Financial regulators are the latest agents to be recruited in the Trump administration’s war on immigration. Their weapon of choice appears to be debanking.
Choke Point, Again
The Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), and Office of the Comptroller of the Currency (OCC) came together to warn banks about offering services to “individuals who are not legally authorized to work in the United States.” In other words, the regulators are pressuring banks to cut off anyone suspected of being an undocumented immigrant.
These tactics are all too familiar. Regulators (namely, the FDIC) applied similar pressure through Operation Choke Point during the 2010s to target payday lenders, pawnshops, and other businesses. Then, regulators did it again with Operation Choke Point 2.0 during the early 2020s to target cryptocurrency companies. Now, it seems we are entering Operation Choke Point 3.0.
Where Does It End?
The Trump administration’s core argument is that undocumented immigrants present a risk to the financial system because if they are deported, then they will lose their jobs and be unable to repay their loans. Setting aside all of the problems with the immigration system (something my colleague David Bier has covered extensively), this argument can apply to no shortage of issues.
Should banks be required to investigate marital conditions because a divorce could impact a customer’s ability to repay? Should banks be required to investigate mental health conditions because a sudden crisis could result in a lost job? A line has to be drawn somewhere.
Strict immigration advocates may counter that the line is drawn at illegal activity. However, banks are not immigration officers. And there’s already a history of failure with this approach—the experience with the Bank Secrecy Act has shown that treating banks as an arm of law enforcement is not effective.
Representative French Hill (R‑AR) noted this reality at a recent congressional hearing when he said, “I question whether [financial surveillance at the border is] really serving the goals created or that they are just creating more bureaucracy.” Representative Hill went on to ask Financial Crimes Enforcement Network (FinCEN) Director Andrea Gacki how many criminals have been stopped at the border because of financial surveillance. She didn’t know.
Collateral Damage
American citizens are unlikely to be spared from this war. The costs are likely to be felt by everyone. First, higher compliance costs are likely to be passed on to customers. That means lower interest rates on savings accounts, higher interest rates on loans, and then higher fees for other services. Yet, the trouble won’t end there. As people are cut off from the system, there will be fewer deposits in the system to fund loans. In effect, interest rates on loans will be driven even higher.
The costs won’t just hit our wallets. There will also be increased violations of our privacy as banks investigate our citizenship and employment. In practice, that means banks will conduct more extensive background checks on every customer.
Together, these heightened costs are likely to result in the debanking of customers, reduced financial inclusion, and higher barriers to entry.
Conclusion
President Donald Trump campaigned on ending debanking. Yet, it seems he was only concerned about debanking when it came to his allies. The Trump administration has increasingly weaponized the financial system against its opponents. It started with Antifa and has now moved to immigrants. Where it moves next is anyone’s guess. But the correct policy is one that allows banks to be banks, rather than forcing them to be a police force.
