (2), 
        if an appropriate Federal banking agency orders a depository 
        institution to terminate a specific customer account or a group 
        of customer accounts, the depository institution shall inform 
        the customer or customers of the justification for the 
        customer's account termination described under subsection (b).
          (2) Notice prohibited in cases of national security.--If an 
        appropriate Federal banking agency requests or orders a 
        depository institution to terminate a specific customer account 
        or a group of customer accounts based on a belief that the 
        customer or customers pose a threat to national security, or 
        are otherwise described under subsection (a)(2), neither the 
        depository institution nor the appropriate Federal banking 
        agency may inform the customer or customers of the 
        justification for the customer's account termination.
  (d) Reporting Requirement.--Each appropriate Federal banking agency 
shall issue an annual report to the Congress stating--
          (1) the aggregate number of specific customer accounts that 
        the agency requested or ordered a depository institution to 
        terminate during the previous year; and
          (2) the legal authority on which the agency relied in making 
        such requests and orders and the frequency on which the agency 
        relied on each such authority.
  (e) Definitions.--For purposes of this section:
          (1) Appropriate federal banking agency.--The term 
        ``appropriate Federal banking agency'' means--
                  (A) the appropriate Federal banking agency, as 
                defined under section 3 of the Federal Deposit 
                Insurance Act (12 U.S.C. 1813); and
                  (B) the National Credit Union Administration, in the 
                case of an insured credit union.
          (2) Depository institution.--The term ``depository 
        institution'' means--
                  (A) a depository institution, as defined under 
                section 3 of the Federal Deposit Insurance Act (12 
                U.S.C. 1813); and
                  (B) an insured credit union.

                          PURPOSE AND SUMMARY

    Introduced by Representative Blaine Luetkemeyer on May 25, 
2017, H.R. 2706, the ``Financial Institution Customer 
Protection Act of 2017'', prohibits a federal banking agency 
from formally or informally suggesting, requesting, or ordering 
a depository institution to terminate either a specific 
customer account, or group of customer accounts, or otherwise 
restrict or discourage it from entering into or maintaining a 
banking relationship with a specific customer or group of 
customers, unless: (1) the agency has a valid reason for doing 
so, and (2) that reason is not based solely on reputation risk. 
H.R. 2706 requires a federal banking agency to provide a 
depository institution written justification of any request to 
terminate or restrict a customer account, except in instances 
of national security.
    H.R. 2706 also requires appropriate federal banking 
agencies to issue an annual report to Congress that describes 
the number of customer accounts the agency requested or ordered 
to be closed and the legal authority relied upon by the agency 
to do so.

                  BACKGROUND AND NEED FOR LEGISLATION

    Operation ``Choke Point'' is a law enforcement initiative 
launched by the Department of Justice's Consumer Protection 
Branch during President Obama's Administration to combat 
consumer fraud by `choking off' businesses alleged to have 
committed fraud from access to the financial system. Rather 
than investigate and prosecute the merchants alleged to have 
committed fraud, the Justice Department subpoenas the 
institutions that provide financial services to these 
merchants, which effectively coerces these financial 
institutions to cease offering the services. The Justice 
Department has partnered with the Federal Deposit Insurance 
Corporation (FDIC) to identify merchants that pose a `high 
risk' for consumer fraud, notwithstanding the fact that these 
merchants may be operating their businesses legally. In doing 
so, the FDIC equated legitimate and regulated activities such 
as coin dealers and firearms and ammunition sales with 
inherently pernicious or patently illegal activities such as 
Ponzi schemes, debt consolidation scams, and drug 
paraphernalia. The legal merchants identified as `high risk' 
have seen their accounts terminated by banks seeking to avoid 
civil and criminal liability as well as greater regulatory 
scrutiny.
    The Committee adopted an amendment offered by Rep. Denny 
Heck that would prevent federal banking agencies from abusing 
executive power when these regulators attempt to shut off law-
abiding businesses' access to depository institutions by 
prohibiting appropriate banking agencies from ordering or 
requesting a depository institution to terminate customer 
accounts unless the agency has a valid reason for doing so, and 
that reason is not based solely on reputational risk.
    In a letter of support for H.R. 2706 dated June 5, 2017, 
the Credit Union National Association wrote:

          [H.R. 2706] would place certain limits on the Federal 
        government's Operation Choke Point. While we strongly 
        support the government's role in ensuring the integrity 
        of financial markets and eliminating fraud, the 
        program's broad enforcement tactics could create 
        unnecessary risks to consumers and to the economy.
          The legislation would limit Federal banking 
        regulators' ability to discourage or restrict 
        depository institutions from entering into or 
        maintaining a financial services relationship with 
        specific customers unless certain criteria are met.

    In a letter of support for H.R. 2706 dated October 10, 
2017, the Consumer Bankers Association wrote:

          [H.R. 2706] would require federal banking regulatory 
        agencies to establish requirements for the termination 
        of bank accounts and prohibit federal banking 
        regulators from formally or informally suggesting, 
        requesting, or ordering a depository institution to 
        terminate a customer account except in circumstances 
        affecting the security of our country or specific 
        illegal activity.

                                HEARINGS

    The Committee on Financial Services' Subcommittee on 
Financial Institutions held a hearing examining matters 
relating to H.R. 2706 on July 12, 2017.

