The Obama administration is reviewing whether to cut federal aid to North Carolina after its governor signed a bathroom privacy law that critics say targets transgenders.

North Carolina Gov. Pat McCrory signed House Bill 2 or the Public Facilities Privacy and Security Act to override a Charlotte ordinance that would have allowed transgenders to use the bathroom that corresponds to their gender identity.

The new law requires public schools and places of public accommodations to have single-sex bathrooms that can be used only by people based on their biological sex.

The U.S. Departments of Transportation, Education, and Housing and Urban Development are studying whether the new law violates federal laws.

Anthony Foxx, transportation secretary and former Charlotte mayor, said the department is reviewing federal funding to North Carolina which amounts to $1 billion a year, according to the New York Times.

"It's incredibly hard for me to watch what's happening here in North Carolina because I know fundamentally this isn't who we are. But ultimately people have to remember that the people they elect make these decisions, and they've got to think about that moving forward," Foxx said, the Charlotte Observer reported.

U.S. Education Department spokesperson Dorie Nolt told The New York Times that they are also reviewing HB 2 "to determine any potential impact on the state's federal education funding."

"We will not hesitate to act if students' civil rights are being violated," she said. Last year, North Carolina received $4.3 billion in federal education funds for kindergarten to grade 12 and colleges.

The Department of Housing and Urban Development is also assessing the law.

"We're reviewing the effects of the law on HUD funding allocated for North Carolina," said Cameron French, a department spokesman.

The American Civil Liberties Union of North Carolina, Lambda Legal and Equality North Carolina have filed a lawsuit to challenge the constitutionality of HB 2.

Corporations have also voiced their opposition to the new law including Google, Microsoft, Barnes & Noble, Levi & Strauss, Twitter, Starbucks, Wells Fargo, Facebook, and Apple, LifeSite News reports.

The NBA and NCAA also criticised the law.

States and cities that have banned essential travel to North Carolina are New York, Washington, Connecticut, and Minnesota, New York City, San Francisco, Seattle, and Boston.

PayPal announced that it has cancelled a plan to expand in Charlotte because of the law.

North Carolina Lt. Governor Dan Forest defended the law against PayPal's action.

"If our action in keeping men out of women's bathrooms and showers protected the life of just one child or one woman from being molested or assaulted, then it was worth it. If a corporation wanting to do business in North Carolina does not see the worth of our children in the same light, then I wish them well as they do business somewhere else," he said.