Banks and credit unions expose themselves to elevated risk when lending to people not legally authorized to work in the U.S., federal regulators said in joint guidance issued Monday.
Those individuals may not be able to generate income or maintain employment, and also run the risk of being deported, according to the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and National Credit Union Administration.
Financial institutions should therefore “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,” regulators said.
“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,” stated the guidance, which is nonbinding.
Regulators listed several reasons repayment could be riskier from unauthorized workers, including the suspension or termination of their employment after discovery that the borrower’s employment authorization has expired, or his or her removal from the U.S.
The joint guidance reminded financial institutions of guidance issued in June by the Consumer Protection Financial Bureau, which clarified that the Truth in Lending Act and Regulation Z may obligate creditors to consider an applicant’s immigration status when assessing his or her ability to repay a loan.
The joint guidance follows a May executive order by President Donald Trump, who directed regulators to require financial institutions to treat a customer’s lack of work authorization as a credit risk factor.
