Digital identity in the United States operates within a complex legal landscape that spans federal requirements, state privacy laws, sector-specific regulations, and emerging legislation. Understanding this framework is essential for anyone building, deploying, or relying on digital identity systems.
Federal foundations
Several federal laws create the baseline for identity and privacy in the United States.
The REAL ID Act of 2005 establishes federal security standards for state-issued driver's licenses and identification cards. Federal agencies, including TSA, cannot accept non-compliant IDs for official purposes like boarding commercial aircraft or entering federal facilities. Mobile driver's licenses must meet REAL ID requirements to be accepted at TSA checkpoints.
The Privacy Act of 1974 governs how federal agencies collect, maintain, and use personally identifiable information. It grants individuals rights to access their records and limits how agencies can share information, establishing foundational privacy principles for government identity systems.
The Bank Secrecy Act and associated FinCEN regulations require financial institutions to follow customer identification (CIP) and due diligence (CDD) procedures. These requirements shape how banks can use verifiable digital credentials for compliance, creating both constraints and opportunities for digital identity adoption in financial services.
Emerging financial legislation
New legislation is reshaping the landscape.
The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) directs Treasury to explore innovative methods for identity verification in digital asset contexts, explicitly calling for privacy-preserving verifiable digital credentials that can support AML/CFT compliance.
The CLARITY Act is opening doors to modernizing financial identity, potentially allowing verifiable digital credentials to replace document-heavy verification processes.
These developments signal federal recognition that digital identity is essential infrastructure for modern financial systems.
State privacy laws
States have enacted comprehensive privacy legislation that affects digital identity.
The California Consumer Privacy Act (CCPA) and California Privacy Rights Act (CPRA) grant residents rights to know what data is collected, request deletion, opt out of sales, and correct inaccurate information. Digital identity systems operating in California must comply with these requirements.
The Virginia Consumer Data Protection Act (VCDPA), Colorado Privacy Act (CPA), and Utah Consumer Privacy Act (UCPA) create similar protections in their respective states, with variations in scope and requirements.
These laws establish that privacy is a legal obligation, not just a design preference.
Digital identity-specific legislation
Some states have enacted laws specifically addressing digital identity.
Utah Code § 63A-16-1202 (2025) establishes the most comprehensive state framework for digital identity. It makes participation fully optional, prohibits phone-home surveillance, mandates selective disclosure, bans device handover requirements, and requires that physical IDs remain valid. It represents a first-in-the-nation legal model for privacy-preserving digital identity.
State electronic license certificate programs authorize DMVs to issue digital versions of driver's licenses, though the specific requirements and protections vary by state.
Sector-specific regulations
Identity-related requirements also appear in sector-specific laws.
HIPAA governs health information privacy, affecting how digital credentials can be used in healthcare contexts.
COPPA protects children's online privacy, creating requirements for identity verification involving minors.
GLBA requires financial institutions to safeguard nonpublic personal information, influencing how digital identity integrates with banking systems.
The compliance challenge
For verifiers, the compliance question is paramount: if I accept this credential, will regulators agree I've met my obligations? Until federal rules explicitly recognize verifiable digital credentials as satisfying CIP, CDD, and other requirements, regulated institutions face uncertainty.
This regulatory clarity is emerging but incomplete. Policymakers, regulators, and industry must work together to ensure that laws enable rather than obstruct the responsible deployment of privacy-preserving digital identity.
Want to keep learning?
Subscribe to our blog.
