Forcing banks to collect citizenship information will hurt law-abiding Americans

There are recent reports that the Trump administration is considering an executive order or Treasury action that would require banks to collect customers’ citizenship information. This may include collecting documents such as passports from existing customers, not just new account holders. That is not “tightening the rules.” It is the growing expansion of corporate data collection that will increase costs for banks and customers, reduce access to basic banking services and drive more work in the shadows.

The intent may be to tackle illegal immigration and enforce the law, but this approach treats banks as a substitute for an effective immigration system. Washington’s struggle to consistently enforce immigration policy does not justify shifting the burden to financial institutions and law-abiding Americans. Expanding government access to private financial institutions is not the solution to immigration failure. Reforming immigration policy. Offloading enforcement costs from banks is another way politicians deflect blame and hide the price tag.

Banks already operate under a sensitive identity verification mandate. Federal Customer Identification Program requirements under 31 CFR 1020.220 require banks to collect identifying information and use risk-based procedures to verify identity to form a “reasonable belief” that they know the customer’s true identity. Identity verification is already the rule. This proposal adds a new, different layer: the classification of citizens by scale.

That means unexpected costs are imposed on people who are already complying with the law. Banks will need new systems, training of new employees, new salespeople, new audits and new processes to manage differences for customers who cannot meet the new needs quickly. Compliance costs do not stay with the bank. They are characterized by high fees, few low-cost accounts and very poor service.

It also means more conflict just to participate in the modern economy. The “citizenship information” mandate would make it harder for people to open accounts and could impose new documentation obligations on existing customers. Simply put, this is a regulatory landmine. When regulators increase penalties for wrongdoing, banks are forced to be more careful about who they can serve and do so at higher costs.

That’s how the withdrawal gets worse. President Trump’s executive order – Guaranteeing Fair Banking for All Americans – seeks to address the root cause of this issue by rolling back government regulation that has resulted in the closure of accounts at financial institutions across the country. The new nationwide citizenship data mandate will only impose the same powers that force banks to close accounts rather than risk legal action.

Now, the privacy issue. The proposal would require financial institutions to collect and transfer large amounts of highly sensitive personal information. The larger the data set, the larger the objective. More collection and more transfers create more points of failure and greater risk of infringement, internal abuse, and defamation. Once the federal government builds the pipeline, it will not be limited in its initial accountability.

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Conservatives have pushed back years of opposition to government intrusion into personal financial matters, including mandates that compel private disclosures to the government. The battle to report beneficial ownership under the Corporate Transparency Act is the latest example of how quickly “crime-fighting” justifications are turning into broad surveillance structures. Requiring banks to collect citizenship information from hundreds of millions of customers would be a broader expansion of corporate data collection than small businesses are told to accept.

And the burden will not be distributed evenly. Many Americans do not have passports or easy access to official documents. The Washington Post reports that nearly half of the population does not have a passport, and banking industry experts warn that the requirement could limit access to financial services and pressure people into higher-cost options. Elderly people, rural residents and people with low incomes are the most likely to be caught in the gears. In rural communities, the challenge is even worse because registry offices and support services are far away and difficult to reach.

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That leads to the most self-defeating effect of all: forcing people out of traditional banks. When barriers to compliance rise, people don’t stop earning, spending and saving. They circle the system. That means more red tape and more formalities, making financial crimes harder to detect and less visible. This is why severe financial discipline often backfires. They can drive legal work away from institutions where patterns can be monitored and toward channels where law enforcement sees less, not more.

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This is not an argument for weak enforcement of the existing law. It’s an argument for doing enforcement the right way, using tools that target bad actors, not building an ever-expanding registry with a banking system that sweeps everyone away. Banks exist to protect deposits and distribute money, not to be a national citizenship test.

If Washington wants a more secure and legal system, it should start with policies that increase compliance where it matters and reduce compliance burdens where it doesn’t. This proposal does the opposite: it punishes compliance, expands government reach, and makes the system less transparent by driving people out of it.