Stand With Senator Scott and President Trump to Ensure Fair Access to Banking for South Carolinians

Americans for Free Markets (AFFM) Executive Director David Ibsen

 

South Carolina is the fastest-growing state in the nation, attracting talent and investment with a regulatory environment that minimizes bureaucratic hurdles and unnecessary burdens on businesses.

 

The Guarantee Banking Act (HB 5538/ SB 1069) – which passed the state House and is now in the Senate — risks undermining that business-friendly environment by overreaching on an issue already being solved in Washington, under the leadership of South Carolina’s own U.S. Senator Tim Scott (R-SC). I recently traveled to Columbia to testify before the House Committee on Labor, Commerce and Industry because the stakes are real — and the risks of getting this wrong are significant.

 

Under the Obama and Biden administrations, federal regulators weaponized the financial system — wrongfully closing accounts of individuals, businesses and industries disfavored for political or ideological reasons.

 

This bill is intended as a response, and while the intent is right, the instrument of state-level action is wrong. Politicized debanking results from the abuse of federal power and therefore requires a federal solution. That is exactly why President Trump signed an executive order last summer to ensure that financial institutions across the country are protected from politicized regulators in Washington.

 

Since then, there has been real progress toward fixing the problem. Senator Scott has taken the lead in Congress, introducing the Financial Integrity and Regulation Management (FIRM) Act to codify the removal of vague definitions of risk — the vehicle used by regulators to pressure banks into closing accounts — from supervisory standards. Additionally, numerous federal agencies have followed suit and officially removed these risk terms from supervisory frameworks ahead of the FIRM Act formally codifying their prohibition. In other words, real substantive reform is already underway in the places where it matters most.

 

With a federal solution already underway, state-level legislation will only create unnecessary duplication and potential conflicting rules with no benefits for South Carolina businesses or their customers. Banks would be forced to allocate additional resources to cover extra compliance costs to operate in South Carolina, reducing their ability to provide services and resulting in predictably higher fees for the very individuals and businesses the bill was designed to protect.

 

The broad language in The Guarantee Banking Act compounds the issue. Terms like ‘lawful activity’ and ‘adverse action’ open banks in South Carolina to civil liability, even for unintentional violations, and the burden of proof would fall on the banks to demonstrate compliance. This structure incentivizes banks to simply deny services that run a risk of exposing them to litigation. In a letter to the House, the National Taxpayers Union (NTU) warned: “Community banks and credit unions — which serve as the backbone of South Carolina’s local economies – may instead respond by reducing services or exiting higher-risk relationships altogether.”

 

Preventing the denial of banking services was the entire point of this bill. The irony is that passing it would achieve the opposite.

 

Even the America First Policy Institute — a policy organization founded by former Trump administration officials — wrote in their white paper, to “end the need for states to develop separate debanking legislation […] it would be far preferable for states to support a fair and uniform federal standard” and avoid a patchwork of inconsistent and conflicting rules.

 

Texas, Louisiana, and Alabama — states with a similar lack of appetite for regulatory overreach to South Carolina — are looking to President Trump rather than passing their own legislation, recognizing the drawbacks of a fragmented system. A 50-state patchwork of regulation would raise costs and fees, reduce consumer choice and customer service, and limit financial institutions’ ability to operate across state lines. South Carolina should follow suit and reject unnecessary red tape.

 

This is not a red or blue issue — this is an American one. Recent polling shows the majority of voters on both sides of the aisle support a uniform federal solution to politicized debanking, making it an easy win for lawmakers to respond to the interests of the voters they serve.

 

The problem of politicized debanking requires a federal fix, and the Palmetto State has one of the most powerful voices in Washington on this issue in Senator Scott. South Carolina lawmakers must reject The Guarantee Banking Act and stand with the Senator and President Trump.