A Democratic Senator, federal officials of note and consumer advocacy organizations have expressed concern about a particular provision in a bipartisan marijuana bank bill. They say that this could limit regulators’ ability to act against those who abuse banking services.
Jack Reed, D-RI, raised his concerns about Section 10 of Secure and Fair Enforcement Banking Act at a Senate Banking Committee hearing earlier this month.
The senator stated that the language would make it “more difficult for federal regulators” to raise an alarm regarding relationships with customers who pose significant risks to banks.
He said, “It is not just limited to marijuana or cannabis. It could be that pyramid schemes or other interesting activities continue without a regulator’s effective response.”
At 1:24:20 in the video, Reed discusses his concerns regarding the Banking Bill section.
Reed also argued the section would “require a bank to give a notice to customer when the Federal Government suspects that they may be engaged in illegal activity,” which Reed equated with tipping a criminal off to “get out and take the money, and run.”
The SAFE Banking Act section that was cited says that regulators are not allowed to “formally or informally” request or order that a bank terminate any specific account or group accounts of customers, including, but not restricted to, those of any State-sanctioned cannabis business or service providers, or to restrict or discourage the institution from entering or maintaining a relationship with a particular customer or group, such as, but without limitation, any customer who is a State sanctioned marijuana service provider or business.
The section can be interpreted as a policy change with too many exceptions. For example, if the financial regulators issue a written statement stating that the depository “engages in an unsafe or unsafest practice,” the regulators would have no choice but to exercise oversight over financial activities unrelated to the cannabis industry.
The law also states that “if a Federal banking agency appropriate orders a depositories institution to terminate an account of a customer or group accounts, then the depository institutions shall inform the customer or group customers the reason for their account termination.”
Reed raised the issue again during a Banking Committee Hearing on unrelated topics on Thursday. He asked Federal Reserve Vice Chairman for Supervision Michael Barr, and Acting Comptroller Michael Hsu if they shared his concerns regarding the section.
Barr began by saying “it is important that Congress takes on this issue” of the possible conflict between state law and federal law in relation to cannabis financial services. While he is generally sceptical about federal regulators dictating bank client decisions, he recognizes that the bill provisions can create problems.
View the Senator’s comments on the SAFE Banking Provision, at around 1:13:00 in the video below.
Barr stated that he would be concerned by any language which would limit a supervisor’s ability to take swift action, take aggressive action or ask difficult questions. “I believe one of the things that we’ve seen in respect to the institutions that we’re discussing today is we need to have supervisors do this–not not to hold back.”
Hsu responded to Reed’s question during the hearing by saying that it was “vital” that supervisors had discretion to identify risks, and act in a timely fashion, including requiring remediation.
He said, “I’m not comfortable with further limitations on the supervisors’ abilities to enforce compliance with regulations.”
Reed read a letter from consumer groups at the hearing earlier on the marijuana banking legislation. The letter focused specifically on Section 10 SAFE Banking Act.
The coalition of organizations–including Americans for Financial Reform, Consumer Action, Consumer Federation of America, National Association of Consumer Advocates and National Consumers League–sent the letter to committee leadership earlier this month saying that the section is “overbroad, with potential repercussions far beyond cannabis banking.”
The section could be applied if a regulator of a financial institution warns about red flags that indicate a customer is engaging in illegal activity, such as receiving or laundering stolen money,” they wrote. The provision could hamper efforts by bank regulators in addressing payment fraud, and fraudsters using bank accounts to receive stolen money from hacks and scams.
“To stem the tide of payment fraud, and to prevent fraudsters opening and using accounts to receive stolen money, it is crucial that bank regulators ensure financial institutions comply with know-your customer and anti-money-laundering requirements. They must also require institutions to act swiftly if a client is using an account to unlawful purposes. If the Committee decides to act on S.1323, then we ask you to remove Section 10 from it or limit it to cannabis companies that are engaging in legal activity.
Statement: Statement for the record for hearing on Examining Cannabis Banking Challenges of Small Businesses and Workers https://t.co/1vuluVrEBQ
— AFR (@RealBankReform May 17, 2020
Cat Packer, of the Cannabis Regulators of Color Coalition, told Reed at the Cannabis hearing before the Banking Committee that the bill was supposed to be about marijuana banking. If there is an intention to use it for something else, maybe another bill would be appropriate.
He told reporters at the time that he was concerned that banking representatives were trying to “weaken bank rules” and “undermine” regulations. He told reporters that he was concerned that banking representatives would try to “weaken” bank rules by using the legislation, but he did not specify exactly how they thought that they were doing it.
It is possible to amend the section in either committee or the floor, given the concerns of both senators and those expressed by federal officials during the most recent hearing. There also seems to be a general consensus that the SAFE Banking Act did not intend to change the regulatory authority outside the marijuana area.
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The bill’s committee markup has not yet been scheduled, but Senate Majority leader Chuck Schumer (D) said that it should be cleared by the panel “in a near future” and then he plans to bring “critical criminal justice reform amendments to the floor. This will include a proposal that would facilitate the expungement of prior cannabis convictions.
Advocates and stakeholders don’t agree on the exact details of what they would like to see included in the banking bill.
One coalition, for example, sent a letter on Thursday to the committee leadership calling for a broadening of the bill’s protections in order to allow cannabis industry access to U.S. major stock exchanges. This request has been met with some criticism by other advocates who claim that it would be inappropriate to assist businesses at a time when efforts to legalize pot are stalled in Congress.
Jacky Rosen, a Nevada senator, said recently that the SAFE Banking Act should be passed with a amendment to allow cannabis businesses access to federal Small Business Administration services (SBA).
Schumer stated last month that he is “disappointed,” that the so-called SAFE Plus cannabis reform package did not advance last year. He added that “we were close, but we ran into opposition at the last minute.” He also said that lawmakers will “continue to work in a bipartisan manner” in order to accomplish the task.
In the first months of the new Congress, the majority leader has met with Democratic members and Republican members to discuss marijuana reform proposals which might be able to garner bipartisan support this year.
Sen. Cory Booker, D-NJ, said that lawmakers are trying to “resurrect the cannabis reform package. He acknowledged that the failure to progress a banking solution for the industry would “literally mean that hundreds of companies go out of business.”
Rep. Earl Blumenauer, D-OR, who is the lead sponsor of the House’s version of the SAFE Banking Act said that it was important for advocates and legislators to align on any incremental proposal to end the war on drugs, cautioning against a “all or nothing” mentality.
The American Bankers Association (ABA), which also renewed its call for the passage the legislation, has done the same. All 50 state chapters of the ABA did the same. Insurance and union organizations also wrote to Congress.
Bipartisan Pennsylvania Senators Team Up On New Marijuana Legalization Bill
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