On August 26, the U.S. Small Business Administration (SBA) took action to enforce President Trump’s directive by issuing a letter to its network of over 5,000 lenders. This letter mandates the cessation of alleged politicized or unlawful banking practices, requiring lenders to reinstate qualified customers who were wrongfully denied access to financial services based on political, religious, or ideological beliefs. It further warns that punitive measures will be taken against lenders who fail to comply with the directives. This move marks a significant step in implementing Executive Order 14331, Guaranteeing Fair Banking for All Americans.
Background of the Executive Order
Issued on August 7, Executive Order 14331 aims to address concerns about financial institutions allegedly restricting access to banking services based on political, religious, or ideological beliefs. The order references Obama-era initiatives like “Operation Chokepoint,” where federal regulators reportedly pressured banks to limit products and services to certain lawful industries. These practices, according to the order, have led to significant harm to individuals and businesses, affecting their livelihoods, reputation and financial well-being, and undermining public trust in banking institutions. The executive order alleges that such practices, when used to discriminate against customers and businesses in credit transactions based on their religion, are also unlawful under the Equal Credit Opportunity Act (ECOA).
The White House Fact Sheet cites examples of “debanking” activities by financial institutions, including a major banking institution that allegedly denied ticket-payment processing services for a Republican event. The decision was only reversed after it received public attention. Additionally, federal regulators purportedly encouraged banks to flag individuals for transactions with certain companies or for using terms like “Trump” or “MAGA” in peer-to-peer payments, without evidence of criminal activity. President Trump claims that two major banks even denied banking services to his own business.
U.S. policy now explicitly prohibits denying access to financial services based on “constitutionally or statutorily protected beliefs, affiliations, or political views.” Banking decisions must be grounded in objective, risk-based analyses, including those involving digital assets and cryptocurrency.
The executive order mandated that within 60 days of the effective date, the SBA must notify financial institutions under its jurisdiction to identify and reinstate clients previously denied services due to politicized debanking.
Details of the SBA’s Directive
In response, the SBA’s August 26 letter (as outlined in a concurrent press release) requires lenders to take several actions by December 5, 2025 to end debanking practices:
- Identify Debanking Practices: Lenders must identify any past or current formal or informal policies or practices that require, encourage, or influence their institution to engage in politicized or unlawful debanking.
- Reinstate Wrongfully Denied Clients: Lenders are instructed to make reasonable efforts to identify and reinstate previous clients denied service through politicized or unlawful debanking actions in violation of statutory or regulatory requirements.
- Notify Affected Potential Clients: Lenders must provide notice to potential clients who were denied access to financial services or payment processing services, advising them of the renewed option to engage in services previously denied.
- Report Compliance: Lenders must submit a report to the SBA by January 5, 2026, evidencing their compliance with these directives to remain in good standing with the agency and avoid punitive measures.
In the press release, SBA Administrator Kelly Loeffler emphasized that the agency is committed to ending discriminatory debanking practices that have targeted right-leaning businesses, non-profits, and individuals, including Christian, pro-life, and Second Amendment organizations. Importantly, the press release also notes that “[l]enders who fail to comply with these directives will lose their good standing with the SBA and will be subject to additional punitive measures.”
Our Take
The SBA’s directive represents a significant federal agency effort to enforce Executive Order 14331, aiming to ensure fair access to banking services for all Americans, with material consequences for non-compliance.
We note that the policies of some financial institutions to avoid offering banking products or services to certain individuals or businesses was brought about by regulatory pressure during prior Democratic administrations. Similarly, a Republican administration is now applying similar pressure through this executive order to effectuate access to banking products and services for the same individuals and businesses. Banks find themselves at the center of this political game of tug-of-war. But our belief is that banks who have maintained policies or practices as a result of regulatory pressure during prior administrations may well be at risk of supervisory action, or even public recriminations, if those policies target groups favored by the current administration.
In particular, in addition to the SBA’s action announced on August 26 and the compliance reporting required by it, financial institutions should pay heed to the requirement found in Section 5(c) of the executive order that federal banking regulators review their supervisory and complaint data to identify any institution that has engaged in unlawful debanking on the basis of religion and, if the institution is unable to achieve compliance, then refer such matters to the Attorney General for appropriate civil action. That provision poses real risk to financial institutions, even beyond the risk of actions that the SBA may take.
To comply with Executive Order 14331, financial institutions should conduct reviews of their policies, procedures, practices and records related to all of their services (deposit accounts, payments, and consumer and business lending) to determine whether any activities could be considered debanking practices and then make the required adjustments.
