Federal banking supervisors on Monday urged financial institutions to be cautious when extending credit to people whose income is generated by employment for which they are not legally authorized. Regulators said such income streams can be less dependable and therefore increase credit risk for lenders.
The Office of the Comptroller of the Currency (OCC), which oversees the country’s largest banks, and the Federal Deposit Insurance Corporation (FDIC) jointly released the guidance. The National Credit Union Administration (NCUA), which supervises credit unions, also issued the advisory.
In language included in the guidance, regulators warned that non-citizens working in the United States illegally may have "less reliable" income and thus could pose higher credit risk. The text noted several reasons why repayment might be more uncertain, including loss of employment tied to nonlegal status, inability to obtain legal authorization for work, or a borrower's removal from the United States.
The guidance is nonbinding and does not add new regulatory requirements for banks. Instead, it serves as a reminder of existing obligations for lenders to evaluate the reliability of a borrower's repayment sources.
Officials framed the advisory as an implementation step for an executive order signed by President Donald Trump in May. That order directed the Treasury Department and other agencies to identify potential red flags for misuse of financial services by individuals living in the United States illegally.
Regulators and industry observers had been watching for how the executive order would be executed. The administration considered a broader measure that would have compelled banks to collect citizenship data from account holders, but the order ultimately took a lighter approach than some in the financial sector had feared.
What regulators said
- When income underpinning repayment comes from employment that is not legally authorized, the guidance states the "source of repayment may be less reliable and may present increased credit risk."
- The OCC and FDIC issued the guidance to banks; the NCUA provided parallel guidance for credit unions.
Scope and nature of the advisory
The advisory is intended to help financial institutions identify circumstances that could heighten credit risk related to borrowers whose employment status may be unauthorized, while not imposing additional compliance obligations beyond existing standards.
Regulated firms will need to weigh the guidance when assessing creditworthiness, but the nonbinding nature leaves supervisory discretion on how to incorporate the considerations into lending practices.
This article reports the content of the regulators' guidance and the executive order that prompted it, without adding new facts beyond those presented by the agencies.