The news: President Donald Trump’s May 19 executive order attempts to tie immigration enforcement to the US financial system by directing federal agencies to tighten oversight of how banks treat some immigration-related activity.

Zoom in: The order tells the Treasury to issue new guidance warning banks about financial activity associated with undocumented labor, payroll tax evasion, cartel money laundering, human trafficking, and off-the-books wage payments. Changes for banks would include requirements like:

• Strengthening customer identification, due diligence, and identity verification procedures
• Expanding anti-money laundering (AML) monitoring and suspicious activity reporting 
• Requesting additional information related to immigration or work authorization status during certain risk-based reviews
• Updating underwriting practices tied to “ability-to-repay” risk factors for immigrants

Implications for banks: On the lending side, the executive order encourages regulators to factor deportation risk and potential wage loss into ability-to-repay assessments, potentially tightening underwriting for borrowers using ITINs instead of Social Security numbers—which the order calls a “red flag” for suspicious activity. Many banks lend to customers using ITINs who can still show steady income, strong repayment histories, or assets for sizable down payments. Stopping this practice could therefore affect lending revenues.

On the compliance side, heightened security requirements will raise costs and likely push banks toward more automated AML, fraud-monitoring, and identity-verification tools. These AI solutions can help banks monitor more accounts and transactions quickly, more accurately, and with fewer manual reviews. But the transition to more AI solutions will require significant upfront spending on technology, vendors, governance, and regulatory validation before efficiency gains materialize. 

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