New FIRM Act Bans Bank Regulators From Considering 'Bad Press' When Overseeing Lenders

The Financial Integrity and Regulation Management Act, or FIRM Act, is a major shake-up to how federal agencies oversee banks and credit unions. Simply put, this bill tells regulators they must stop worrying about a financial institution's public image—or what the bill calls "reputational risk"—when writing rules, examining banks, or taking enforcement action.

The Fine Print: What’s Out and Who’s In?

This bill explicitly removes "reputational risk" as a factor in bank supervision (Sec. 4). That means federal banking agencies—which the bill broadens to include the National Credit Union Administration (NCUA) and the Bureau of Consumer Financial Protection (CFPB)—can no longer issue criticisms, set rules, or give banks lower supervisory ratings based on how their business practices might look to the public or the media (Sec. 3, Sec. 5). The only exception is if the bad press is specifically related to doing business with officially designated foreign terrorist groups or state sponsors of terrorism; that’s still fair game for regulators to monitor.

Congress argues that using "reputational risk" is too subjective and has historically been misused by regulators to push political agendas instead of focusing on the bank's actual financial health (Sec. 2). They point to past examples where agencies used this standard to effectively cut off financial services to certain legal, but controversial, industries—an effort often referred to as "Operation Choke Point." The FIRM Act aims to stop that practice entirely, requiring every agency to scrub all mention of reputational risk from their manuals and guidance within 180 days.

The Real-World Impact: What Does This Mean for You?

Think of your local credit union or bank. Currently, if they started offering loans with predatory terms that, while technically legal, caused widespread public outcry and protests, regulators could step in and say, “Hey, this is a huge reputational risk, and it could cause a run on the bank or massive lawsuits, which makes you financially unstable.” Under the FIRM Act, regulators lose that tool. They are restricted to looking only at the hard numbers and traditional safety metrics like solvency and liquidity.

For banks, this is a clear win. It gives them more freedom to engage in controversial, but legal, business practices without fear of regulatory pushback based on public opinion. If a bank wants to lend heavily to a highly polarizing industry—say, a controversial fossil fuel pipeline or a payday lender—the supervisor can’t say no because of the PR fallout; they can only intervene if the bank is demonstrably insolvent.

The Trade-Off: Safety vs. Accountability

The benefit here is that banks are protected from what they see as politically motivated regulation, ensuring they can serve any legal business without being penalized for public disapproval. This is good for industries that have struggled to get financing due to political pressure. However, this change creates a significant gap in consumer protection. Regulators often use the threat of reputational risk to discourage banks from engaging in practices that, while not immediately illegal, are clearly harmful to customers or the wider community.

When a bank loses public trust, customers leave, and that loss of confidence can quickly spiral into a financial crisis. By explicitly barring regulators from considering this risk, the FIRM Act reduces their ability to preemptively address activities that could destabilize an institution through public backlash. For everyday consumers, this means the watchdogs at the federal level have fewer tools to keep banks honest when those banks are engaging in practices that are technically legal but widely considered unethical or predatory. The focus shifts entirely from managing public confidence to managing only the balance sheet.