Update on the SAFE Banking Act – Expungement & Section 10

As the SAFE Banking Act winds its way through the Senate this year, members of the Senate on both sides of the aisle have said that they are looking for a committee vote on the proposed cannabis legislation after they return from the July 4th break. Senator Steve Daines (R-Montana) stated that now is the “best” time to pass the bill and Senate Majority Leader Chuck Schumer (D-New York) said he was “confident” that it will be approved.

However, there are some sticking points on what’s called “expungement” provisions (HOPE Act) – this bipartisan bill aims to help states with expunging cannabis offenses by reducing the financial and administrative burden of such efforts through federal grants, and on Section 10 of the SAFE Act legislation. Section 10 has been interpreted by Senators, federal officials, and consumer groups as being an overly broad provision that may inadvertently interfere with enforcement actions, as, broadly, the text of the section states that regulators “may not formally or informally request or order a depository institution to terminate a specific customer account or group of customer accounts” (including cannabis customers). There are exceptions to the provision, but the section also allows banks to notify its customers of the termination and the justification for the termination, again with exceptions.

These provisions are raising concerns among regulators and Senators. Senator Jack Reed (D-RI) stated that it “would make it more difficult for federal regulators to raise the alarm about relationships with any customer that presents significant risks to the bank,” and that “it’s not limited to the marijuana industry or the cannabis industry, so it could allow pyramid schemes or all sorts of other interesting activity to go on without an effective response by the regulator.” There are also concerns that the customer notice provision amounts to “tipping off” customers about federal investigations.

Lawmakers are working through these and other issues in a bipartisan manner. Senator Jeff Merkley (D-OR), the lead Democratic sponsor of the cannabis banking proposal, stated that lawmakers are “going to do a deep plunge now and try to set the stage, hopefully, for a markup when we return from break.”

For additional background on the SAFE Banking Act, read my analysis here.