Regulators urge banks to scrutinize loans to unauthorized immigrants

The Trump administration on Monday issued guidance that experts say could reduce banks’ loans to certain unauthorized immigrants; This is the White House’s latest move to use the financial system to implement a tougher immigration policy.

guidance A statement issued by three federal banking regulators — the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the National Credit Union Administration — said people who are not authorized to work in the U.S. may pose “high credit risk” because their “ability to generate income, maintain employment, and remain financially stable may be subject to greater uncertainty.”

However, the guide does not seem to impose new rules on banks.

Instead, regulators are “reminding” banks of their duties to manage the risks of lending to borrowers who are not authorized to work in the U.S., including assessing the borrower’s “willingness and capacity to repay” the debt, according to the guidance.

“Banks have an obligation to know their customers. It’s a pre-existing obligation,” Comptroller of the Currency Jonathan Gould said in an interview with CNBC’s Squawk on the Street on Monday.

Critics say such federal guidance can create a cooling effect Restrictions on the use of banks, even among immigrants with work permits, can increase banks’ compliance costs. They said it could also push money out of the regulated banking system, potentially increasing the risk of fraud and abuse.

Because banks are not required to collect citizenship information from customers, data on undocumented immigrants’ access to loans is scarce.

While most mortgages require borrowers to have a Social Security number (so lenders can verify their identity and obtain their credit history), some can get mortgages using an Individual Taxpayer Identification Number. based on To the Urban Institute, a think tank. It was stated that most of the ITIN holders were unauthorized immigrants.

It is estimated that a small number (5,000 to 6,000) ITIN mortgages will be issued in 2023. For context, there were approximately 4.6 million mortgage originations in 2023. based on To the National Community Reinvestment Coalition, an equity advocacy group.

Guidance from banking regulators is as follows: executive order President Donald Trump in May ordered regulators to take action against use of the financial system by unauthorized immigrants.

Financial institutions should be mindful of credit risks arising from issuing mortgages, auto loans, credit cards and other consumer loans to unauthorized immigrants, the report said.

“Most importantly, at this time [executive] Lawyers with law firm Troutman Pepper Locke noted that the order explicitly forces regulators to treat immigration status and work authorization as relevant risk factors, but stops short of requiring financial institutions to verify every customer’s immigration status. wrote In that case. “Instead, it reinforces a risk-based approach and calls for targeted regulatory and supervisory actions.”