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The Supreme Court to Decide if New York Regulators Can Arbitrarily Target the NRA

In mid-March, the Supreme Court is going to hear oral arguments in a case called National Rifle Association v. Vullo. This case has received relatively little media attention, but according to SCOTUSblog, it centers around whether the “First Amendment allows a government regulator to threaten regulated entities with adverse regulatory actions if they do business with a controversial speaker, as a consequence of (a) the government’s own hostility to the speaker’s viewpoint.”

Central to this case is a referral from the New York County District Attorney’s Office for the New York Department of Financial Services (NYDFS) to open an investigation into firearms-based insurance programs endorsed by the National Rifle Association (NRA). In 2018, three entities, which provided some of the insurance programs endorsed by the NRA, entered into consent decrees with the NYDFS for alleged violations of New York law. Following the 2018 Parkland, Florida, school shooting, Maria Vullo, former superintendent of the NYDFS, issued “guidance letters,” which recommended that financial services institutions consider the risks from working with firearms promoting entities like the NRA. Following Superintendent Vullo’s guidance, entities opted to end their relationship with the NRA. As expected, the NRA brought legal action against Superintendent Vullo and Governor Andrew Cuomo, as well as others.

In an amicus brief, financial and business law scholars write, “Banking and insurance face unique regulatory structures and incentives that cause firms to treat regulatory guidance as binding. As such, there is often an implied threat of sanction even when agency guidance lacks an explicit threat.” Though regulators can claim that guidance is not binding law, regulated parties feel overwhelming pressure to take whatever steps necessary to maintain a high-quality, working relationship. The financial and business law scholars cite work by the Administrative Conference of the United States, which further explains the challenges of maintaining good relationships with regulators.

What makes this case so fascinating is that it exposes how the “deep state” or regulatory agencies inject politics into their statutorily limited roles. The Second Circuit Court of Appeals’ opinion describes how Superintendent Vullo sought to use the NYDFS’s “powers to combat the availability of firearms.” In a meeting with Lloyd’s executives, Vullo effectively claimed that Lloyd’s “could come into compliance and ‘avoid liability’ for its regulatory infractions . . . including by no longer ‘providing insurance to gun groups’ like the NRA.”

As mentioned earlier, Vullo’s guidance letters encouraged its regulated subjects to “continue evaluating and managing their risks, including reputational risks, that may arise from their dealings with the NRA or similar gun promotion organizations, if any, as well as continued assessment of compliance with their own codes of social responsibility.” Then-Governor Cuomo issued a press statement on the same day as the NYDFS urging the NYDFS to assess regulated entities’ relationships with the NRA.

Some readers may be confused by the regulatory focus on reputational risk. Reputational risk is one of the pillars of bank risk management, and for clear reasons it is a sensitive topic. During the Barack Obama administration, banking regulators were found threatening financial institutions using similar concerns around reputational risk. Operation Choke Point, as it has been referred to, featured officials illegally targeting lawful businesses and threatening “bank executives with criminal prosecution unless they cut off banking relationships with small-dollar lenders and other lawful businesses.”

Operation Choke Point and now NRA v. Vullo expose two systemic issues with the regulatory bureaucracy: regulators feel empowered to exert significant ideological pressure on covered entities, and regulators will use every legal maneuver possible to enforce regulations covering issues that democratic institutions are otherwise unable to pass into law (like gun control).

Though the American Civil Liberties Union has taken a clear leftward lurch into its social justice activism, their legal director David Cole will argue the NRA’s case in front of the Supreme Court. In an interview with the First Amendment Watch, David Cole described this case as “both political speech and viewpoint discrimination.” He also noted,

The central question in the case is whether she abused her regulatory authority to coerce banks and insurance companies to blacklist the NRA. . . . there is no question that she employed her official regulatory power over banks and insurance companies to urge them to cut off all ties to the NRA, regardless of whether those ties were legal or illegal under insurance law, expressly because she opposed the NRA’s political viewpoint.

David Cole continued, “We felt it important to stand up and reverse that decision to ensure that the protection against informal, indirect censorship campaigns is a meaningful one.”

Though the Supreme Court will likely support the NRA in this case, it is important that the fundamental concern around government threats to punish political opponents is adequately addressed. Progressives such as David Cole have been vocal in supporting the NRA due to the hypothetical scenario where a second Donald Trump administration leverages regulatory authority to punish its political enemies.

If this partisan line of thinking is necessary to curtail the powers of the “deep state,” then we should accept it. Politicians and individuals running for elected office like Vivek Ramaswamy have called for drastic cuts in the size and scope of the regulatory agencies, and these cuts would be a welcome starting place. Going forward, the outcome of this case will hopefully pave the legal path forward for other victims of government targeting based on political opposition.

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