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
October 11 and 12, 2017 and ordered H.R. 2706 to be reported 
favorably to the House as amended by a recorded vote of 59 yeas 
to 1 nays (Record vote no. FC-78), a quorum being present. 
Before the motion to report was offered, the Committee adopted 
an amendment in the nature of a substitute offered by Mr. 
Luetkemeyer, and an amendment to the amendment in the nature of 
a substitute by Mr. Heck by voice vote.

                            COMMITTEE VOTES

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole recorded vote was on a motion by Chairman Hensarling to 
report the bill favorably to the House as amended. The motion 
was agreed to by a recorded vote of 59 yeas to 1 nays (Record 
vote no. FC-78), a quorum being present.

                      COMMITTEE OVERSIGHT FINDINGS

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    PERFORMANCE GOALS AND OBJECTIVES

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 2706 
will restore the rule of law by requiring federal banking 
agencies to justify requests to terminate customer bank 
accounts maintained by depository institutions and requiring 
civil subpoenas issued by the Department of Justice in 
investigations affecting a federally insured financial 
institution to be supported by facts.

   NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                 CONGRESSIONAL BUDGET OFFICE ESTIMATES

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 31, 2017.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2706, the 
Financial Institution Customer Protection Act of 2017.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Sarah Puro.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 2706--Financial Institution Customer Protection Act of 2017

    H.R. 2706 would prohibit federal banking regulators--the 
Federal Deposit Insurance Corporation (FDIC), the National 
Credit Union Administration (NCUA), the Office of the 
Comptroller of the Currency (OCC), and the Federal Reserve--
from requesting or requiring that a depository institution 
terminate certain customer accounts except in specific 
circumstances affecting national security. The bill also would 
require each federal banking regulator to report annually on 
the number of requests to terminate customer accounts that any 
of those agencies has made to a bank.
    On the basis of information from the federal banking 
regulators, CBO expects that the prohibitions in H.R. 2706 
would not alter the actions those regulators take under current 
law. However, the additional reporting requirement in the bill 
would impose costs on those agencies. Administrative costs 
incurred by the FDIC, the OCC, and the NCUA are recorded in the 
budget as an increase in direct spending. CBO estimates that 
the cost to complete the annual reports would not be 
significant. Moreover, those agencies are authorized to collect 
premiums and fees from insured depository institutions to cover 
administrative expenses. Thus, CBO expects that the net effect 
on the federal budget would be negligible. Administrative costs 
to the Federal Reserve are reflected in the federal budget as a 
reduction in remittances to the Treasury (which are recorded in 
the budget as revenues). CBO expects that any additional 
administrative costs to the Federal Reserve under the bill also 
would be insignificant.
    Because enacting H.R. 2706 would affect direct spending and 
revenues, pay-as-you-go procedures apply.
    CBO estimates that enacting H.R. 2706 would not 
significantly affect net direct spending or on-budget deficits 
in any of the four consecutive 10-year periods beginning in 
2028.
    H.R. 2706 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Sarah Puro. The 
estimate was approved by H. Samuel Papenfuss, Deputy Director 
for Budget Analysis.

                       FEDERAL MANDATES STATEMENT

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                      ADVISORY COMMITTEE STATEMENT

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  APPLICABILITY TO LEGISLATIVE BRANCH

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         EARMARK IDENTIFICATION

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    DUPLICATION OF FEDERAL PROGRAMS

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                   DISCLOSURE OF DIRECTED RULEMAKING

    Pursuant to section 3(i) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed 
rulemakings: The Committee estimates that the bill requires no 
directed rulemakings within the meaning of such section.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title

    This Section cites H.R. 2706 as the ``Financial Institution 
Customer Protection Act of 2017''.

Section 2. Requirements for deposit account termination requests and 
        orders

    This Section prohibits a federal banking agency from 
formally or informally suggesting, requesting, or ordering a 
depository institution to terminate either a specific customer 
account, or group of customer accounts, or otherwise restrict 
or discourage it from entering into or maintaining a banking 
relationship with a specific customer or group of customers, 
unless: (1) the agency has a valid reason to do so, and (2) the 
reason is not based solely on reputation risk. The validity 
requirement is satisfied if a federal banking agency believes 
that a specific customer or group of customers poses a threat 
to national security, including any belief that they are 
involved in terrorist financing.
    This section also requires a federal banking agency that 
requests or orders a depository institution to terminate an 
account or group of accounts to provide the request or order to 
the institution in writing and accompany the request or order 
with a written justification for why such termination is 
needed, including any specific laws or regulations the agency 
believes are being violated. Such justification may not be 
based solely on the reputation risk of the depository 
institution. Neither the agency nor the institution is required 
to inform a customer of the justification accompanying the 
agency's request for the customer's account termination. Notice 
is to a customer is prohibited if the federal banking agency 
requests or orders a depository institution to terminate a 
customer account (or a group of customer accounts) based upon a 
belief that customer or those customers pose a threat to 
national security.
    Each appropriate federal banking agency must issue an 
annual report to Congress stating the aggregate number of 
specific customer accounts that the agency requested or ordered 
a depository institution to terminate during the previous year 
and the legal authority on which the agency relied in making 
such requests or orders.

         CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    H.R. 2706 does not repeal or amend any section of a 
statute. Therefore, the Office of Legislative Counsel did not 
prepare the report contemplated by Clause 3(e)(1)(B) of rule 
XIII of the House of Representatives.

                                  [all]
```