H.R. 2702 — FIRM Act

This section sets forth seven congressional findings concerning federal banking agency regulation and supervision, including that the primary objective is to promote safety and soundness of depository institutions; that federally legal businesses and law-abiding citizens should have equal access to financial services without unlawful discrimination; that financial service providers may choose customers if decisions comply with the law and are free from unlawful prejudice or political influence; and that reputational risk (i.e., regulation based on subjective negative publicity) is not statutory, does not promote safety and soundness, and was used by the Federal Deposit Insurance Corporation in 2018 to limit services to certain industries (i.e., Operation Choke Point).

This section defines five terms for purposes of the Act: “depository institution” (i.e., as defined in section 3 of the Federal Deposit Insurance Act and including an insured credit union); “Federal banking agency” (i.e., as defined in that section and including the National Credit Union Administration and Bureau of Consumer Financial Protection); “foreign terrorist organization” (i.e., a foreign organization designated by the Secretary of State under section 219 of the Immigration and Nationality Act); “reputational risk” (i.e., potential negative publicity or public opinion regarding a depository institution’s business practices causing a decline in confidence, customer base, revenue, or other adverse impacts, excluding such publicity involving unlawful transactions connected to state sponsors of terrorism or foreign terrorist organizations); and “state sponsors of terrorism” (i.e., a country whose government has been determined by the Secretary of State to have repeatedly provided support for acts of international terrorism, as referenced in specified export control, foreign assistance, and arms export control laws).

This section directs each federal banking agency to remove all references to reputational risk—or any substantially similar term—from its guidance, rules, examination manuals, and similar documents related to the supervision of depository institutions. (Thus, reputational risk will no longer be considered in agency examinations and supervision of such institutions.)

This section prohibits federal banking agencies from any regulation, supervision, or examination of depository institutions concerning reputational risk (or substantially similar terms) or its management, including by (1) establishing related rules, regulations, requirements, standards, or supervisory expectations; (2) conducting related examinations, assessments, data collection, or supervisory exercises; (3) issuing related examination findings, supervisory criticisms, or communications; (4) basing supervisory ratings decisions or determinations on it; and (5) taking related formal or informal enforcement actions.

This section directs each federal banking agency to submit to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services, not later than 180 days after enactment, a report that (1) confirms implementation of this Act and (2) describes any changes made to internal policies as a result of this Act.