Trump targets unverified immigrants' bank accounts, tightening oversight of credit and bank accounts
The move could "debank" millions of immigrants, pushing them out of the mainstream banking system
A major shift in banking policy
While the mainstream media focused on the Reflecting Pool paint job and Graham Platner’s love life last week, President Trump was signing an executive order that critics say may push undocumented immigrants out of the mainstream banking system.
The order, titled “Restoring Integrity to America’s Financial System,” directs the Treasury Department, banking regulators and the Consumer Financial Protection Bureau to review and tighten rules governing financial services provided to people who lack verified legal status or work authorization.
The White House said the order is intended to protect the financial system from fraud, money laundering, payroll tax evasion, labor trafficking and other forms of illicit activity. The administration argues that current banking and lending practices do not adequately account for risks associated with unlawful employment and immigration violations.
What the order does
Among other provisions, the executive order:
Directs Treasury to issue guidance identifying suspicious banking activity tied to payroll tax evasion, labor trafficking and off-the-books wage payments.
Calls for stronger customer due-diligence requirements under the Bank Secrecy Act.
Orders regulators to consider tightening customer identification rules, including those involving foreign consular identification cards.
Directs federal regulators to examine the risks of extending loans and other financial services to people without work authorization.
Calls on the CFPB to consider whether potential deportation or loss of employment should be considered when evaluating a borrower’s ability to repay a loan.
Why ITINs are at the center of the debate
The order has drawn particular attention because it references the use of Individual Taxpayer Identification Numbers (ITINs) in banking and credit decisions.
ITINs are issued by the IRS to people who are required to pay U.S. taxes but are not eligible for Social Security numbers. Banks and credit unions have long accepted ITINs as one form of identification for opening accounts, and many mortgage lenders and financial institutions use them in underwriting programs aimed at immigrant communities.
The White House fact sheet specifically directs Treasury to identify suspicious activity involving the use of ITINs to open accounts or obtain credit without verified legal presence.
Legal and banking analysts say the order does not immediately prohibit banks from opening ITIN-based accounts, but it signals that regulators may require greater scrutiny of those customers and their transactions in the future, according to Cooley Finsights.
Treasury already moving ahead
The administration has already begun implementing the order.
Earlier this month, Treasury’s Financial Crimes Enforcement Network (FinCEN) issued guidance urging financial institutions to watch for “red flags” associated with payroll fraud schemes involving shell companies, unauthorized workers and accounts opened using foreign identification documents or ITINs. The advisory identified numerous warning signs and encouraged banks to file suspicious activity reports when warranted. (New York Post)
Treasury Secretary Scott Bessent said the administration will not allow the financial system to be used to facilitate illegal employment or fraud against taxpayers.
Consumer groups warn of “debanking”
Consumer advocates and immigrant-rights organizations have sharply criticized the order.
The National Consumer Law Center argues that the directive could lead banks to close accounts or deny services to millions of immigrants who currently use mainstream financial institutions. The organization says forcing consumers out of regulated banking channels could increase reliance on cash transactions and alternative financial services.
Credit-union groups and financial-inclusion advocates have also expressed concern that restrictions on ITIN lending and banking could reduce access to mortgages, small-business loans and basic checking accounts for tax-paying immigrants.
What this means for consumers
For now, consumers who use ITINs can still open bank accounts and obtain financial services where institutions offer those products. The executive order does not automatically change existing banking rules.
However, banks, credit unions and lenders may face new compliance requirements in the coming months as Treasury, FinCEN, the CFPB and federal banking regulators develop guidance and proposed regulations required by the order.
The result could be tougher verification procedures, more questions during account opening, and increased scrutiny of certain lending and banking relationships involving customers who do not have Social Security numbers.
Bottom line
The administration says the order is aimed at fraud prevention and protecting taxpayers. Critics say it risks cutting law-abiding immigrants off from the banking system. The biggest impacts will depend on how aggressively federal regulators implement the order over the next several months. (The White House)