How big of a problem is debanking? No one knows for sure

Bloomberg News

The practice of "debanking" — when a bank unilaterally closes a consumer or business account — has emerged as a critical node of the second Trump administration's regulatory agenda, with lawmakers and regulators vowing to crack down on the practice. But quantifying just how frequently debanking occurs and why has proven a nearly impossible challenge.

"How does it happen?" asked Steve Gannon, a partner at Davis Wright Tremaine. "Nobody knows because it's all protected as confidential supervisory information."

Neither banks nor regulators track or report data on numbers of closed accounts or reasons for their closure. The lack of uniform reporting requirements by financial regulators is a key reason why concrete data on debanking remains elusive, and in the absence of hard data, anecdotal evidence has become more widespread.  

But some analysts are looking for novel ways to quantify the depth of the problem. For some consumers, having their bank account closed — often without notice or even a reason given — sparked enough concern for them to complain to the Consumer Financial Protection Bureau.

Jim McCarthy, chairman of McCarthy Hatch, a Dallas consulting firm that uses machine-learning algorithms to monitor and analyze consumer complaints and regulatory changes, said his firm's analysis shows a notable spike in complaints between March 2022 and October 2024 among supervised institutions. The rise in bank-account closures coincided with increased discussions and enforcement actions around anti-money laundering and risk profiling.

"Debanking has been growing in frequency and impact," McCarthy said. 

McCarthy Hatch's analysis identified key themes driving consumer complaints about bank-account closures, including a lack of transparency, inconsistent customer support and restricted access to funds. Many consumers claim they were not notified about a closure and often had to wait 30 to 60 days before being able to access their accounts and funds, leaving many in financial distress. 

"Although the numbers are low, the fact patterns are consistent," said McCarthy, a founding member of the CFPB, who designed and built the complaint database.  

The total number of complaints filed with the CFPB every year is in the hundreds, but Asaf Buchner, CEO of McCarthy Hatch, said that for every consumer who complains about their account being closed, there could be many more who don't file a CFPB complaint. 

"These are situations like mice — where if you see one, you know there are others," said Asaf Buchner, CEO of McCarthy Hatch. "For each complaint, you would find 10 times the number" of instances of debanking.

The CFPB, which is currently shuttered and is being downsized as part of the Trump administration's cost-cutting efforts, does not require banks to report account closures. But the bureau's database can be searched for specific words such as "account closed," and "funds unavailable," that provides at least one way to quantify the depth of the problem.

The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency also do not mandate standardized reporting on all bank account closures, though both agencies receive reports on broader compliance issues. 

But in the face of hard data on the breadth or cause of the debanking problem, many in the administration — as well as frustrated consumers — have concluded that the phenomenon has been spurred by directives from the Biden administration to limit financial access to cryptocurrency clients or political rivals, using anecdotal evidence as proof. 

Sen. Tim Scott, R-S.C., who chairs the Senate Banking Committee, claimed at a hearing this month that regulators in the Biden administration "abused their power and forced financial institutions to cut off services to digital asset firms, political figures, and conservative-aligned businesses and individuals." 

Federal Reserve

Fed's Barr: No evidence of political debanking

February 18, 2025 3:55 PM

The depth of the problem has been debated in Congress and among regulators. The Federal Reserve's Vice Chair for Supervision, Michael Barr, said last week that banks are not dropping customers based on their political actions or affiliations. 

"I haven't seen any evidence of that kind of activity," Barr said. "The thing that people raise more directly is a bank engaged in activities that are higher risk and therefore reducing their client exposure because of concerns about money laundering or terrorist financing, for example."

Banks often do not provide consumers or businesses with a reason for closing an account, citing proprietary risk models and compliance with anti-money laundering obligations that limit transparency. Banks have no obligation to provide bank accounts to individuals or businesses under account contracts as long as they are not discriminating, lawyers said. 

"We have a diverse regulatory system and that means accountability is a little bit harder to define," said Travis Norton, a lawyer and lobbyist who founded Acumen Strategies LLC, a lobbying firm. "Policymakers should decide either to tolerate more risk — and spare the outcry when a bank fails and the Deposit Insurance Fund is used — or to tolerate less risk and empower regulators to place conditions on financial institutions."

There may be valid reasons why banks close an account, but consumers are not always aware of the obligations that banks have to meet under the Bank Secrecy Act. That 1970 law requires that banks monitor and report suspicious activity, but typically banks do not tell consumers why an account has been closed — which may or may not come at the request or guidance of regulators. 

The FDIC and OCC issued a guidance in 2022 asking banks to check with their regulators before entering into partnerships with cryptocurrency firms, though the guidance did not explicitly prohibit banks from such partnerships. Though interpretive rules, guidance and letters are non-binding, Gannon claims banks abided by such guidance during the Biden administration out of concern that management would get dinged on their CAMELs ratings, a system that evaluates banks for capital, assets, management, earnings, liquidity and sensitivity to market risk. 

McCarthy said that in some cases, accounts might be closed for reasons of insufficient funds or demonstrable fraud, but it is "very difficult to know" because consumers have no way to appeal an account closure, leaving them in the dark. Congress is exploring whether to implement a mandatory appeals process for affected consumers and McCarthy suggests enhanced oversight of the use of risk profiles that lead to account closures. 

Reputational risk also has become an issue in the discussion around debanking with House Republicans suggesting that examiners simply remove it as a factor in supervisory exams. 

Sen. Elizabeth Warren, D-Mass., the ranking member of the Senate Banking Committee, said that her staff identified 11,955 complaints to the CFPB over three years, with some common themes — including banks dropping consumers due to repeated overdrafts.  

"One day, all of a sudden, they lost their place in the banking system," Warren said at the Feb. 5 hearing. 

Among the individual complaints that McCarthy Hatch analyzed was a South Carolina bank customer whose account was closed with no access for more than 45 days, resulting in missed rent payments. Another example came from a small-business owner who was notified by a bank that the account would be closed within 10 business days without any explanation given, disrupting payroll transactions. A bank customer in Ohio collecting disability benefits had their account closed unexpectedly and could not access more than $10,000 in the account causing severe hardship.

Some individuals, businesses and types of accounts with higher risk profiles may find it hard to access banking services specifically because they run afoul of anti-money-laundering regulations.

"Debanking for a lot of people means [a bank] didn't give them or their business a bank account and they don't like the outcome and don't understand it because the bank is not allowed to tell them why," said Norton, the lobbyist. "And if they don't have an explanation, they feel wronged. But there might be a good reason behind it — and sometimes, there isn't."