The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) jointly issued two major notices of proposed rulemaking yesterday that aim to bring more objectivity and transparency to bank supervision while also reducing what they describe as “subjectivity and bias” in how regulators assess risk.
- Reputation Risk Rule: Would formally eliminate “reputation risk” as a supervisory category and prohibit regulators from taking action or pressuring banks based on public perception or political considerations.
- Unsafe or Unsound Practices Rule: Would define the long-ambiguous term “unsafe or unsound practice” and standardize when examiners may issue Matters Requiring Attention (MRAs), focusing on quantifiable financial risks rather than reputational or procedural issues.
Together, these proposals represent a fundamental shift in the regulatory environment for banks, and, by extension, their relationships with collection agencies, debt buyers, and other third-party vendors that rely on continued bank partnerships.
⚖️ Why It Matters: For years, some banks have cited “reputation risk” as a reason to terminate relationships with lawful but politically disfavored industries, including payday lenders, firearm manufacturers, and even some debt collection firms. The new rule would make that practice impermissible if driven by political, social, or reputational considerations rather than safety and soundness concerns.
Regulators said the use of reputation risk has “increased subjectivity in banking supervision without adding material value from a safety and soundness perspective” and may have led banks to close accounts or decline services for fear of regulatory backlash.
In tandem, the redefinition of “unsafe or unsound practices” is meant to ensure that enforcement actions and supervisory criticisms are based on material financial risk — not documentation gaps, internal policies, or perceived public image concerns.
🧩 Key Provisions: Under the “Reputation Risk” proposal, regulators would:
- Be barred from criticizing or taking adverse action against banks for perceived reputation risks.
- Be prohibited from pressuring institutions to close or refuse accounts based on customers’ political, social, cultural, or religious views.
- Explicitly prevent the use of Bank Secrecy Act or AML rules as a pretext for reputation-based enforcement.
- Redefine “reputation risk” as any concern about public perception unrelated to an institution’s financial condition. nr-ia-2025-98a
Under the “Unsafe or Unsound Practices” proposal, regulators would:
- Define such practices as those “contrary to generally accepted standards of prudent operation” that are likely to materially harm a bank’s financial condition or the Deposit Insurance Fund.
- Limit MRAs to issues posing real financial risk, or to violations of law or regulation.
- Clarify that examiners can still offer informal suggestions, but these cannot be treated as binding supervisory findings.
Read the reputation risk proposed rule. Read the unsafe or unsound practice proposed rule
