On July 13, the OCC, the FDIC, and the NCUA issued joint interagency guidance reminding supervised financial institutions of their “existing obligations” regarding credit risk management when lending to borrowers who are not legally authorized to work in the United States. The guidance was issued pursuant to a May 19 executive order, “Restoring Integrity to America’s Financial System” (previously covered by InfoBytes here), addressing risks to the financial system posed by extending credit or financial services to the “inadmissible and removable population.” According to the agencies, lending to non-work authorized borrowers 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, and financial institutions should identify, measure, monitor and control such risks through safe and sound underwriting practices that assess a borrower’s “willingness and capacity to repay.”

The guidance specifically identifies employment termination or suspension due to a lack of, or expiration of, work authorization, a borrower’s inability to become lawfully reemployed, and a borrower’s removal from the United States as risks that may make a borrower’s source of repayment less reliable. The guidance also addresses collateral, documentation, and portfolio-level risks, noting that financial institutions may face additional challenges enforcing security interests or locating and repossessing unaffixed collateral from non-work authorized borrowers, and that institutions might consider reviewing paystubs, W-2s, tax returns, employer verifications, bank statements, or evidence of continuing work authorization when documenting and verifying income.

The agencies further stated that institutions with significant lending exposure concentrated in specific geographic markets, employers, or industries that may be disproportionately affected by immigration enforcement or workforce disruptions may face elevated concentration risk and correlated credit deterioration across affected loan segments. On consumer compliance risk, the guidance references, and encourages financial institutions to review, the CFPB’s June 8 “Statement on Ability to Repay and Immigration Status” (covered by InfoBytes here), noting that under TILA and its implementing regulation, Regulation Z, creditors must make a reasonable and good faith determination that a consumer has the ability to repay a loan, and that under ECOA and its implementing regulation, Regulation B, a creditor may take an applicant’s immigration status into account when assessing the creditor’s rights and remedies regarding repayment.