Across the country, Americans depend on access to basic financial services such as checking accounts, credit cards, and small business loans to fully participate in the modern economy. Yet in recent years, a troubling trend has emerged: government-coerced reputational debanking, which denies individuals and business alike of banking services on the subjective basis of perceived user reputation. Last week, the Louisiana House of Representatives adopted House Resolution (HR) 316 by Rep. Roger Wilder III—the first state resolution in support of federal action to stop the government’s role in encouraging banks to shut out lawful customers.

Reputational Debanking

Debanking may sometimes occur for legitimate financial reasons, like missed payments. Individual banks and other financial institutions may adopt their own internal policies on how they do business. However, HR 316 is in reference to government-coerced debanking—when government regulators pressure financial institutions to debank customers based on their perceived beliefs—reputation—rather than any suspected wrongdoing. When regulators deem customers with certain beliefs or political alignment “high-risk”, banks may cut ties with these users in order to avoid costly penalties associated with failing to detect and deter crimes.

Customers without the risky reputation label attached to their account can also experience harmful outcomes from this practice. Small, neighborhood financial institutions can struggle to navigate and adapt to such a vague and burdensome regulatory environment with laws that sometimes contradict between levels of government—ultimately harming consumer access.

Reputational debanking drew national attention under the Obama Administration with the Operation Chokepoint initiative in 2013, when high-ranking bureaucrats coerced banks into not conducting business with merchants in the firearms and ammunition industries. More recently, the term “Operation Chokepoint 2.0” has been used to describe similar actions taken by the Federal Deposit Insurance Corporation under the Biden Administration, particularly targeting businesses in the cryptocurrency industry.

The FIRM Act

In response, Senator Tim Scott (R-SC) has introduced the Financial Integrity and Regulation Management Act (FIRM Act), which is currently making its way through Congress. The Firm Act would prohibit regulators from using reputational risk as a justification to interfere in banking relationships. Louisiana’s HR 316 supports the passage of the FIRM Act by acknowledging that weighing reputational risk enables the potential weaponization of financial institutions by government.

Defending Access, Preserving Freedom

With the adoption of HR 316, Louisiana’s lawmakers have taken a stand in protecting access to financial services and guarding against the politicization of banking. The resolution quickly received praise for seeking to protect the integrity of the free market.

As more states follow suit, and as Congress considers federal reforms, Louisiana’s example sends a clear message: Americans deserve transparency and fairness in how its government intervenes in economic exchange.