LawFlash

Financial Institutions Face Investigations and Possible Referral to DOJ Based on Past ‘Debanking’ Practices

07 août 2025

An executive order signed by the US president on August 7, 2025, titled Guaranteeing Fair Banking for All Americans, seeks to prohibit financial institutions from engaging in “debanking” practices, such as denying services or closing accounts, for political or ideological reasons. It also directs the Small Business Administration (SBA) to require all financial institutions subject to its jurisdiction to make reasonable efforts to reinstate clients and potential clients previously denied services due to unlawful debanking, directs federal banking regulators to review past actions of financial institutions’ debanking activities and take remedial actions, including fines or consent decrees, and directs federal banking regulators to refer financial institutions to the US attorney general based on consumer complaints or supervisory material.

The executive order (EO), which is not self-executing, creates additional risk for financial services, and some of the actions it calls for may be subject to legal challenge and potentially subject financial institutions to sanctions for actions that were required or encouraged by federal banking regulators in the recent past. Moreover, as demonstrated by an unrelated request from 50 state attorneys general to the US attorney general requesting assistance in debanking illegal offshore gaming platforms, the issue of debanking is quite complex.

The EO states that financial institutions have engaged in “unacceptable practices to restrict law-abiding individuals’ and businesses’ access to financial services on the basis of political or religious beliefs or lawful business activities” and directs federal banking regulators—including the SBA, Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board (FRB), National Credit Union Administration (NCUA), and Consumer Financial Protection Bureau (CFPB)—to scrutinize financial institutions within their jurisdiction to identify potential violations of the Equal Credit Opportunity Act or other laws as a result of debanking practices and make referrals to the US attorney general.

Today’s EO follows prior actions by the current administration to crack down on debanking, such as the May 1, 2025 Executive Order on the Establishment of the Religious Liberty Commission, which established a commission to study various topics related to perceived threats to religious liberty including “debanking of religious entities.” The EO also follows similar legislative efforts to address debanking, including the Financial Integrity and Regulation Management (FIRM) Act, sponsored by US Senator Tim Scott, which has been introduced in both the US Senate (S.875) and the US House of Representatives (H.R.2702).

The EO also increases pressure on traditional financial institutions to remove barriers to doing business with digital asset firms. The administration has taken other executive action to support the digital asset market, as seen in a July 30, 2025 fact sheet highlighting steps taken by the US administration, including “end[ing] Operation Choke Point 2.0 once and for all by working to end regulatory efforts that deny banking services to the digital assets industry.”

BANKING AGENCY ACTION ON REPUTATION RISK

The EO directs each federal banking agency to remove the use of “reputation risk or equivalent concepts” from guidance documents, manuals, and other materials. The OCC, FDIC, and Federal Reserve Board have long considered “reputation risk” as part of their examination programs for banks. Reputation risk has previously been defined by federal banking agencies as “the risk to current or projected financial condition and resilience arising from negative public opinion.”[1] In March and April 2025 respectively, the OCC and FDIC announced that the removal of references to reputation risk from examination manuals, handbooks and guidance.

The FRB followed suit on June 23, 2025, when it also announced that it would no longer include reputational risk as a component of examination programs in its supervision of banks. Removing reputation risk as an assessment tool stands in stark contrast to banking regulators’ past scrutiny of digital assets services under what was known colloquially as “Operation Choke Point 2.0,” where financial regulators imposed restrictions on digital asset companies and certain other industries, citing the risk of potential money laundering and fraud as well as safety and soundness concerns as the basis for the actions.

COMPETING TENSIONS WITH EXISTING LAWS

Today’s EO identifies debanking practices at financial institutions as potentially violating the Equal Credit Opportunity Act (ECOA), antitrust laws, and other consumer protection laws. The EO directs federal banking agencies to refer potential cases of “unlawful debanking based on religion” to the US attorney general. We note that, while the attorney general has jurisdiction over some financial institutions for ECOA violations, for depository institutions with assets over $10 billion, Title X of the Consumer Financial Protection Act committed sole examination and enforcement authority over the ECOA to the CFPB. As to those largest depository institutions, however, the federal banking agencies retain their respective authority to examine for and enforce Section 5 of the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices.

Further, financial institutions have obligations under the Bank Secrecy Act (BSA)/anti-money laundering (AML)/combatting the financing of terrorism (CFT) statutes that are potentially in tension with the new EO.

Statutory and regulatory BSA/AML/CFT obligations require, among other things, financial institutions to take an ongoing risk-based approach to identifying, reporting, and preventing money laundering, terrorism financing, or other forms of financial illegality.  These laws impose customer due diligence and transaction monitoring requirements and, where appropriate, account closure obligations (i.e., debanking). These statutory and regulatory obligations also require financial institutions to cast a wide net in seeking potentially negative information about customers: a narrower scope would risk allowing criminal abuses of the United States financial system. And the risk-tailored nature of BSA/AML/CFT requirements also means that different institutions with different risk tolerances will take different approaches, particularly where otherwise legal businesses are susceptible to money laundering and/or other illegal abuses.

Notwithstanding today’s EO and its focus on eliminating debanking practices at financial institutions, effective BSA/AML/CFT tools remain an important component of federal policy. There is no indication that the federal banking regulators or the Department of the Treasury intend to reduce pressure on financial institutions to maintain robust BSA/AML/CFT compliance programs. Indeed, the GENIUS Act requires that approved stablecoin issuers also must comply with BSA/AML/CFT laws and demonstrate robust monitoring and controls.

The EO does not address how financial institutions should continue to comply with BSA/AML/CFT requirements in the context of its new scrutiny of debanking activities. Considering this rapidly changing landscape, banks and other financial institutions should consider adapting their BSA/AML/CFT and ECOA policies and procedures to enhance their customer onboarding and offboarding procedures, including increasing efforts to document decision-making for closing accounts and rejecting applications for financial services.

STATE ACTION ADDS FURTHER COMPLICATION

In addition to the EO, financial institutions are also potentially facing pressure from state regulators regarding debanking. For example, on June 10, 2025, Louisiana passed a resolution in support of the US administration’s efforts “to stop government from weaponizing financial institutions.” The resolution calls for changes in regulatory focus in AML laws “to better focus banks and law enforcement on potential financial criminal activity rather than the innocent banking activity of law-abiding customers.” Other states have similarly begun considering legislative proposals related to debanking.

On the other hand, states will continue to set their own safety and soundness criteria, and to the extent that the federal government diverges, this may leave financial institutions in the position of facing conflicting legal requirements.

And further highlighting the tenuous line between illegitimate debanking and legitimate risk-based AML decision-making, on August 6, 2025, 50 state attorneys general submitted a letter to US Attorney General Pamela Bondi seeking the US Department of Justice’s (DOJ’s) assistance in combatting illegal offshore gaming operations. Among the joint actions sought by attorneys general to address identified criminal gaming networks is the implementation of “a national enforcement and compliance strategy to cut off [their] access to the U.S. financial system.”

Given the uncertainty of how the EO will be implemented by federal banking agencies coupled with the complex and changing state landscape, financial institutions may find it difficult to harmonize conflicting laws and guidance and may need to litigate to establish clarity.

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Authors
Allen Denson (Washington, DC)
Alice S. Hrdy (Washington, DC)
Kelly A. Moore (New York)
Daniel B. Tehrani (New York)
Nicholas M. Gess (Washington, DC)
David Wake (Washington, DC)

[1] Office of the Comptroller of the Currency, Comptrollers Handbook, Version 2.0, July 2019, at 4.