Bank regulators issue guidance on credit risk for unauthorized workers

Federal banking regulators on Monday issued guidance to remind financial institutions of their existing obligations for managing credit risk when lending to borrowers who are not legally authorized to work in the U.S.

The Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corp. (FDIC) and the National Credit Union Administration (NCUA) said lending to individuals without work authorization “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.”

Stemming from Trump EO

Monday’s guidance is tied to President Donald Trump’s May 19 executive order, “Restoring Integrity to America’s Financial System.” The order directs federal agencies to address what the administration described as risks to the financial system from providing credit or financial services to people who are considered inadmissible or removable under immigration laws.

The executive order requested that banking regulators, within 60 days, issue guidance on managing the credit risks associated with borrowers who are not authorized to work in the U.S.

The guidance does not prohibit banks, credit unions or other supervised financial institutions from lending to borrowers based on immigration status. But it direct these institutions to evaluate repayment risks through existing underwriting and risk management practices.

“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,” the guidance stated.

The regulators said institutions should continue to apply applicable consumer protection laws when evaluating borrowers. The guidance specifically points financial institutions to a June 2026 statement from the Consumer Financial Protection Bureau (CFPB) on ability-to-repay requirements and immigration status, which was also a requested response to May’s executive order.

“Similar to the CFPB guidance, the agencies continue to phrase their statements as reminders of existing obligations, as opposed to specific new requirements,” said Kris Kully, a partner at Mayer Brown. 

Kully noted that an addition in the interagency statement is the discussion of portfolio and concentration risk. 

“While the CFPB’s guidance related to the requirements to determine an applicant’s ability to repay (ATR) addressed individual credit risks, this interagency guidance poses whether certain geographic areas, employers, or industries may be particularly susceptible to ‘credit deterioration’ due to immigration enforcement and other factors,” she said.

Fair lending guardrails

Troy Garris, a co-managing partner at Garris Horn LLP, said that his interpretation was also a “friendly reminder” of lender obligations.

“I don’t see it so much as being restrictive, although it could be interpreted that way, and the same with the interagency guidance that just came out. It could be used in a way that is restrictive,” Garris said in an interview with HousingWire.

“Post Dodd-Frank, you have to make sure that people have a legitimate ability to repay the loans,” he added. “I do think that there is embedded in there some potential protection for lenders, in the sense that … this in part gives people some ability to say, ‘Well, wait a minute, when I have to satisfy my ability‑to‑repay requirement, it’s OK for me to ask.’ You’re not going to run afoul of fair lending laws by asking these types of questions.”

The CFPB’s statement reminded creditors of their obligations under the Truth in Lending Act (TILA), as implemented by Regulation Z, and the Equal Credit Opportunity Act (ECOA), as implemented by Regulation B, regarding borrowers who are not authorized to work in the U.S.

“In this world where you’re required as a mortgage lender to satisfy yourself reasonably based on information available today that the borrower is going to be able to repay the loan, then with the question of what if somebody doesn’t actually have the authority to work here, what does that mean? And I don’t think anybody really knows the answer to that,” Garris said.

“I think, partly, this guidance might be aimed at giving the lenders some comfort that they can ask questions because they have to satisfy the ATR requirement.”

Monday’s guidance is the latest action by the Trump administration that could increase scrutiny of how financial institutions serve borrowers who are not legally authorized to work in the U.S., including their access to credit and other financial services.

In early June, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an advisory notice warning financial institutions about potential identity theft, payroll tax fraud and money laundering risks associated with hiring unauthorized workers.

“The federal agencies are dutifully following the president’s orders to examine potential risks to the financial system of institutions that provide banking or credit services to individuals who may be subject to removal,” Kully said.