State Fair Access Laws and Their Vulnerability to Federal Preemption Under the Consumer Financial Preemption Standard

Abstract

Money laundering is a threat to any financial system. The United States government necessarily developed a legal regime that attempts to quickly identify, remove, and punish money launderers. But what if in the pursuit of that goal, legitimate customers are left without access to financial services because banks deny their application based on general characteristics and not necessarily individual risk factors? Should banks be allowed to deny services to individuals (e.g., a person with a prior criminal record) or business entities in certain industries (e.g., cryptocurrency) because of generalized characteristics and not necessarily because of any individual indication of risk?

Some states have recently enacted “fair access” laws to address this issue known as “de-banking,” or the phenomenon of banks largely denying services to customers of similar risk profiles to avoid the perceived risk entirely. The state fair access laws seek to eliminate the de-banking phenomenon by requiring banks to make individualized risk-based determinations while also providing legal recourse to applicants or customers who suspect a bank denied or terminated services because of a general characteristic.

Some have argued that federal law should preempt state fair access laws because they conflict with banks’ ability to mitigate money laundering risk in accordance with the federal anti-money laundering laws. This Note explores the current state of the consumer financial law preemption standard and concludes that the argument for federal preemption of state fair access laws is weak.