Now they must explain a denial in writing within 30 days
South Carolina has banned its biggest banks from denying a mortgage customer over their politics or faith, and now requires a written explanation.
Lawmakers have passed the Guarantee Banking Act, now law as Act No. 257. The law targets what's commonly called "debanking" - a bank cutting off a customer's access to services - and mortgage lending is one of the credit types it names as protected.
The law reaches only a narrow group of institutions: banks holding more than $100 billion in total assets, and payment processors or card networks that moved more than $100 billion in transactions in the past year. Independent mortgage lenders, mortgage brokers, and smaller community banks or credit unions fall outside the law, unless one of these larger institutions owns them.
For the banks it does cover, the law prohibits refusing, restricting, or ending a service - a mortgage included - because of a customer's religious practice, or their speech, opinions, or associations protected by the First Amendment. It also prohibits a decision based on any factor that is not, in the law's own words, "a quantitative, impartial, and risk-based standard," including which industry a customer works in. The law does not apply where a bank denies someone it believes is engaged in fraud or criminal conduct.
If a covered bank denies, restricts, or ends mortgage credit or another covered service, the customer has 90 days to request a written explanation. The bank then has 30 days to respond. Citing only "internal standards or policies," or a customer's failure to meet a credit-scoring threshold, does not satisfy this requirement, according to the law. Banks that already issue adverse-action notices under existing federal fair-lending law may use those same notices to meet the requirement, as long as the notices are supplemented to cover the categories this law protects.
The law carries several exceptions. It does not apply to a bank enforcing account terms a customer already agreed to, acting on a delinquent or defaulted account, complying with other legal requirements, or making a decision based on profitability or the institution's safety and soundness - provided the decision is made in good faith and is not used to disguise discrimination.
A violation is treated as an unfair or deceptive act under South Carolina law, and the state Attorney General can enforce it. The law also bars state and local governments from applying similar rules to institutions it does not cover.
The bill was introduced by Representatives Thomas Pope, William Herbkersman, Murrell Smith, Charles Hartz, Weston Newton, Wallace Jordan, Randy Ligon, Melissa Oremus, Mike Neese, Bill Taylor, Davey Hiott, April Cromer, Lee Gilreath, Alan Morgan, John Lastinger, Chris Huff, James Burns, William Chumley, Thomas Beach, Dianne Mitchell, Donald McCabe, Fawn Pedalino, David Vaughan, Jay Kilmartin, Daniel Gibson and Jerry Govan.
