In this Expert Analysis series, attorneys provide quarterly recaps discussing the biggest developments in Florida banking regulation and policymaking.
Constant regulatory changes in Florida continue to add pressure to banks’ and financial institutions’ compliance departments.
As we leave behind the second quarter of 2023, there are three significant developments in Florida law affecting the banking community.
1. Florida Rejects ESG in House Bill
Banks and other financial institutions in Florida are no longer permitted to consider environmental, social and governance factors in their decisions to provide or deny services, pursuant to Florida House Bill 3, now Florida Statute 655.0323.
H.B. 3, signed into law by Gov. Ron DeSantis on May 2, essentially bars banks from considering ESG factors in their decision to provide or deny their services, requiring that the institutions make determinations “based on an analysis of risk factors unique to each customer.”
The new Florida Statute 655.0323 will deem it an unsafe and unsound practice for a bank to deny or cancel services, or otherwise discriminate against a person based on political opinions, religious beliefs and even whether an individual is a firearm owner. Rather, the institutions must only consider quantitative, impartial and risk-based standards to determine a customer’s creditworthiness.
The statute goes on to state that it will consider discriminatory “the use of any rating, scoring, analysis, tabulation, or action that considers a social credit score based on factors including, but not limited to” the person’s:
- Political opinions, speech or affiliations;
- Religious beliefs, exercise or affiliations;
- Lawful ownership of a firearm;
- Engagement in legally manufacturing, distributing, selling, buying or using firearms or ammunition;
- Engagement in exploring for, producing, using, transporting, selling or manufacturing fossil fuel-based energy, timber, mining or agriculture; or
- Support of the state or federal government in combating illegal immigration, or drug or human trafficking.
As of July 1 and annually thereafter, banks are now required to attest to their compliance with these terms. Failure to follow the anti-ESG rules or submit the required attestation of compliance may subject the bank to significant sanctions and penalties, including, but not limited to, suspension, disqualification and administrative penalties. The Florida Office of Financial Regulation has issued a form of attestation that banks must complete and submit.
While these requirements will certainly affect the decision-making ability of banks regarding their services, it is still unclear how this statute will be applied in practice. For example, if a bank extends a loan to a “green” project at a preferential rate, would it be considered discrimination against non-ESG projects under the newly established rule?
There are also questions about whether the statute will give third parties a private cause of action, and how the Office of Financial Regulation will apply penalties.
The new rule is now top of mind for all Florida financial institutions. Trade groups and regulatory lawyers are working with Florida regulatory authorities to gain clarity on how it will be applied. Because the statute is very specific, it is difficult for the regulatory authorities to deviate from the specific requirements.
2. State High Court Significantly Raises Minimum Interest Rates of IOTA Accounts
The Florida Supreme Court in March ordered the amendment of the formula used by banks to calculate the minimum rates of interest on attorneys’ trust accounts, significantly raising said rates.
It is the lawyer or law firm’s responsibility, when opening an interest on trust, or IOTA, account, to provide notices to the Florida Bar Foundation and to the participating bank that reference the new Florida bar rule. The lawyer or law firm that establishes the IOTA account is obligated to ensure that the account complies with all requirements of the Florida bar.
While a bank’s participation in the IOTA program is voluntary, it must be an eligible institution and demonstrate compliance with the IOTA program requirements. Therefore, if a bank chooses to participate in the IOTA program, it must follow the new indexed rate formula to maintain its eligibility under the amended Florida Bar Rule 5-1.1(g)(5)(B), which provides:
When the Wall Street Journal Prime Rate (“indexed rate”) is between 325 and 499 basis points (3.25% and 4.99%), the minimum interest rate paid net of all fees and service charges (“yield”) must be no less than 300 basis points (3.00%) below the indexed rate in effect on the first business day of each month. When the indexed rate is 500 basis points (5.00%) or above, the yield must be no less than 40% of the indexed rate in effect on the first business day of each month.
It is important to note that the increase in interest rates does not benefit the banks who choose to participate in the IOTA program: The additional interest accrued under the new formula is sent to the Florida Bar Foundation. The change, which took effect May 15, may require banks, especially smaller financial institutions, to rethink whether these rates are feasible for their business.
If a bank fails to adhere to the IOTA program requirements, or if an IOTA account is maintained in an ineligible institution, the bank would be ineligible to participate in the program, and the lawyer or law firm that established the IOTA account would be obligated to close such account.
3. New Restrictions on Florida Land Ownership by Foreigners From Specific Countries
Florida Statute 692.202 restricts the ability of certain foreigners to purchase land in Florida and prohibits any purchase of real property in the state by the People’s Republic of China, Chinese Communist Party, or any individual or association from either.
Florida Statute 692.201 lists several foreign countries of concern, including:
the People’s Republic of China, the Russian Federation, the Islamic Republic of Iran, the Democratic People’s Republic of Korea, the Republic of Cuba, the Venezuelan regime of Nicolás Maduro, and the Syrian Arab Republic, including any agency of or any other entity of significant control of such foreign country of concern.
Such foreigners may not purchase or own agricultural land or real property on or within 10 miles of any military installation or critical infrastructure facility in Florida. A military installation may include a base, camp, post or station encompassing 10 acres under the jurisdiction of the U.S. Department of Defense. Critical infrastructure facilities may include chemical manufacturing facilities, refineries, power plants, water treatment facilities, gas processing plants and seaports.
Florida Statute 692.202 requires buyers of property to provide an affidavit attesting that the buyer is not a prohibited foreigner. These restrictions could have serious implications on banks’ lending and due diligence practices.
As the statute took effect July 1, banks must now be cautious when extending lines of credit to such foreign entities or individuals wanting to purchase or own real property in Florida. The bank must first ensure that it receives the required affidavit as part of processing any application.
It is still unclear whether diligence will need to include whether a potential customer is one of the prohibited parties or whether banks will have to monitor their vendors, such as title companies, to ensure they are following the requirements of the new statute.
Furthermore, as some foreign countries of concern are also sanctioned by the U.S. Office Of Foreign Assets Control, there could be additional implications to consider. This statute effectively changes the way banks can lend money, so it is vital to ensure that they are complying with the new requirements.
Several lawsuits have already been filed in connection with this new statute and its requirements. It is certainly a controversial issue, and the banking community should expect to see further developments going forward.
While we await further clarification on these legislative developments, it is important for banks and financial institutions to stay up to date on all recent changes in Florida law that could significantly affect their practices and procedures.
 House Bill 3: https://www.flsenate.gov/Session/Bill/2023/3/BillText/er/PDF.
 Florida Statute 655.0323: https://casetext.com/statute/florida-statutes/title-xxxviiibanks-and-banking/chapter-655-financial-institutions-generally/section-6550323-effective712023-unsafe-and-unsound-practices.
 Florida Bar Rule 5-1.1: https://www-media.floridabar.org/uploads/2023/06/Ch-5-1.pdf.
 Florida Statute 692.202: https://casetext.com/statute/florida-statutes/title-xl-real-andpersonal-property/chapter-692-conveyances-by-or-to-particular-entities/part-iiiconveyances-to-foreign-entities/section-692202-effective-712023-purchase-of-agriculturalland-by-foreign-principals-prohibited.
 Florida Statute 692.201 (as stated in Senate Bill
Original article published on Law360.com
Summer Associate Gabriella Carballo contributed to this article.