Federal regulators are advising financial institutions to consider the possibility of deportation or lost employment authorization when evaluating loans to customers living in the United States illegally.
By yourNEWS Media Newsroom
WASHINGTON — The Trump administration is directing banks, credit unions and other financial institutions to strengthen their review of lending risks involving borrowers who are not authorized to work or remain in the United States.
Three federal financial regulators are expected to issue joint guidance Monday reminding institutions of their know-your-customer obligations and emphasizing that a borrower’s immigration and employment status may affect the ability to repay a loan.
The guidance is being issued by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the National Credit Union Administration.
The agencies said borrowers living in the country illegally may present increased credit risk because they could lose employment authorization, be removed from the United States or otherwise experience disruptions that affect income and repayment.
The guidance does not expressly order banks to close accounts or deny credit solely because of a customer’s immigration status.
Instead, it urges financial institutions to account for those risks when underwriting loans, monitoring existing credit and evaluating a borrower’s capacity to meet financial obligations.
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,” according to a news release describing the guidance.
The action is part of a broader effort by the administration to limit access to the U.S. financial system for people living in the country illegally.
Measures introduced during the past nine months have encouraged banks to examine whether customers are lawfully present, legally permitted to work and using valid identification when opening accounts, obtaining credit cards or applying for loans.
The policies stop short of directly requiring financial institutions to remove such customers, but they increase regulatory pressure on banks to evaluate legal status and associated financial risks.
There is limited public data showing how many people living in the United States illegally hold bank accounts or have outstanding loans from regulated financial institutions.
The new guidance follows an executive order signed by President Donald Trump in May directing banks, regulators and federal departments to examine immigration or legal status more closely in financial transactions.
That order began the administration’s latest series of banking-policy changes and instructed agencies to look for indications that people without lawful status were opening accounts or receiving loans and credit cards.
Federal officials have framed the effort as both a credit-risk issue and a means of preventing fraud involving false identities, unauthorized employment and misuse of the financial system.
In May, the Treasury Department’s Financial Crimes Enforcement Network, known as FinCEN, issued a separate advisory instructing banks to watch for identity theft, payroll tax fraud and money-laundering operations associated with the employment of people who are not authorized to work in the country.
The advisory listed more than a dozen warning signs that financial institutions could use to identify potentially suspicious activity involving customers believed to be living in the United States illegally.
Those indicators were intended to help banks recognize patterns that could suggest false identity documents, the use of another person’s Social Security number, concealed payroll arrangements or other activity tied to unlawful employment.
The administration has also taken steps affecting access to federal tax benefits.
In November, the Treasury Department announced plans to classify certain refundable tax credits as “federal public benefits.” That designation would prevent some immigrant taxpayers from receiving the credits even when they file tax returns, pay taxes and would otherwise meet the financial qualifications.
Tax specialists said the change would affect some recipients of Deferred Action for Childhood Arrivals, commonly known as DACA, as well as immigrants holding Temporary Protected Status.
DACA applies to certain immigrants who were brought into the United States illegally as children, while Temporary Protected Status allows eligible nationals of designated countries to remain and work in the country for limited periods because of dangerous conditions in their homelands.
The latest banking guidance expands the administration’s focus from fraud detection and customer identification to the financial consequences of possible deportation or lost work authorization.
Banks generally evaluate income, employment history, debt obligations, credit records and collateral before approving loans. Regulators are now advising them to consider whether a borrower’s ability to remain employed and present in the United States could change during the life of the loan.
The agencies’ position is that sudden removal or loss of legal work authorization could interrupt income and make repayment less likely, particularly for mortgages, automobile loans and other forms of longer-term credit.
The guidance is expected to reinforce existing requirements for banks to maintain safe lending practices and understand the identities, financial circumstances and risks associated with their customers.
It also marks another step in the administration’s campaign to reduce the ability of people living in the country illegally to participate fully in the nation’s banking and credit systems.
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