Continuing its rapid pace of Executive Orders (EOs), the Trump Administration recently unveiled an Executive Order designed to prevent so-called "debanking," a practice whereby financial institutions refuse to serve clients for reasons other than financial risk, such as political affiliation or industry association. The EO maintains that regulators have, in the past, encouraged debanking, and instructed regulators to expressly repudiate the practice. The Small Business Administration opened the first salvo on August 26, 2025, sending a letter to thousands of lenders detailing the steps they must take to come into compliance with the EO. Financial institutions should consider updating policies and procedures, conducting internal reviews, determining whether remediation is appropriate or possible, and documenting or preparing explanations of direction received from federal agencies in advance of implementation.
Key Takeaways
- The recent EO prohibits "debanking," or financial institutions' limiting of access to financial services based on factors outside of a legitimate risk assessment pertaining to the legality of activity or objective underwriting criteria that considers material financial risks. The EO expressly mentions political conservatives, religious groups, and, implicitly extends to companies dealing in firearms, payday loans, and cryptocurrency and other digital assets.
- The EO also blames regulators for debanking: Federal financial regulators are required to review their own policies and procedures to ensure that they do not explicitly or implicitly require debanking. The predecessor to this change is the removal of reputation risk from examination materials, guidance, and other agency materials.
- Financial institutions are likely to come under individualized scrutiny in the coming months. Regulators have been tasked with reviewing financial institutions' policies and procedures and combing through past complaints to find violations of fair-lending laws. Similarly, financial institutions may be required to reinstate past customers or reach out to potential customers who were denied access to financial services.
- The EO does not require financial institutions to financially compensate customers who were debanked or specify that federal banking regulators must seek punitive sanctions for past debanking. If the administration requires financial institutions to remediate customers or pay penalties in the future, it will sit uncomfortably with the fact that regulators informally or formally encouraged debanking in the past.
- It is not clear how this EO will be implemented or fit within the Trump administration's general deregulatory push. To the extent the EO lessens regulatory strictures, it may be met with industry acceptance. But it may raise questions of regulatory and particularly examiner discretion. Regulators may also take the vague guidance in the EO as an opportunity to review and restrict institutions' use of legitimate risk-based criteria. Industry would be expected to resist the notion of not being able to choose its customers on these criteria.
"Debanking" Now Defunct
The EO highlights the role that federal financial regulators played in encouraging financial institutions to drop clients they deemed risky or undesirable. For example, "Operation Choke Point" encouraged financial regulators to target businesses that engaged in lawful transactions with firearm dealers and payday lenders. The crypto industry, now broadly supported by the Administration, has long complained that it was targeted by the last administration in an "Operation Choke Point 2.0" that targeted financial institutions that did business with cryptocurrency firms. The EO takes further aim at supposed politically motivated debanking, allegedly following the events of January 6, 2021, at the U.S. Capitol.
The EO specifically calls out debanking based on religious beliefs, which could be a violation of the Equal Credit Opportunity Act (ECOA). The text of the EO and its accompanying fact sheet do not fully explain which religious beliefs or practices are at issue, but this may refer to denial of services for viewpoints that may correlate with religious beliefs. The precise contours of this policy may be difficult to set or even articulate.
Next Steps for Regulated Institutions
While the EO does not require regulated institutions to take any immediate steps, it calls for additional fact-finding and regulatory scrutiny. Most immediately, the EO calls for the Small Business Administration (SBA) to require all institutions for which it guarantees loans to reinstate previous customers who have been debanked and to identify and reach out to potential customers who have been denied access to financial or payment processing services.
On August 26, the SBA sent a letter to its 5,000 lenders instructing them to end debanking practices and, specifically, to take the following actions by December 5, 2025:
- Identify past or current formal or informal policies that require, encourage, or influence debanking;
- Make reasonable efforts to identify and reinstate any previous clients who may have been debanked and send them notice;
- Identify all potential clients denied access to financial services because of debanking and send them notice along with a renewed option to engage in such services previously denied;
- Identify all potential clients denied access to payment processing services as a result of debanking, send them notice and provide them with an opportunity to engage in such services previously denied; and
- In order to remain in good standing with the SBA and avoid "punitive measures," submit a report by January 5, 2026, addressing and evidencing their compliance with the above directives.
