Federal Bank Regulators’ Approach to Assessing Customer Relationships and Conducting Due Diligence

by Fran Bishop, NPA Government Relations Liaison

Banks and Payment Processors Terminating Pawnbrokers…AGAIN! 

Recently several pawnbrokers have let me know of receiving discontinuance letters, of course without any prior notice or problems.  

 

At least one of these situations occurred after federal banking regulators issued a Joint Statement reminding banks that customers engaged in legal businesses should have access to financial services.  

 

Today you are receiving a GRC Update on this matter. Please continue to make us aware if this happens to you by sending the information to Fran Bishop, NPA Government Relations Liaison and Past President  grc@nationalpawnbrokers.org        

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August 11, 2022 

On July 6, 2022, federal bank regulators including the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Joint Statement reminding banks they have duties to conduct risk-based assessments of their customer relationships and relating to their obligation to conduct customer due diligence. Two important – but not new – themes were restated: 

 

  • That customers engaged in lawful businesses should have access to financial services, and 
  • That the agencies take the position that no customer type presents a single level of uniform risk, or a particular risk profile related to concerns such as money laundering, terrorist financing or other illicit activity.  

 

The Bank Secrecy Act regulations these regulators enforce do not create a one-size-fits-all risk profile, as stressed in this statement. Rather, the agencies explained, the potential risk to a bank depends on facts and circumstances specific to the bank’s customer and their relationship. The agencies also stressed that not all customers of a particular type “automatically represent” uniformly higher risks of being engaged in money laundering, terrorist financing, or other illicit activity.  

 

What does this mean for pawnbrokers? We know these are early days under this restated guidance. We also know that at least one NPA member received notice (after this Joint Statement was issued) from its bank, a major, multi-state national bank, with which the pawnbroker had a long-time relationship, their accounts would be restricted in 21 days and terminated in 30 days. Thus, it is hard to conclude the July 6, 2022 guidance is achieving the result the federal banking agencies announced – that of causing banks to make case-by-case, customer-by-customer due diligence decisions instead of discontinuing categories of customers such as pawnbrokers or local entertainment venues.  

 

What will the NPA do next to address the new case of discontinuance and others that come to Team GRC’s attention? It was our hope the end of “Operation Choke Point” as announced by the DOJ in August 2017, and the subsequent end of the payday industry’s challenge to the FDIC’s 2013 high-risk-business “hit list” in 2019 that discontinuance problems were behind the many unfairly tagged industries including pawnbrokers. We have evidence that discontinuance remains a problem. So, while Congress is on recess, we will plan a new round of visits to members of the House and Senate Committees with oversight over these regulators and to the regulators themselves.  

Meanwhile, please contact Fran Bishop, NPA’s GRC Liaison, at grc@nationalpawnbrokers.org, if you receive any discontinuance notices, and continue to pursue new banking relationships with community national banks or independent state-chartered banks for the banking relationships you need.  

This GRC Update is not intended and should not be construed as legal advice to NPA members.  
Members should consult their own lawyers for legal advice. 
Copyright © National Pawnbrokers Association 2022. All rights reserved. 

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