A Democratic senator, key federal officials and consumer advocacy groups are raising concerns about a specific provision of a bipartisan marijuana banking bill that they say could inadvertently limit the ability of regulators to take action against people exploiting banking services.
Sen. Jack Reed (D-RI) first flagged his issues with Section 10 of the Secure and Fair Enforcement (SAFE) Banking Act during a Senate Banking Committee hearing focused on the legislation earlier this month.
The senator said that its language “would make it more difficult for federal regulators to raise the alarm about relationships with any customer that presents significant risks to the bank.”
“It’s not limited to the marijuana industry or the cannabis industry, so it could allow pyramid schemes or all sorts of other interesting activity to go on without an effective response by the regulator,” he said.
Watch Reed discuss his concerns about the banking bill section, around 1:24:20 into the video below:
Reed also argued that the section “will require a bank to provide a notice of customer when the federal government suspects they may be engaging in illegal activity,” which he equated to tipping off a criminal to “get out of town and take the money and run.”
The text of SAFE Banking Act section in question says that regulators “may not formally or informally request or order a depository institution to terminate a specific customer account or group of customer accounts (including, but not limited to, any account of any customer that is a State-sanctioned marijuana business or service provider) or to otherwise restrict or discourage a depository institution from entering into or maintaining a banking relationship with a specific customer or group of customers (including, but not limited to, with any customer that is a State-sanctioned marijuana business or service provider).”
There are exceptions, such as if financial regulators make a written statement that the depository is “engaging in an unsafe or unsound practice.” But in general, the section is being interpreted as an excessively broad policy change that would tie the hands of regulators in exercising oversight of financial activities that have nothing to do with the cannabis industry.
It also says that, with some exceptions, “if an appropriate Federal banking agency orders a depository institution to terminate a specific customer account or a group of customer accounts, the depository institution shall inform the specific customer or group of customers of the justification for the customer’s account termination.”
Reed brought the issue up again at a Banking Committee hearing on unrelated issues on Thursday, asking Federal Reserve Vice Chair For Supervision Michael Barr and Acting Comptroller of the Currency Michael Hsu whether they shared his concerns about the section.
Barr started by saying that “it’s important that Congress is taking on this issue of the potential conflict between state and federal law” concerning cannabis financial services. And while he said that he’s generally skeptical about instances where federal regulators are dictating client decisions for banks, he does recognize how the bill provisions could create problems.
Watch the senator’s comments about the SAFE Banking provision, around 1:13:00 into the video below:
“I would be concerned about any language that would limit the ability of a supervisor to take prompt action, to take aggressive action, to ask hard questions,” Barr said. “I think one of the things we’ve seen with respect to the institutions we’re talking about today is we need supervisors to do that—not to not to hold back.”
Hsu, for his part, said in response to Reed’s question at the hearing that “it’s vitally important that supervisors have discretion to identify risks and to act on those in a timely manner that includes requiring remediation.”
“And so I’m not comfortable with any more limitations on supervisors’ ability to enforce compliance with rules,” he said.
At the earlier hearing on the marijuana banking bill, Reed entered a letter into the record from consumer groups that specifically focused on Section 10 of the 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 construed to apply if a bank regulator warns a financial institution about red flags that a customer or group of customers are engaged in unlawful activity, including receiving or laundering stolen funds,” they wrote. “The provision could hinder efforts by bank regulators to address payment fraud and the use of bank accounts by fraudsters to receive money stolen in hacks and scams.”
“In order to stem this tide of payment fraud and to prevent fraudsters from opening and using bank accounts to receive stolen funds, it is critical that bank regulators ensure that financial institutions comply with their know-your-customer and anti-money laundering requirements and require institutions to take swift action if a customer is using an account for unlawful purposes. Accordingly, if the Committee takes action on S. 1323, we urge you to remove Section 10 or to limit it to cannabis businesses that are engaged in lawful 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, 2023
At the cannabis hearing in the Banking Committee, Cat Packer of the Cannabis Regulators of Color Coalition (CRCC) similarly told Reed that “this bill is supposed to be about cannabis banking, and for that reason, I think if there’s an intent to use the bill to do something else, then maybe it’s appropriate for another bill.”
It’s possible that this is the issue that Banking Committee Chairman Sherrod Brown (D-OH) was referring to before his panel scheduled the hearing on cannabis industry financial barriers. He told reporters at the time that he worried banking representatives were trying to use the legislation to “weaken bank rules” and “undermine” regulations, though he didn’t specify how he thought they were doing that.
Given both senators’ concerns—along with those voiced by federal officials at the most recent hearing—along with the fact that there seems to be general agreement that the SAFE Banking Act was not meant to change regulatory authority outside of the marijuana space, it seems possible that the section could be amended either in committee or on the floor.
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A committee markup of the bill hasn’t been scheduled yet, though Senate Majority Leader Chuck Schumer (D-NY) has said that he wants it to clear the panel “in the near future,” after which point he’s planning to introduce “critical” criminal justice reform amendments on the floor. That will include a proposal to facilitate expungements for prior cannabis convictions.
Beyond expungements, however, advocates and stakeholders aren’t fully aligned on what they’d like to see attached to the banking bill.
For example, one coalition of groups sent a letter to committee leadership on Thursday calling for an expansion of the bill’s financial protections to permit cannabis industry access to major U.S. stock exchanges—a request that’s faced some criticism from other advocates who say that would be an inappropriate move to help businesses while efforts to legalize marijuana stall in Congress.
Sen. Jacky Rosen (D-NV) also recently said that she wanted the SAFE Banking Act to pass with an amendment allowing cannabis businesses to access federal Small Business Administration (SBA) services.
Last month, Schumer said that he was “disappointed” that a so-called SAFE Plus package of cannabis reform legislation didn’t advance last year, saying “we came close,” but “we ran into opposition in the last minute.” He said lawmakers will continue to “work in a bipartisan way” to get the job done.
The majority leader has been holding meetings with Democratic and Republican members in the early months of the new Congress to discuss cannabis reform proposals that might have bipartisan buy-in this year.
Sen. Cory Booker (D-NJ) said recently that lawmakers are working to “resurrect” the cannabis reform package, acknowledging that failure to advance a banking fix for the industry “literally means that hundreds of businesses go out of business.
Rep. Earl Blumenauer (D-OR), who is a lead sponsor of the House version of the SAFE Banking Act, said at a recent press briefing that thinks it’s important that advocates and lawmakers align on any incremental proposals to end the drug war, warning against an “all-or-nothing” mentality.
The American Bankers Association (ABA) also recently renewed its call for the passage of the legislation. And all 50 of its state chapters did the same, as did insurance and union organizations, in recent letters to congressional leadership.