Federal banking regulators have issued new guidance on lending to borrowers without legal work authorization in the U.S., clarifying how financial institutions should assess credit risk in these cases.
The Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and National Credit Union Administration released the interagency guidance on July 13, following Executive Order 14406. It reminds banks, credit unions, and other supervised lenders of their existing obligations while outlining risks tied to these borrowers.
Employment uncertainty shapes repayment risk
The agencies note that lending to these individuals involves higher risk. Income stability, job retention, or residency could be disrupted by enforcement actions, employment verification problems, or deportation.
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Underwriting must consider potential income interruptions, such as job loss, difficulty securing new lawful employment, or removal from the country. Lenders should verify that employment income is current and likely to continue. Acceptable documentation includes pay stubs, W-2 forms, tax returns, employer verifications, bank statements, or proof of ongoing work authorization.
If a loan shows signs of credit weakness, institutions may need to classify it and adjust their allowance for credit losses. The guidance does not prohibit lending but stresses that lenders must manage risks through sound underwriting.
Collateral recovery and portfolio risks
Recovering assets like vehicles or boats could become difficult if borrowers relocate or become unreachable. The agencies highlight challenges in locating borrowers or repossessing property, especially if the collateral is not fixed.
Portfolio concentration risks also concern regulators. High exposure to specific geographic areas, employers, or industries vulnerable to immigration enforcement or labor disruptions may lead to correlated credit problems. A sudden crackdown on a major local employer, for instance, could trigger widespread defaults.
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The guidance aligns with broader regulatory expectations. It directs lenders to review the Consumer Financial Protection Bureau’s June 2026 statement on ability-to-repay rules and immigration status. That statement explains that while the Equal Credit Opportunity Act and Regulation B permit consideration of immigration status, lenders must avoid violating fair lending laws.
Compliance remains the focus
The agencies clarify that the guidance does not introduce new legal requirements. It applies existing underwriting and risk-management principles to this borrower group. Financial institutions must ensure their practices comply with the Truth in Lending Act, Regulation Z, and other relevant laws.
The message is clear: lenders may serve these borrowers but must acknowledge the risks involved.
