122 C Street N.W., Suite 700, Washington, DC 20001
February 5, 2025
The Honorable Tim Scott, Chairman
The Honorable Elizabeth Warren, Ranking Member
Committee on Banking, Housing, and Urban Affairs
United States Senate
534 Dirksen Senate Office Building
Washington, DC, 20510
Dear Chairman Scott, Ranking Member Warren, and Members of the Committee:
On behalf of National Taxpayers Union (NTU), America’s oldest national-level taxpayer advocacy organization, I am pleased to submit comments in connection with today’s hearing, “Investigating the Real Impacts of Debanking in America.” Taxpayers have a deep and abiding interest in many issues under your committee’s jurisdiction, including the regulatory topics under discussion at this hearing.
“Debanking” has become a pejorative term that self-styled activists wield to imply that banks are irresponsibly and arbitrarily removing businesses and individuals from their customer rolls. In reality, it is irresponsible and arbitrary government policy that is perpetuating the problem. The Bank Secrecy Act, combined with various information surveillance requirements grouped under the description “know your customer” can be deployed in malicious ways to target politically disfavored industries. A notorious example was the Barack Obama Administration’s “Operation Choke Point”[1] (launched against firearms retailers, short-term lending institutions, and other businesses), but more recently the Joe Biden Administration has perpetuated this practice against new industries, among them cryptocurrency (dubbed “Choke Point 2.0”).[2]
Cryptocurrency is already plagued by some of the most administratively inept Internal Revenue Service reporting regulations, on which NTU’s research arm has commented extensively.[3] Unworkable financial rules and enforcement policies from the Federal Deposit Insurance Corporation, the Treasury’s Financial Crimes Enforcement Network, and other entities make the regulatory position of the cryptocurrency sector practically untenable.
For their part, banks are in an untenable position as well. They are forced to spend billions compiling “Suspicious Activity Reports” and “Current Transaction Reports” on customers and applicants that federal authorities rarely follow up with enforcement action. Those very same authorities nonetheless threaten institutions with fines for failing to “de-bank” more aggressively. In essence, taxpayers are being bilked twice—first by regulators not doing their jobs, and second by banks’ wasted compliance costs that could better be spent innovating and growing the private sector economy. Ironically, “structuring” of cash transactions remains an activity that banks are compelled to police, even as the NTU-backed Taxpayer First Act of 2019 placed prudent limits on how the IRS can enforce tax laws with regard to such structuring.[4]
The various banking surveillance dictates can even conspire to give innocent, legitimate customers cause to “de-bank” themselves. The burdensome disclosures act to deter many from continuing or initiating a banking relationship. NTU’s research affiliated described this phenomenon in another context, when the Treasury sought license early in the Biden Administration to dramatically expand information reporting on bank account customers for tax purposes and concluded: “Distrust of the IRS may also discourage the 5 percent of unbanked households from opening a savings or checking account.”[5]
Worse, taxpayers are threatened by federally mandated “paper chase” functions that distract banks and their shareholders from concentrating on genuine problems which, left ignored, precipitate government bailouts of fundamentally unsafe and unsound institutions. Among these are the excesses of the bank examiner process. As NTU explained in a commentary last year:
[The] convoluted bank examination regime . . . sends thousands of government “examiners” from several agencies into banks’ backrooms and boardrooms for investigation of often immaterial matters with no transparency, little chance of appeal, and the prospect of massive compliance costs.
. . . This is exactly the situation that taxpayers face in many Internal Revenue Service examinations, with similar or even greater implications for the economy as a whole. Bank examiners use the “CAMELS” approach to their work, meaning they focus upon Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity. Unfortunately, the “M” in CAMELS has taken on an outsized role in recent years among those charged with eyeing the safety and soundness of banks, which is highly risky for taxpayers who are counting on the government to pay greater attention to the “C,” “A,” “E,” “L,” and “S” of that acronym as well.[6]
Taxpayers are hopeful that today’s hearing can serve as a starting point on a journey to more rational financial services regulations, starting with more robust implementation of the Anti-Money Laundering Act, comprehensive reforms to the Bank Secrecy Act, major guardrails for bank examinations (including a functioning appeals process), and transparent national standards for banking access to ensure that law-abiding individuals and businesses are not excluded from financial services based on political, ideological, or regulatory pressure. Providing certainty for banks to serve all lawful customers without fear of reprisal from regulatory institutions is critical to maintaining a free and open financial system.
NTU would be honored to engage with committee members and staff on how these imperative changes can be effectuated. Please feel free to contact us in this regard.
Thank you for your consideration.
Sincerely,
Pete Sepp, President
[1] See, for example, https://charityandsecurity.org/news/controversial-operation-choke-point-program-has-ended/.
[2] See, for example, https://www.whitecase.com/insight-alert/new-operation-choke-point-quickly-changing-rules-crypto-activities-member-banks.
[3] See https://www.ntu.org/foundation/detail/ntufs-comments-on-irs-cryptocurrency-regulations and https://www.ntu.org/foundation/detail/ntuf-comments-on-the-proposed-digital-asset-proceeds-from-broker-transactions.
[4] See https://www.ntu.org/library/doclib/2019/04/NTU-Comments-on-the-Taxpayer-First-Act.pdf.
[5] See https://www.ntu.org/foundation/detail/whats-the-deal-with-irs-tax-enforcement-and-the-federal-budget.