New Executive Order Pressures Lenders to Account for Citizenship Status in Risk-Based Diligence

Building on prior orders, the White House’s Executive Order 14406, Restoring Integrity to America’s Financial System, pressures financial institutions to integrate citizenship status into their risk-based diligence measures.

Executive Order 14406 (EO), signed by President Donald Trump on May 19, 2026, states that the US administration, “will not tolerate national security and public safety risks caused by illicit cross-border financial activity, nor will it permit risks to our financial system posed by the extension of credit or financial services to the inadmissible and removable alien population.”

The EO directs the secretary of the treasury, within 60 days, to issue a formal advisory to financial institutions “regarding the risks associated with the exploitation of the United States financial system by non-work authorized populations and their employers,” including identification of red flags associated with a list of enumerated categories of suspicious activities.

It also directs the secretary of the treasury, within 90 days, to propose related “changes to applicable implementing regulations of the Bank Secrecy Act (BSA) to strengthen risk-based customer due diligence requirements for covered financial institutions.”

The EO also directs the Consumer Financial Protection Bureau (CFPB), within 60 days, to consider clarifying that “potential deportation and loss of wages” are factors that could impact underwriting decisions under federal “ability-to-repay” standards, and that each “appropriate Federal functional financial regulator shall issue guidance regarding the management of the potential credit risks posed by the non-work authorized population.” The EO does not immediately impose new requirements.

Key Takeaways

• The EO declares that enhanced customer identification programs and due diligence measures are necessary to mitigate significant threats to national security and public safety, such as “[l]ow-dollar cross-border funds transfers” that could facilitate “terrorist financing, narcotics trafficking, human trafficking, and other illegal activity.”
• The EO asserts that “[l]ending to aliens without legal work authorization or who face a substantial loss-of-wage risk creates a structural ‘ability to repay’ deficiency” that “create[s] vulnerabilities within our financial system by obscuring income sources, distorting credit underwriting, and facilitating underground economic activity.”
• Building on prior actions, such as the January 20, 2025 executive orders “Protecting the American People Against Invasion,” and “Designating and Other Organizations as Foreign Terrorist Organizations and Specially Designated Global Terrorists,” the EO seeks to further integrate the banking system into its immigration enforcement apparatus and national security system.
• Overall, implementation of the EO will increase pressure on lenders to consider immigration and citizenship status in risk-based due diligence and know-your-client practices and thoroughly document their underwriting determinations for non-citizen applicants.

TREASURY TO ENHANCE CUSTOMER DUE DILIGENCE REQUIREMENTS AND CFPB TO ADDRESS STRUCTURAL CREDIT RISKS

The EO directs the US Department of the Treasury to issue a formal advisory to financial institutions describing red flags indicative of six categories of suspicious activity: (1) “patterns of payroll tax evasion;” (2) tactics designed to “obfuscate the identity of the ultimate beneficial account owners or conceal the recipients of payroll disbursements;” (3) “off-the-books wage payments” through unregistered, third-party, or peer-to-peer payment platforms; (4) “patterns of repetitive, sub-threshold cash withdrawals or deposits that correlate with payroll cycles;” (5) “financial activity indicative of labor trafficking or forced labor pursuant to 18 U.S.C. § 1589;” and (6) “use of an individual taxpayer identification number (ITIN) to obtain credit products or open depository accounts where the applicant lacks verified lawful immigration status.”

The Department of the Treasury will also propose and consider adopting measures to “strengthen risk-based customer due diligence requirements” under the BSA to ensure that institutions “collect and verify sufficient customer identity information to reasonably identify the nominal and beneficial owners of accounts,” and “maintain the authority to … obtain additional information necessary to resolve material compliance concerns related to account holders’ lawful immigration status and employment authorization” when relevant to assessing risks associated with fraud and illicit financial activity.

In January 2026, the US Department of Justice and the CFPB withdrew their 2023 joint statement that considerations of an applicant’s immigration or citizenship status could violate the Equal Credit Opportunity Act and Regulation B. A step further, the EO directs the CFPB to clarify that “potential deportation and loss of wages are factors” to be considered under the federal Truth in Lending Act and Regulation Z’s ability to repay standards and to clarify that these factors may be considered by lenders “as part of a reasonable and good faith underwriting determination.” As a result, future underwriting decision-making by creditors may, in certain circumstances, require active inquiry into an applicant’s immigration or citizenship status.

Federal law permits Green Card holders and non-permanent residents with valid work visas to apply for and, if approved, obtain mortgages, auto loans, and other forms of consumer credit. However, the EO direction to the CFPB to permit creditors to consider potential loss of wages due to potential deportation when evaluating applicants for credit and looming revisions to the due diligence requirements under the BSA potentially impose constraints on non-citizen borrowers. Moreover, financial institutions with robust risk-based due diligence and know-your-customer programs already in place are better positioned to comply with possible forthcoming regulatory changes that require consideration of citizenship status in underwriting decisions.

COMPETING IMPULSES: ACCESS AND RISK

The current administration has promulgated several orders focusing on banking access issues, such as removing consideration of “reputation risk” as it pertains to “political or religious beliefs or lawful business activities” (EO 14178, “Strengthening American Leadership in Digital Financial Technology” (Jan. 23, 2025)), and promoting broader access to banks for digital asset firms (EO 14331, “Guaranteeing Fair Banking for All Americans” (Aug. 7, 2025)). As we discussed here when analyzing the August EO, competing tensions with existing laws makes it challenging for a financial institution subject to BSA/Anti-Money Laundering obligations in the context of new scrutiny of debanking activities.

In addition, international or US state laws may provide conflicting legal requirements relating to privacy and data security, environmental and social governance, or financial inclusion, providing further complications to financial institutions’ ability to demonstrate compliance with all applicable laws.

Unlike these prior orders, which aimed at increasing banking access, the current EO adds a further complication by seeking to prescribe additional risk-based diligence considerations of an applicant’s citizenship status for initial lending decisions, and to enhance scrutiny of account activity indicative of red flags associated with the newly enumerated categories of suspicious activity.

In contrast to the prior directives for access to banking services for the digital asset industry, where the current administration has demonstrated a preference for making the banking system more accessible to such customers, the enhanced risk-based diligence and ability to repay standards contemplated by the EO will make it more difficult for immigrants and non-citizens to borrow.

THE BANKING SYSTEM AS AN IMMIGRATION AND NATIONAL SECURITY INSTRUMENT

Consistent with the orders issued on January 20, 2025 (“Protecting the American People Against Invasion,” and “Designating and Other Organizations as Foreign Terrorist Organizations and Specially Designated Global Terrorists”) the current administration continues to integrate the banking system into its immigration enforcement apparatus and national security system.

There are potential risks associated with financial institutions denying access to consumer credit due to citizenship status, as well as with reporting such information to government entities to execute the immigration and national security agenda. Specifically, denials on the basis of citizenship status could violate protections against discrimination on the basis of national origin afforded by the 14th Amendment’s Equal Protection Clause, the Civil Rights Act, and Regulation B of the Equal Credit Opportunity Act, which prohibits creditors from discriminating against applicants on the basis of national origin with respect to any aspect of a credit transaction.

The degree to which affected parties will challenge the use of citizenship status to deny credit applications and/or to enforce the current administration’s immigration and national security policies remains to be seen. If such litigation arises, courts may be required to resolve novel questions concerning the scope of civil liberties and executive authority.