Month: June 2026

For more than half a century following the passage of the Bank Secrecy Act of 1970, financial institutions have been required to monitor certain customer transactions to thwart money laundering. The USA PATRIOT Act, passed in response to the 9/11 attacks, created additional rules designed to thwart terrorist financing.

Now the Trump Administration is starting to enlist banks in a more questionable form of information gathering involving the immigration status of their customers. For months, there have been reports that the administration is planning to require banks to determine whether customers are U.S. citizens.

That has not yet happened, but a recent executive order from the White House takes a step in that direction by advising banks to “be attentive to the credit risks posed by the extension of mortgage and auto loans, credit cards, and other consumer credit to the inadmissible and removable alien population.”  The order calls on the Treasury Department and financial regulators such as the Fed and the FDIC to develop changes to the Bank Secrecy Act to address this supposed risk.

This sounds like a prelude to more explicit rules that would bar banks from doing business with undocumented immigrants.

It was surprising to see a reference in the executive order to the Consumer Financial Protection Bureau, an agency that the administration appeared to have demolished as part of the DOGE onslaught last year. The CFPB was urged to tell banks that they should consider immigration status in assessing a borrower’s ability to repay a loan.

Now the agency, headed by OMB Director Russell Vought, has sprung back to life with guidance that does exactly that. The Washington Post reports that the CFPB is also beginning to investigate smaller, non-profit lenders, which tend to operate in communities with higher percentages of immigrant residents.

All this is part of an expanding effort by the Trump Administration to make life more difficult for immigrants by restricting their access to financial services, among other things. By raising the misery level, Trump hopes that more of the undocumented will self-deport.

It is ironic that the administration is pushing more people out of the banking system at the same time it is dialing up its campaign against debanking, the baseless claim that financial institutions have been denying services based on ideological or religious considerations. It has just come to light that Jeanine Pirro, the U.S. Attorney in DC, has sent subpoenas to the likes of JPMorgan Chase and Bank of America to look for evidence of the purported practice.

This effort, which stems from Trump’s ongoing resentment at banks that dissociated themselves from him and his family businesses in the immediate wake of the January 6 insurrection, will probably go nowhere.

The administration’s own debanking efforts against immigrants are a more serious problem. These moves will increase the financial insecurity of families headed by non-citizens, pushing them out of more stable jobs into precarious employment.

This, in turn, will have consequences for the population at large. When people turn to off-the-books work, they stop contributing payroll taxes that support the Social Security and Medicare programs. Social Security’s trustees have just issued a new report that lists the shrinking of the immigrant population as one of the factors weakening the financial condition of the system.

At the same time, the weaponization of agencies such as the CFPB against immigrants will serve to undermine the legitimacy of financial regulation. The Bureau, which used to play a vital role in identifying and punishing predatory lending, has abandoned that mission and is now, in effect, being turned into an arm of the much-reviled ICE. The scammers could not be happier.

Federal bank regulators are normally concerned with getting financial institutions to reduce their risk level, but the Trump Administration has a different idea. The major agencies—the Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency—jointly announced they have revised key guidance documents to remove references to what is known as reputation risk.

This is the latest in a series of moves by the bank examiners to discourage banks from taking steps to limit potential harm to their business stemming from an association with controversial activities. More specifically, it is part of an effort pushed by Trump to ban what he and his supporters in Congress claim is a widespread practice of debanking.

The controversy stems in large part from reported steps taken by several major banks to dissociate themselves from Trump and his family businesses in the immediate wake of the January 6 insurrection. At that time, outrage about the siege of the Capitol was high, and the Trump name was toxic. It thus made sense that banks, along with other institutions, would want to sever their ties.

Trump is obsessed with rewriting the history of January 6, and part of that is to delegitimize actions such as those taken by the banks. It has now become part of MAGA doctrine that banks acted out of unjustified political discrimination.

This claim has been broadened beyond Trump to include supposed prejudice against other individuals and companies for ideological reasons. Based on this dubious premise, the bank regulators have been moving to obliterate the idea that financial institutions should be judged on potential risks to their reputation.

Reputation risk is far from a contrived issue. All of the major commercial and investment banks have severely compromised reputations. Some of this stems from their own misconduct, but numerous institutions have compounded the problem by doing business with disreputable parties.

For example, in 2014 JPMorgan Chase paid $1.7 billion to the Justice Department to settle criminal and civil charges stemming from its business dealings with fraudster Bernard Madoff. In 2020 the New York State Department of Financial Services fined Deutsche Bank $150 million for failing to properly monitor account activity conducted on behalf of sexual predator Jeffrey Epstein.

There are many more instances of banks being penalized in connection with suspicious activities by customers that were likely signs of money laundering. For instance, in 2024 TD Bank pleaded guilty to criminal charges of anti-money-laundering deficiencies and paid a penalty of $1.9 billion to the DOJ.

Major banks have also been penalized for doing business with parties that may be violating economic sanctions. In 2023 Wells Fargo paid $30 million to settle allegations by the Office of Foreign Assets Control that it provided a foreign bank located in Europe with software that the bank then used to process trade finance transactions with U.S.-sanctioned jurisdictions and persons.

In short, there are numerous ways in which financial institutions can damage their reputation by doing business with disreputable parties. At a time when banks should be more careful about the parties with whom they do business, the Trump regulatory agencies are pushing them in the opposite direction.

By removing reputation risk as one of the factors used in evaluating bank performance, the administration is making it more likely banks will abandon prudence in the pursuit of higher profits. As financial history shows, at some point this will not end well.