The rules around account closures and denials of banking services are shifting quickly. Earlier this month, President Trump issued an executive order taking aim at what he describes as “politicized or unlawful debanking.” The order is a direct response to unsubstantiated claims – mostly raised by conservative commentators – that banks have shut down accounts for ideological reasons. Whether or not that’s happening on any broad scale, the administration is clearly signaling that regulators should treat the issue as real.
Traditionally, banks have justified closures based on regulatory risk, fraud, AML concerns, or reputational exposure. Sometimes that meant exiting relationships with controversial industries or outspoken clients. Regulators are now pressing for a different approach: decisions must rest on documented, objective criteria, not on reputational judgments or political leanings.
What Has Changed?
While there is no conclusive evidence that widespread ideologically motivated debanking occurs, the order requires new safeguards around how institutions close or deny accounts:
Documentation
Banks and credit unions must now ensure that all account closure and denial decisions are grounded in documented, individualized risk assessments based solely on objective criteria – not on perceived reputational risk, political beliefs, or religion, as alleged by the order’s proponents.
Second Looks
Agencies have authority to revisit past closures, especially if they touch on religion or political affiliation. Some customers could see accounts reinstated.
Consequences
Expect enforcement actions to include fines, investigations, and referrals to the DOJ for civil proceedings if regulators conclude an institution crossed the line.
What Does This Mean for Banks and Financial Institutions?
As counsel to institutions across the retail financial spectrum, three practical steps stand out:
Policy Review
Review how account management and exit decisions are made. If the rationale is not clear on paper, it will not stand up well to a regulator – or a plaintiff’s lawyer.
Proactive Recordkeeping
Collect records on past closures. Even older decisions could be scrutinized under today’s lens.
Staff Training
Equip risk teams with clear guidance to spot and eliminate decision-making that could appear subjective, retaliatory, or discriminatory. Otherwise, decisions can appear arbitrary after the fact.
Litigation Risk on the Horizon
Plaintiffs’ firms are likely to use this order as a springboard. Discovery requests will target internal discussions about reputational risk, client politics, or controversial industries. Banks that have not organized their records may find themselves at a disadvantage. A little preparation now can make a big difference if litigation comes later.
Closing Thought
Whatever one’s view of the politics behind this order, it puts compliance teams on notice. Regulators expect institutions to show their work, and plaintiffs will be eager to test those standards in court. Getting ahead of the issue now is the best way to avoid messy battles down the road.
