Three federal banking supervisors on Monday published joint guidance advising banks, thrifts and credit unions to exercise heightened caution when underwriting loans for borrowers whose income is produced by employment for which they lack legal authorization.
The Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) said in the guidance that income derived from unauthorized employment may be a less reliable source of repayment and could therefore elevate credit risk for lenders.
"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," the guidance stated.
The agencies listed several specific circumstances that can make repayment prospects less dependable, including:
- the risk of job loss tied to the borrower’s immigration status;
- the borrower’s inability to obtain legal employment; and
- the possibility of removal from the United States.
The guidance was described as nonbinding and not creating new regulatory requirements for financial institutions. Rather, regulators framed it as a reminder of existing supervisory expectations and as part of a broader effort to carry out an executive order issued in May.
That executive order focused on potential misuse of financial services by individuals living in the United States illegally and directed the Department of the Treasury and other federal agencies to identify warning signs the industry should consider. According to the regulators, the guidance aligns with the order's objective of highlighting indicators that may signal elevated risk.
The May executive order was characterized as a narrower approach than an earlier proposal from the administration that would have asked banks to collect citizenship information from accountholders. The guidance released by the OCC, FDIC and NCUA does not resurrect new data-collection mandates; it reiterates supervisory principles for credit assessment where a borrower’s earnings depend on unauthorized work.
For lenders and market participants, the guidance underscores the need to evaluate income stability and documentation in credit underwriting. While the guidance does not impose additional legal obligations, it signals supervisory attention to underwriting practices where repayment capacity may be compromised by immigration-related vulnerabilities.