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Erotica, pot firms join oil patch to keep fair access bank rule

Biden administration is reviewing OCC rule

McHenry favors the OCC rule, saying it would prevent unfavored industries from being shut out of the financial system.
McHenry favors the OCC rule, saying it would prevent unfavored industries from being shut out of the financial system. (Caroline Brehman/CQ Roll Call)

Disparate industries that have found themselves shunned by banks are collectively defending a Trump administration policy on equal access to financial services that President Joe Biden may soon overturn.

The rule, released by the Office of the Comptroller of the Currency late last year, would prevent banks from denying service for nonfinancial reasons to certain politically disfavored sectors such as firearms sellers and oil producers. It’s set to take effect April 1.

The rule came after the largest U.S. banks said they would stop financing oil exploration and drilling projects in the Arctic, citing environmental concerns. Goldman Sachs Inc. was the first to announce its stance, followed by JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and others.

Congressional Democrats oppose the rule, saying it forces banks to provide the fossil fuel industry with financing for environmentally damaging oil exploration. Biden put it on a 60-day hold until new agency heads can be appointed and those rules are reviewed.

Republicans such as Rep. Patrick T. McHenry of North Carolina, the ranking member on the House Financial Services Committee, have said the rule is needed to ensure that companies cannot be shut out of the financial system simply because of the nature of their business.

While the measure may have been aimed at helping oil and gas producers, other industries such as cryptocurrency and those having to do with sex or marijuana say they have also been denied credit and would be helped by a rule that ensures equal access to bank services.

“Many of these websites and businesses aren’t violating the law,” Rainey Reitman, chief program officer for the Electronic Frontier Foundation, told CQ Roll Call. “Often they’ve had financial services in place for many years and then find themselves suddenly cut off. It can be devastating.”


Smashwords Inc., an online platform for self-published e-books, found itself cut off from payment services provided by PayPal Holdings Inc. several years ago. This publisher of erotica and adult content used the service to pay authors when they sold books through the platform.

The publisher had worked with PayPal for years before the sudden cutoff, Smashwords CEO Mark Coker told CQ Roll Call. It was a major blow because the payment system couldn’t be redesigned overnight.

“If the fiction is legal, if these books are not banned by some government authority, then I felt like we needed to protect this category of fiction, because PayPal was threatening to take us down a very slippery slope,” Coker said in an interview. 

A PayPal spokesperson did not immediately return CQ Roll Call’s requests for comment.

EFF and other civil liberties groups successfully pressured PayPal to reinstate Smashwords, framing the argument as a First Amendment issue. The publisher was lucky in that it had the contacts and resources to fight to get its services reinstated, Coker said, adding that smaller publishers or independent authors selling their own work online need to be able to access online financial services to survive.

Coker said he favors the OCC rule, known as Fair Access to Financial Services, or similar measures that level the playing field. 

“We don’t want financial firms deciding these social issues — what’s comfortable and what’s not,” he said. “I think financial firms should focus on if they are supporting a legal operation or not, and beyond that they shouldn’t moralize on it.”

Crypto crunch

The Blockchain Association, whose members include exchange platforms for virtual currencies such as Bitcoin, supports the rule because, it claims, many industry firms are denied credit or access to financial services.

“It was disappointing to see this rule come so far and then not get across the finish line,” said Kristen Smith, the Blockchain Association’s executive director. She said there still is a need for the rule or something like it.

Smith said that while much of the ire against the OCC’s rule is directed at the fossil fuel industry, emerging industries like cryptocurrency have dealt with financial discrimination for years. This is partly because “crypto is politically unfavorable,” she said, and banks don’t want to take on anything perceived to be risky.

“Companies are building these really cool crypto networks, but they still need to process payroll and they still need to pay vendors,” Smith said. “There have been situations where it’s been very difficult for crypto companies to actually access these services.”

One early challenge that banks had with cryptocurrency businesses was their novelty — there was no existing framework for them to weigh regulatory risks. This fact, coupled with the false assumption that the cryptocurrency industry was illegal or unregulated, led banks to deny services to many businesses, she said.

Although there are signs of recent improvement as cryptocurrencies and networks became more mainstream in the past year, she said there is still a need for some kind of rule to make banks treat businesses individually.

“There are a lot of really good players that have a lot of really great ideas and have need of financial services,” Smith said.

Pot problems

One industry that has been starved for access to traditional bank financing is cannabis. The inability to get loans or any kind of services affects small pot businesses, which have to pay steep state licensing fees just to get started, said Byron Bogard, a California-based cannabis dispensary owner and grower.

Although licensed, his dispensary, Highway 33, has relied on private loans from individuals, often at much higher interest rates than banks, to get up and running. Lack of financing also affects how he can expand his business and makes it difficult for him or his employees to get bank accounts or cash checks.

Banks operating in the U.S. are insured by the Federal Deposit Insurance Corporation, and companies that violate federal law will not be insured. Despite decriminalization in many states, marijuana remains a Schedule 1 controlled substance at the federal level, and most banks won’t loan to dispensaries or other cannabis businesses.

Bogard’s experiences are common across the industry, according to Morgan Fox, a spokesman for the National Cannabis Industry Organization, a trade association. Fox said that without access to traditional lending, many marginalized communities involved in the industry have difficulty raising capital to start a business and the Fair Access to Financial Services rule would be step in the right direction.

“I just want to be treated like everybody else,” Bogard told CQ Roll Call. “I don’t want or need any special treatment, but I don’t want any extra hurdles to overcome just because I’m running a cannabis business.”

Laura Weiss contributed to this report.

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