New reg guidance focuses on risk to FIs of lending to those not authorized to work in U.S.

Guidance issued Monday by the federal bank and credit union regulators reminds supervised institutions of their obligations related to credit risk management with regard to borrowers who are not legally authorized to work in the United States.

The guidance, issued jointly by the Federal Deposit Insurance Corp. (FDIC), National Credit Union Administration (NCUA), and Office of the Comptroller of the Currency (OCC) in accordance with a May executive order from the White House, says lending to those not authorized to work in the U.S. “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.”

Financial institutions are advised in the guidance to “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 three-page guidance focuses on key underwriting considerations related to source of repayment, collateral considerations, documentation and verification, portfolio and concentration considerations and consumer compliance risk.

It notes that source of repayment, for example, may be affected by a borrower’s being fired for lack of work authorization or expiration of it, or being removed from the U.S.

Discussing portfolio and concentration matters, the guidance notes that institutions “with significant lending exposure to borrowers concentrated in specific geographic markets, employers, or industries that may be disproportionately affected by changes in immigration enforcement, employment verification practices, labor availability, or workforce disruptions may face elevated concentration risk.”

Monday’s guidance also advises institutions to “carefully consider” a statement issued last month by the Consumer Financial Protection Bureau (CFPB) regarding borrowers’ ability to repay and immigration status. The guidance, the agencies noted, reminds creditors of their obligations under the Truth in Lending Act as implemented by Regulation Z, and the Equal Credit Opportunity Act, as implemented by Regulation B, regarding non-work authorized borrowers.

Agencies Issue Guidance on Lending to Individuals Not Legally Authorized to Work in the United States

Executive Order 14406, “Restoring Integrity to America’s Financial System”