Interagency Guidance on Lending to Individuals Not Legally Authorized to Work in the United States
Samantha: Hello, this is Samantha Shares.
This episode covers Interagency Guidance
on Lending to Individuals Not Legally
Authorized to Work in the United States.
The following is an audio
version of that document.
This podcast is educational
and is not legal advice.
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And now the document.
Federal Deposit Insurance Corporation.
National Credit Union Administration.
Office of the Comptroller of the Currency.
July thirteenth, twenty twenty-six.
Interagency Guidance on Lending to
Individuals Not Legally Authorized
to Work in the United States.
On May nineteenth, twenty twenty-six,
the President issued the Executive
Order, Restoring Integrity to America's
Financial System, to address risks to the
financial system posed by the extension
of credit or financial services to the
inadmissible and removable population.
In accordance with the Executive Order,
the Office of the Comptroller of the
Currency, Treasury, referred to as the
O C C, the Federal Deposit Insurance
Corporation, referred to as the F D
I C, and the National Credit Union
Administration, referred to as the N C
U A, and collectively referred to as the
agencies, are issuing this guidance to
remind supervised financial institutions
of their existing obligations with
respect to credit risk management,
particularly as it relates to borrowers
who are not legally authorized to
work in the United States, referred
to as non-work authorized borrowers.
Credit Risk and
Underwriting Considerations.
Lending to individuals who are not
legally authorized to work in the United
States may present elevated credit
risk because a borrower's ability to
generate income, maintain employment,
and remain financially stable may
be subject to greater uncertainty.
As with all lending activities, financial
institutions should identify, measure,
monitor, and control these risks through
safe and sound underwriting practices
that assess a borrower's willingness
and capacity to repay according to
the terms of the credit obligation.
Safe and sound underwriting is a
key risk-management tool that helps
financial institutions evaluate
whether a borrower can repay a credit
obligation according to its terms.
Such underwriting includes assessing
the source of repayment, the borrower's
repayment capacity, and the borrower's
overall financial condition, resources,
and willingness to repay as agreed.
When lending to non-work authorized
borrowers, financial institutions should
consider whether uncertainties related to
employment authorization may affect the
stability and sustainability of income,
repayment capacity, collateral recovery,
or other factors relevant to credit risk.
The following sections discuss key
underwriting considerations related
to the source of repayment, collateral
considerations, documentation
and verification, portfolio and
concentration considerations,
and consumer compliance risk.
Source of Repayment.
Underwriting standards typically consider
the stability and sustainability of a
borrower's income and the likelihood
that the income will continue throughout
the term of the credit obligation.
In retail lending, wages or
self-employment income are often
the primary source of repayment.
When a borrower's income is derived
from employment that is not legally
authorized, the source of repayment
may be less reliable and may present
increased credit risk for various reasons,
including: employment termination due
to an employee not having legal work
authorization; employment suspension
or termination after discovering that
an employee's employment authorization
is expired; the borrower's inability
to become lawfully reemployed; or the
borrower's removal from the United States.
Financial institutions should
consider whether projected repayment
capacity remains adequate under
various scenarios including potential
interruptions in employment or income
resulting from the borrower's inability
to maintain lawful employment.
Collateral Considerations.
Financial institutions may face additional
challenges enforcing security interests
in collateralized loans, as it may be more
difficult to contact non-work authorized
borrowers or locate and repossess
unaffixed collateral, such as automobiles,
recreational vehicles, and boats.
Documentation and Verification.
Financial institutions might
consider whether employment
income is current, verifiable,
stable, and likely to continue.
Financial institutions might
consider, as relevant, requiring
and reviewing paystubs, W two forms,
tax returns, employer verifications,
bank statements, or evidence of
continuing work authorization.
Financial institutions may consider
whether loans to non-work authorized
borrowers, individually or in segments,
exhibit signs of credit weakness
regardless of delinquency status for
classification purposes and treatment
in the allowance for credit losses.
Portfolio and Concentration
Risk Considerations.
Financial institutions with significant
lending exposure to borrowers
concentrated in specific geographic
markets, employers, or industries that
may be disproportionately affected by
changes in immigration enforcement,
employment verification practices, labor
availability, or workforce disruptions
may face elevated concentration risk.
These changes could adversely
affect the repayment capacity of
multiple borrowers simultaneously.
As a result, financial institutions
may experience correlated credit
deterioration within affected
segments of the portfolio rather
than isolated borrower-level stress.
Consumer Compliance Risk.
On June eighth, twenty twenty-six, the
Consumer Financial Protection Bureau,
referred to as the C F P B, issued
the Statement on Ability To Repay and
Immigration Status, to remind creditors
of their obligations under the Truth
in Lending Act, referred to as T I
L A, as implemented by Regulation Z.
As the C F P B observes, under T I L A and
Regulation Z, before lending to consumers
for dwelling secured transactions
like mortgages, creditors must make a
reasonable and good faith determination
at or before consummation that the
consumer will have a reasonable ability
to repay the loan according to its terms.
Regulation Z sets forth parameters
that lenders must follow to make such
reasonable and good faith determinations
of a customer's ability to repay
applicable consumer credit products.
Further, the C F P B advises that
credit card issuers must consider
the consumer's ability to make
required minimum periodic payments.
The C F P B advises that, when determining
repayment ability, creditors relying
on an individual's income derived
from United States based employment
are permitted, and may, under certain
facts and circumstances, be obligated,
to consider information that bears
on the consumer's underlying and
continuing ability to earn income, when
residency in the United States is a
necessary component of such employment.
With respect to the Equal Credit
Opportunity Act, referred to as E C O A,
as implemented by Regulation B, the C F P
B observes that E C O A expressly states
that a creditor may take the applicant's
immigration status into account, and that
a creditor may consider the applicant's
immigration status or status as a
permanent resident of the United States,
and any additional information that may
be necessary to ascertain the creditor's
rights and remedies regarding repayment.
Consistent with applicable laws and
regulations, financial institutions
should consider the risks associated
with non-work authorized borrowers
in underwriting and account
management policies and processes.
Financial institutions are advised
to review the C F P B's June eighth,
twenty twenty-six, Statement on Ability
To Repay and Immigration Status in
light of the compliance obligations
set forth in T I L A and Regulation Z
as well as E C O A and Regulation B.
This concludes the document.
If your credit union could use assistance
with your exam, reach out to Mark Treichel
on LinkedIn or at Mark Treichel dot com.
This is Samantha Shares, and
we thank you for listening.
