Following last week’s celebration of American independence, my thoughts turned to the confluence of concern from both sides of the political spectrum about an issue at the heart of the Bill of Rights: “financial censorship.” When Florida Gov. Ron DeSantis and CFPB Director Chopra agree – as they do – on a hot-button point such as freedom of thought as it may be expressed in financial transactions, a new framework is upon us no matter who wins in November. Virtuous as this ideal is, putting it into practice is fraught with consequences, more than a few unintended.
That Mr. Chopra chose to address the Federalist Society is notable in and of itself. I’ve done this more than a few times and emerged not only unscathed, but often enlightened. But that was before Democrats viewed the Society as a cabal meant to subvert rules such as those Mr. Chopra is fond of issuing. But the CFPB director knew his crowd – he and even super-MAGA conservatives fear that powerful financial companies threaten freedom of thought because giant platforms have undue control over each of our wallets. This may not be true, but at least one such company gave it a try and those taking aim at financial censorships think that once is enough, and they are right.
However, the focus on financial censorship goes beyond what payment companies allow us to express via what we purchase. The debate is over a decade old, beginning as it did when Obama Administration banking agencies launched what came to be called “Operation Chokepoint” to bar banks from doing business with entities the agencies didn’t much care for. The agencies said that their distaste derived from financial risk; Republicans strongly differed and the agencies backed down.
Matters did not end with fears about governmental financial censorship. The battlefield has long shifted to private financial-services firms. Republicans have introduced a series of bills banning banks from what GOP advocates say are ESG-derived lending policies. More than a few red states have gone beyond introducing bills also to enact prohibitions on banks and asset managers seeking to do business in their states deemed to be unduly ESG-minded.
Republicans are also furious with what they believe is politically-motivated proxy voting by large asset managers and by one bank’s presumed efforts to debank January 6 rioters. These are even more complex financial-censorship assertions than their predecessors and there are others that pose still more challenging questions. Decisions by financial companies not to do business also derive from broadly-held views about hate speech and all too many grey lines between free expression and calls for violence. And, sometimes, financial companies choose not to do business because they care naught for the counterparty’s politics, but for its risk. This is, of course, as it’s supposed to be.
What to do? Mr. Chopra argues for laws akin to those governing “common carriers” that would bar payment and other financial companies from impeding our transactions much as common carriers such as telecommunications firms must connect our calls no matter what we choose to say. For all they oppose new rules, Republicans support solutions such as this because they serve their purpose just as much as they do for Mr. Chopra. They do not share many political views, but progressives and populists unite when it comes to controlling big companies. Sometimes they want to do so for different reasons, but the fact remains that this is what they want to do.
How does applying the principle that payment portals should not wield political power work in practice? If financial companies are common carriers when it comes to payments, is their obligation also for other activities? If so, which ones and why? The common-carrier construct is part of a legacy of the 1930s effort to constrain corporate power, especially at public utilities. There were and are only a few such companies. There are only a few tech platforms, but financial companies number in the thousands. Are all common carriers or just banks? Just tech platforms? Payment companies? The biggest among some or all of these? How does one tell the difference? Even the smallest banks control payment-system portals and make loans. Could they engage in financial censorship even if only on a small scale?
Saying grandly that financial companies should not “discriminate” sounds right, but what is “discrimination?” What if decisions are based on ability to pay a loan that cannot, as Republicans demand, be fully validated by “objective” and “quantitative” methods? So much for “relationship banking.” What happens if deposit accounts are closed for risk-control reasons? Would banks and other payment providers need to justify their risk concerns with public disclosures that may violate a person’s privacy or compromise law-enforcement efforts? Republicans fear that beneficial-ownership reporting enables financial censorship and indeed it could if financial companies use the information these reports provide for nefarious purposes furthering political ends. That’s illegal, but it’s doable and that’s one reason beneficial-ownership reports are so controversial.
What’s next? It’s clear that financial power should not be used to quash dissenting views, but financial censorship is ultimately a political issue combining fears of market power with sometimes-conspiratorial concerns about hidden influences lurking in Wall Street corridors. Republicans and Democrats on each side of their spectrums share these fears. If they gain more power – as seems likely – than we’ll face calls for an end to “financial censorship” that could mow down a good deal of what makes financial companies’ function.