OCC, FDIC scrap reputational risk rule, exposing 9 banks to lawsuits

The OCC and FDIC eliminated reputational risk from bank supervision effective June 9, leaving five years of board-level decisions at the nine largest U.S. banks exposed to litigation and triggering DOJ subpoenas the following day.

"These policies represent an unfortunate misuse of their government-granted charter and market power," Comptroller Jonathan Gould said in the OCC's December report, which identified nine sectors subjected to restricted access at the nine largest banks between 2020 and 2023.

The U.S. Attorney's Office in the District of Columbia subpoenaed JPMorgan Chase, Bank of America and Wells Fargo on June 10 over whether their account closings violated the Financial Institutions Reform, Recovery and Enforcement Act. The OCC's preliminary finding identified oil and gas, coal, firearms, private prisons, payday lending, tobacco, adult entertainment, political-action committees and digital assets as sectors that faced restricted access at all nine banks reviewed — JPMorgan, Bank of America, Citibank, Wells Fargo, U.S. Bank, Capital One, PNC, TD Bank and BMO.

The rule change removes the reputational-risk defense that shielded banks from legal challenge for a decade, opening the door to lawsuits from both customers and potentially shareholders. ACEJ Holdings, doing business as United Gun Shop, is already suing Capital One and Melio Payments after the bank froze its payments in 2025 over a "prohibited industry" designation, claiming $75,000 in damages. The next front in such litigation could be a bank shareholder suing a board for making those exclusion decisions in the first place, a duty-of-care theory that has never been tested in court.

The DOJ's enforcement pivot

The Justice Department's subpoenas mark a reversal from the approach that enabled debanking for more than a decade. Operation Choke Point, launched in 2013 as a fraud-prevention effort targeting third-party payment processors, evolved within two years into FDIC guidance that pressured banks to drop entire industries, including payday and subprime lenders. The Supreme Court held unanimously in National Rifle Association of America v. Vullo (2024) that a regulator's threat against insurers and banks to pressure them into dropping disfavored customers can state a First Amendment claim, though the Second Circuit later shielded the regulator on remand.

The OCC is reviewing nearly 100,000 consumer complaints to identify further instances of political or religious debanking, according to its detailed report. The agency's findings confirmed that "these or similar policies and practices were in place at each of the banks reviewed."

The scale of financial exclusion

The FDIC's 2023 survey found that 5.6 million households were unbanked, meaning they had no bank account, and an estimated 19 million had accounts but relied on nonbank credit to meet their needs. Mainstream credit access remained out of reach for 15.7 percent of households. That credit demand did not disappear when banks were warned to stay away from certain industries — it moved to alternative lenders outside the regulated banking system.

The Trump family has twice sued over debanking: a suit against Capital One filed in a Florida state court in 2025 was dismissed but could be refiled, and a $5 billion suit against JPMorgan Chase and Chief Executive Officer Jamie Dimon rests on state law claims. No court has yet ruled on the Fifth Amendment question these cases invite — whether coordinated government pressure to exclude an entire legal industry amounts to a taking without compensation.

With the reputational-risk defense eliminated, the boards that made those exclusion decisions now face a legal landscape with no precedent. The Justice Department's subpoenas suggest federal enforcement will test that ground first.

This article is for informational purposes only and does not constitute investment advice.