How to Protect Against the Risk of De-Banking

Recently at a New Hampshire rally, President Trump brought attention to the practice of de-banking, which has become a political weapon used to harass opponents who espouse unpopular viewpoints in the public square.1 Trump’s remarks would have gone largely unnoticed were it not for Saturday Night Live’s mocking screed. 

Banks also refer to the practice of de-banking as “de-risking,” When the bank perceives the account holder to pose a financial, legal, regulatory, or reputational risk to the bank, they close the account with the explanation that the customer’s risk profile no longer fits the bank’s risk tolerance. Treatment once reserved for terrorists, drug dealers and sex workers is now being used against “politically exposed persons.”2

In the UK, banks are closing more than 1,000 accounts every working day. Nigel Farage, a high profile target himself has said, “I’ve just been inundated by small businesses, by folk all round the country. People in absolute fear, terror, lives being ruined, thousands of businesses being closed. These are people who have done nothing wrong whatsoever,”3

Absent legitimate concerns regarding money laundering, the opaque “risk tolerance” explanation is usually the action of an activist manager within the institution who is practicing viewpoint discrimination. While banks are the focus today, viewpoint discrimination can be practiced by any vendor - card processors, SAAS software companies, web service providers, etc. If not carefully managed, such risk has the potential to seriously hobble an organization.

I recently listened in on a great conversation between several ministry leaders wrestling with this issue. Of note, Jeremy Tedesco and his team at Alliance Defending Freedom have established the Viewpoint Diversity Index. They seek to engage America’s largest corporations to create positive and lasting change that protects everyone’s free speech and religious freedom from corporate overreach.4 In its second year, they already appear to have made great strides in raising awareness in corporate America.

Regardless of the ethics or motives behind a vendor choosing to end a customer relationship because they don’t like you or what you stand for, our first concern is prevention, in order to keep clients operating smoothly. Here are some ideas to consider when selecting banks and other vendors:

Just as banks follow “Know Your Customer” regulations, by the same token you should seek to be known. At the beginning of every proposal process, openly discuss your core convictions with your account rep. Let them know what issues you address and what sort of objections you face in the public square. Give the vendor the opportunity to consider their risk in the transaction.

Review the vendor’s terms of service for unclear or imprecise language that would allow managers to act against you based on their biases. ADF has excellent resources available to help you parse the language found in these agreements.

With legal assistance, ask for an addendum to your agreement that clarifies unclear language and defines the exit process should the vendor choose to exit the relationship.

When it comes to banks, use several institutions. When I was CFO of one nonprofit, our main bank was located in another state. Eventually we elected to open an account at a small regional bank with a branch in town so we could more easily complete transactions that could not be done at a distance. Having multiple relationships actually came in handy when we had to rush to apply for PPP funds.

Seek out local institutions or niche players, such as Christian credit unions where you can establish personal relationships.

When purchasing insurance, make sure that your broker is telling your story to the underwriter accurately. This is crucial in any case, because if the underwriter does not understand the risk, they’re going to price high. As a CFO, I have established really productive relationships with underwriters by getting in front of them along with the broker and my operations managers and having candid discussions about our risks and what we’re doing to mitigate them. If you demonstrate competence, it raises the confidence of the underwriter.

When purchasing SAAS services, find a reseller with which you can establish a personal relationship. This is someone who can advocate for you in the event of a service cancellation by a large, faceless tech company.

Also when purchasing SAAS services, determine who owns the data and make sure you have multiple local backups of your data in a commonly accessible format. Typically, ownership is not an issue, but getting your data at the end of the contract could be costly if it’s stored solely on their servers. Consult with an IT professional to develop a robust backup strategy so that you can continue uninterrupted in the event of a service outage or termination.

These are just a few ideas to get you started. The political headwinds are severe, and though we’ve seen some encouraging wins, the spirit of the age seems to be moving in an illiberal direction.

Let’s Prosper Together

If you need help navigating potential risks like de-banking, we have resources to help you evaluate your vendor relationships. We can add value by helping you identify and remove roadblocks and help you reach your goals. You can reach Jim Cross at 937-234-7780 or jim@crosstribe.net.

1

'SNL’ Writers' Attempt to Humiliate Trump Backfires as Term They Believed 45 Made Up Turns Out to Be True (msn.com)

2

On politically exposed persons, de-risking and the… - Transparency.org

3

UK banks are closing more than 1,000 accounts every day | Banking | The Guardian

4

Viewpoint Diversity Score