Cancel Culture Comes to Banking | Opinion

This past November, Missouri's conservative Defense of Liberty PAC scheduled a high-profile event featuring a speech by Donald Trump, Jr. On November 9, however, WePay—a JPMorgan Chase subsidiary that provided the payment services for the event—announced the termination of those services. WePay accused the organization of violating its policy against promotion of "hate, violence, racial intolerance, terrorism, the financial exploitation of a crime, or items or activities that encourage, promote facilitate or instruct others regarding the same." Although WePay eventually reversed its decision, the organization had to cancel the speech.

WePay's actions followed a series of similar incidents in recent years that includes the cancellation of former president Trump's personal bank account, Michael Flynn's credit cards and at least one Christian nonprofit organization. The fossil fuel and firearms industries have been targeted too. Businesses selling controversial materials have had their payments services terminated and consequently shuttered. The decisions to cancel these high-profile individuals or groups are often reversed after public outcry and dismissed as a "mistake" by the providers. But what about individual people who lack the public standing to fight back?

Once the province of colleges and social media, cancel culture has come to banking.

Today's "cancel culture" in banking doubles down on the Obama administration's infamous Operation Choke Point initiative. Pointing to the "reputational risk" of certain industries such as payday lenders, firearms dealers and purveyors of "racist materials," regulators leaned on banks to "choke off" the financial air those industries breathed. Not coincidentally, controversial industries and organizations favored by the Left, such as abortion clinics or sellers of communist propaganda, were not included on the administration's target list.

Why should anyone care if a "private" business such as Chase chooses to blackball a particular individual or industry—can't they just get financial services somewhere else? But that's the rub—financial services is one of the most heavily regulated sectors of the economy, characterized by vague and varying regulatory standards articulated in no manual or published rule. The hook for Operation Choke Point, and Chase's decision to terminate Flynn's credit cards, for example, is the regulatory standard of "reputational risk," which in practice might amount to little more than the regulator's subjective assessment of the "ickiness" of a particular individual or industry. Once de-banked, it is often difficult or impossible to find someone else to serve you.

Vague regulatory standards bear little resemblance to the rule of law. The same regulators who devised these standards can prevent entry by new banks that might be willing to serve unpopular individuals and industries. The burdensome nature of these (and other) barriers to entry is evidenced by the fact that only 44 new banks, including state and federal banks, have been established since the financial crisis. Virtually all of these new banks are small, geographically circumscribed community banks that cannot fill the gap left by mega-banks.

JP Morgan Chase bank logo
NEW YORK, NY - FEBRUARY 24: People walk past a Chase bank branch in Manhattan on February 24, 2015 in New York City. Spencer Platt/Getty Images

In an ideal world of perfect markets, cancel culture among big banks would be of little consideration as it would be easy to start a new bank. But we live in the world of "second-best" markets, where competition is dramatically distorted by a heavy blanket of financial regulation and barriers to entry. Indeed, banks today increasingly resemble public utilities as much as truly private enterprises. Policy should be based on a realistic appraisal of markets as they actually exist, not imaginary abstractions.

The combination of thick, discretionary regulation and high barriers to entry raise concerns that the financial services industry could increasingly be used to stifle free speech, democratic participation and access to legal products and services. What if banks—perhaps under social or regulatory pressure—backed up social media platforms' decisions to cancel or demonetize certain users by prohibiting payments services to those users, even through alternative platforms such as Substack or Rumble? Paypal, major credit card networks and banks have has already stopped processing payments for organizations they deem "hate groups," yet activists demand they do more. It is naïve to expect these bans will not expand beyond the most egregious groups to many others.

Those banned from YouTube or Twitter can find other places to speak. Those banned from banking services, by contrast, have nowhere to turn. The threat to free speech is manifest. What, if anything, can be done?

The most direct way to address this problem would be for regulators to release their stranglehold on competition and entry. During 2020, I served as the chair of the Consumer Financial Protection Bureau's Taskforce on Consumer Financial Law. In our report, we called for the elimination of unnecessary restrictions on competition and entry into the financial services industry. This would mean not only easier chartering of new banks but also the elimination of barriers for fintech, industrial loan companies, credit unions and small-dollar lenders. It would also allow non-banks access to the payments system. New entrants could carve out a niche outside suffocating federal regulation, and alleviate the risk of cancel culture.

But entry alone will not ameliorate the problem if effective competition is absent, or all new entrants are subject to the same politically correct rules. These concerns led Acting Comptroller Brian Brooks, at the end of the Trump administration, to announce the Fair Access to Financial Services Rule—immediately put on hold by the Biden administration. That rule would have prohibited banks from refusing to serve customers based on subjective criteria or sweeping judgments on entire industries and to rely only on objective, quantifiable and individualized risk assessment. This requirement is similar to the proposal to subject large internet companies to common-carrier regulations or to ensure nondiscriminatory access to public accommodations. This spring, Senator Kevin Cramer (R-N.D.) introduced legislation that would effectively codify Brooks' rule, a preview of future Republican control in Washington.

Brooks' rule drew the ire of big banks, which opposed the limits on their authority to choose their customers. And to be sure, such proposals may bring unintended consequences and questions about details. Nevertheless, opposition from big banks might turn out to be short-sighted—now they will face increasing pressure to wade into controversial political disputes and make arbitrary distinctions that will garner criticism regardless of what they decide. It further risks dividing society and the economy into "Red" and "Blue" teams as conservative politicians and citizens retaliate in a tit-for-tat manner. Accepting the Fair Access Rule, on the other hand, would tie banks to the mast of political neutrality and make it easier for them to resist the entreaties of woke activists and employees. These banks would be wise to adopt nondiscrimination standards voluntarily before they are imposed from without.

During the Cold War it was often observed that the Soviet Union had a lengthy bill of rights that claimed to protect freedom of speech, press and religion. But what good was it to have the right to print a copy of Milton Friedman's Free to Choose if the communist regime controlled access to paper, ink and printing presses? What we are seeing today raises many of those same concerns—the right to open a business, to express your views or simply to earn a living are of little value if you cannot get access to a bank account to collect or make payments. It's time to stop cancel culture in banking before it is too late.

Todd Zywicki is George Mason University Foundation Professor of Law at Antonin Scalia Law School.

The views expressed in this article are the writer's own.