S. 875 — FIRM Act

This section states congressional findings that (1) the primary objective of Federal banking agency regulation and supervision is to promote the safety and soundness of depository institutions; (2) all federally legal businesses and law-abiding citizens deserve equal access to financial services without unlawful discrimination; (3) financial service providers may choose customers provided decisions do not violate the law; (4) provider decisions should be free from unlawful prejudice or political influence; (5) incorporating reputational risk into supervisory frameworks promotes subjective regulation based on publicity rather than safety and soundness; (6) Federal banking agencies used reputational risk in 2018 to limit financial access for certain industries, known as Operation Choke Point; and (7) reputational risk is non-statutory and does not promote financial system safety and soundness.

This section defines the following terms for purposes of the Act: (1) depository institution, having the meaning given that term in section 3 of the Federal Deposit Insurance Act and including an insured credit union; (2) Federal banking agency, having the meaning given that term in such section 3 and including the National Credit Union Administration and the Bureau of Consumer Financial Protection; (3) insured credit union, having the meaning given that term in section 101 of the Federal Credit Union Act; and (4) reputational risk, meaning the potential that negative publicity or negative public opinion regarding an institution’s business practices, whether true or not, will cause a decline in confidence in the institution or a decline in the customer base, costly litigation, or revenue reductions or otherwise adversely impact the depository institution.

This section requires each federal banking agency to remove all references to reputational risk—or substantially similar terms—from its guidance, rules, examination manuals, and similar documents used in supervising depository institutions. (Thus, reputational risk is no longer a consideration in such examinations and supervision.)

This section prohibits Federal banking agencies from regulating, supervising, or examining reputational risk (i.e., potential adverse impact on a depository institution from negative publicity) of depository institutions, including (1) establishing any rule, regulation, requirement, standard, or supervisory expectation related thereto; (2) conducting any examination, assessment, data collection, or other supervisory exercise related thereto; (3) issuing any examination finding, supervisory criticism, or other communication related thereto; (4) making any supervisory ratings decision based in whole or in part thereon; and (5) taking any formal or informal enforcement action based in whole or in part thereon.

This section directs each Federal banking agency to submit to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services, not later than 180 days after enactment, a report that (1) confirms implementation of this Act; and (2) describes any changes made to internal policies as a result of this Act.