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Families still pay. They just pay through higher bank fees, worse service, and more red tape when they’re trying to do normal life: Deposit a paycheck, pay bills, or open an account for a kid headed to college.

Banks already operate under strict federal identity verification mandates. The Customer Identification Program rule in 31 CFR 1020.220 requires banks to collect identifying information and use risk-based procedures to form a “reasonable belief” they know a customer’s true identity. That’s not some casual guideline — it’s enforceable law. This proposal is a separate and far broader mandate: citizenship classification at scale.

The feasibility problems alone should stop this idea. What documents count as proof of citizenship? A passport? A birth certificate? A naturalization certificate? What about name changes, mismatched records, replacement documents, or older documents that don’t match modern databases?

Policymakers pushing this plan rarely grapple with the operational truth: When standards are unclear, and penalties are high, banks respond by slowing onboarding, demanding more paperwork, and denying or closing accounts to reduce compliance exposure. That’s not because banks are mean — it’s because the incentives punish mistakes more than they reward customer service.

Then there’s the cost, and it’s not hypothetical. One estimate finds that verifying citizenship for new accounts could add 33.1 million to 73.3 million additional paperwork hours and $2.6 billion to $5.6 billion in administrative costs. Treat those numbers like a floor, not a ceiling, because they focus on new accounts.

If the mandate extends to existing customers, you’re no longer talking about onboarding. You’re talking about re-papering a big portion of the entire banking system.

Compliance costs do not stay at the bank. They get passed along. Higher monthly account fees. Fewer low-cost checking options. More minimum balance requirements. Fewer branches in low-margin areas.

Less flexibility for small businesses trying to set up accounts quickly so they can make payroll. Community banks and credit unions get hit hardest because they cannot spread fixed compliance costs across a massive national footprint. The result is a hidden tax on everyday Americans — paid not to improve banking, but to cover for federal dysfunction.

This plan would also intensify the debanking problem policymakers say they want to reduce. Even before any citizenship mandate, regulators and lawmakers have been grappling with how compliance pressure and subjective standards can lead to restricted access and account closures. 

That’s why federal regulators have moved to curb the use of reputation risk as an examination tool that can nudge banks toward denying services for non-financial reasons. Add a sweeping citizenship verification regime, and you increase uncertainty and raise the stakes for errors. The rational response is de-risking: fewer accounts, more freezes, more closures, and more blunt screening rules.

Now add the privacy bomb. Citizenship verification means collecting, storing, and potentially transmitting highly sensitive personal information on a massive scale. Bigger datasets become bigger targets. More collection points and more transfers mean greater breach risk, more insider misuse risk, and more mission creep risk.

Once a federal pipeline exists, it rarely stays limited to its original justification. That’s the historical pattern of compliance architectures: “just this one thing” becomes the foundation for the next “just this one thing.”

Conservatives have pushed back for years against compelled financial disclosure and creeping surveillance. The fight over beneficial ownership reporting is a recent example of how quickly “law enforcement” logic can morph into a broad data-collection regime that sweeps up normal Americans who are doing nothing wrong.

A citizenship mandate in banking would be bigger than that, touching vastly more people and vastly more accounts.

The burden also won’t fall evenly. Passport possession is nowhere near universal. Estimates suggest roughly 47% of Americans don’t have a valid passport, meaning millions could face immediate documentation friction if passports become the default proof document. Seniors, rural residents, and lower-income households are most likely to get caught in the gears, especially where documentation offices are far away and support services are limited.

That’s not targeted enforcement. That’s collateral damage baked into the design.

Supporters will argue this is about fighting financial crime. But serious financial crime detection is primarily about transaction behavior, suspicious patterns, and network analysis — things banks already monitor under existing compliance regimes.

Citizenship status is a crude proxy that risks both false positives (hassling the innocent) and false negatives (missing sophisticated criminals). Worse, if you make mainstream banking harder, you push more people into cash-based or informal channels where transparency is lower and monitoring is weaker. That makes it harder, not easier, to detect real wrongdoing.

There’s a better way that doesn’t punish the compliant: Enforce immigration laws directly through the agencies responsible.

Improve verification where it belongs: in employment eligibility, visa tracking, overstays, and targeted investigations of real criminal networks. Don’t impose a sweeping new mandate that effectively turns banks into immigration screeners and forces families to pay higher banking costs to cover for Washington’s failures.

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A free society doesn’t treat ordinary citizens like compliance suspects because the government won’t fix its own broken systems. Turning banks into border agents is the wrong tool, the wrong target, and the wrong tradeoff. 

If policymakers want a more lawful, more secure system, they should fix immigration policy without building a new financial surveillance layer that families end up funding.

Vance Ginn, Ph.D., is president of Ginn Economic Consulting and a former chief economist at the White House Office of Management and Budget. He resides in Round Rock, Texas, and publishes his Let People Prosper newsletter and podcast at vanceginn.com.