Considering this directive, impacted institutions should begin their analysis and record gathering processes immediately.
Looking further out, the EO requires regulators to change their oversight of financial institutions in material ways. Again, it remains to be seen how each regulator updates its policies and supervisory practices to comply with the EO, but regulated entities can begin to prepare for the following changes:
- Regulators are required to remove "reputation risk or equivalent concepts" as metrics upon which financial institutions are regulated or examined. These, and related considerations that could result in debanking, will be removed from guidance documents, manuals, and other documents used by the regulators. Where such concepts, however, are enshrined in regulation, the regulators must follow the proper administrative procedure for rulemaking. The EO can provide a basis for these revisions.
- Regulators are required to review financial institutions' formal and informal policies and practices to ensure that they do not promote debanking. This review must be completed by early December, after which regulators are instructed to take "appropriate remedial action," including fines, against financial institutions found to have had such policies in place.
- The EO instructs regulators to review their own data collected during supervisory examinations or through complaints to identify financial institutions that have engaged in debanking on the basis of religion. Regulators are instructed to refer financial institutions who cannot "obtain compliance" to the Department of Justice, pursuant to the Equal Credit Opportunity Act (ECOA).
Though many of these changes and reviews are contingent on future agency action, regulated institutions are likely to have enough information to review their policies and procedures and update them as needed. Similarly, regulated entities may consider reviewing their ECOA compliance frameworks, so that they can quickly obtain compliance if any violations are identified. In addition to reviewing safeguards against pure religious discrimination, regulated entities may consider whether current policies permit the denial of services based on reputation risk or viewpoints that may correlate with religious beliefs or practices.
Requiring Penalties or Remediation Would Pose Hurdles for Financial Institutions and Regulators
The Administration's concrete actions thus far have largely been to prevent de-banking on a forward-looking and systemic basis by changing regulator assessment criteria and reviewing policies and procedures. To be sure, there are limited look-back measures concerning possible ECOA violations. But while the EO discusses possible remedial measures, such as fines levied against financial institutions who had debanking policies, it does not say when or how such penalties should be imposed beyond that they should be "appropriate." And the EO notably does not call for regulators to require financial institutions to write checks to potential or actual customers who were debanked.
Such requirements would put regulators in a sticky spot in those situations where banks were acting at the express or strongly implied direction of their supervisors. For example, in last year's FOIA litigation involving the FDIC, the agency admitted its examiners had directed, or at least encouraged, debanking for cryptocurrency-related businesses. Estoppel defenses are typically not permitted against the government, but financial institutions may be able to argue that they are victims of the government's affirmative misconduct given the Administration's tone concerning the problems with debanking.
Banks concerned with the possibility of punitive sanctions or compensating debanking victims may consider documenting their side of the supervisory record now. Specifically, in advance of any regulatory scrutiny, they may begin to review actions taken and whether they were at the behest of supervisors. Similarly, banks that did have direct dealings with regulators can begin to identify instances of debanking of which regulators may be aware beyond possible ECOA violations in case a regulator circles back about the incident in the future.
That said, legal challenges to supervisory decisions are virtually unheard of, primarily because they are practically impossible. Financial institutions' hands will be tied to the extent that regulators claim that their past dealings are "confidential supervisory information." Indeed, as we have addressed in other posts, it will be difficult for the full debanking story to be known and understood until the veil of CSI is lifted, in whole or in part. But, if the Administration is serious about telling the debanking story, it can waive its confidentiality designations concerning certain CSI.
A (De)regulatory Agenda?
The President has trumpeted de-regulatory efforts and signed several EO's expressly designed to lighten regulatory burdens. At first blush, this EO appears to cut against that trend by subjecting financial institutions to additional scrutiny. But this EO seems to be part of the Administration's broader push to ease compliance burdens more generally: much of the EO constrains regulators in what they can and cannot consider as they examine or investigate financial institutions. The EO could, ultimately, grant more leeway to financial institutions.
The EO also could pose problems for financial institutions that may not want to have a business relationship with a consumer or business for risk-based reasons. The EO purports to carve out the denial of financial services for legitimate reasons, such as credit or AML risks. But these institutions are now under a regulatory microscope to ensure that they do not engage in political debanking—at least not for those with whom the Administration sympathizes. The long-term effects of this posture both during and after this Administration, however, are unknown.
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