Joint Guidance Issued by Federal Regulators
Banks Told to Verify Income Stability and Repayment Ability More Rigorously
The Trump administration has issued new joint guidance directing banks and other financial institutions to strengthen loan underwriting standards for borrowers who are not legally authorized to work in the United States.
While the guidance does not prohibit lending to undocumented immigrants, it requires lenders to conduct more rigorous evaluations of borrowers’ income stability, repayment capacity, and overall credit risk. The changes are expected to make it more difficult for some undocumented applicants to qualify for loans.
The Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) jointly announced the guidance on July 13, stating that financial institutions should apply enhanced credit risk management practices when evaluating borrowers without legal work authorization. The guidance implements President Donald Trump’s May executive order, “Restoring Integrity to America’s Financial System.”
According to the agencies, individuals who are not legally authorized to work in the United States face a higher risk of income disruption due to deportation, job termination, or the expiration of work authorization. As a result, lenders are instructed to more carefully assess the stability and sustainability of a borrower’s income, repayment ability, collateral value, and recovery prospects.
The guidance recommends that banks verify income using documentation such as pay stubs, W-2 forms, tax returns, employer verification letters, bank statements, and evidence of valid work authorization. Lenders are also encouraged to determine whether borrowers would still be able to repay their loans if they were to lose their legal authorization to work.
For secured loans, regulators warned that repossessing collateral such as automobiles could become more difficult if a borrower leaves the country or cannot be located. The guidance also advises financial institutions to monitor concentration risk in loan portfolios with significant exposure to undocumented workers in certain industries or geographic regions, noting that intensified immigration enforcement could lead to higher default rates.
The Consumer Financial Protection Bureau (CFPB) previously stated that creditors making mortgage and other consumer loans must reasonably determine a borrower’s ability to repay. The agency also said that when lawful immigration status is necessary for employment, lenders may consider how a borrower’s immigration status could affect future earning capacity. In addition, the CFPB noted that the Equal Credit Opportunity Act (ECOA) permits creditors to consider immigration status as one factor in evaluating credit risk.
Although the new guidance does not ban financial services for undocumented immigrants, federal regulators have formally identified such lending as presenting elevated credit risk. Industry observers expect banks and credit unions to adopt more conservative underwriting standards as a result.
Separately, the U.S. Small Business Administration (SBA) revised its lending rules in March to prohibit SBA-backed loans for most non-citizens who do not meet the agency’s eligibility requirements. The latest guidance further expands the Trump administration’s efforts to tighten financial oversight related to immigration status.
