The Debanking Kerfuffle

Should a bank have the right to refuse service to someone?

In a free society and free market, the simple and correct answer is "yes." The wisdom of such denial would be arbitrated by market forces.

However, in a more complex structure, such as that we currently have in America, things get... complicated.

Trump announced plans for an Executive Order that will punish banks for "debanking" someone based on political views. This prompted a brief bit of interchange in one of my political social media groups, with one member calling this EO the opposite of "less government."

It would be considered so in a vacuum.

But we don't live in a vacuum.

The instigation for this EO was Trump's own episode of (allegedly) being debanked by JP Morgan and Bank of America shortly after he left office because the Biden Administration had its regulators pressure those banks into doing so.

"Nice bank you've got there. Be a shame if something happened to it..."

The measured and modest response to such a thuggish action by the previous administration would be an EO telling government regulators to cut it out, rather than one targeting the private sector. We don't get measured or modest from this administration, of course, but in this case there are nuances that make for more complications.

Like universities receiving public funds, banks that rely on government backstops as the FDIC have to accept that there are strings attached. That backstops come with obligations, and since our government is supposed to protect individuals equally, it gets to have a say in the affairs of private institutions when it comes to certain forms of discrimination.

As in, 'if you don't take benefit from the government, feel free to act however you wish within the bounds of individual and property rights, but if you draw benefit from the taxpayers, you gotta play by a narrower set of rules.'

Trump is looking to leverage the Equal Credit Opportunity Act (ECOA), enacted in 1974, which

prohibits discrimination on the basis of race, color, religion, national origin, sex, marital status, age, receipt of public assistance, or good faith exercise of any rights under the Consumer Credit Protection Act.

Whether this law can be used to justify fining banks for denying service based on political opinion will be sorted by the courts if the banks decide to be recalcitrant, but I suspect that they wouldn't have debanked Trump in the first place had the government not pressed them to do so, and would be unlikely to do so to others over political views absent regulators threatening them.

One caveat that should be obvious, but I'll note it anyway: None of this is about illegal financial activities.

It's tough to draw a clear line between the public and private sides of the liberty divide here, and it's likely that Trump's action is an overreach. This isn't an argument against any action, however. Government pressuring banks to deny service to someone for political purposes is pure banana republic shit, and deserves both disinfecting sunlight and a harsh rebuke.

This is by no means the first time government has weaponized its power over our financial lives. As I've noted before, there's no more dangerous place to stand between a politician and Other People's Money. While this instance, not actually being about getting a hold of Trump's fortune, might be the exception that proves the rule, debanking Trump - and others with undesirable political views - was about retaining power, which still boils down to OPM.

As for liberty here? When government does something bad, I'm not going to complain much about an imperfect response as a remedy to that badness. Trump's proposed EO (I have only seen what it purports to do, not what the final text will be) reeks of overreach, but it’s often the case that actual EOs are much tamer than what’s reported in advance. In the meantime, I'll be content that some more Deep State shenanigans are being exposed.

And I'll try to ignore the "payback time!" chest-thumping from Trump's loyalists, other than to say "if your interest in this is retribution rather than correction, you're not helping things."