Bank regulators press lenders on loans to unauthorized immigrants

Federal bank regulators are telling lenders to take a closer look at consumer loans made to immigrants who are not authorized to work in the U.S., a move that could affect access to credit for a small but hard-to-measure group of borrowers. For everyday investors, the issue sits at the intersection of banking regulation, credit risk and immigration policy, with potential compliance implications for lenders.

The Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the National Credit Union Administration issued guidance Monday saying borrowers without U.S. work authorization may carry higher repayment risk. The agencies said that risk could stem from uncertainty around a borrower’s income, job stability and broader financial position.

The guidance covers consumer credit such as mortgages, auto loans, credit cards and other lending products. It does not appear to create a new rule for banks. Instead, the regulators said financial institutions should remember their existing responsibility to assess whether borrowers are willing and able to repay debt.

That repayment review is a basic part of underwriting, the process banks use to decide whether to approve a loan and on what terms. Regulators said banks should manage the risks tied to borrowers who lack work authorization as part of that process.

Jonathan Gould, the Comptroller of the Currency, told CNBC’s “Squawk on the Street” on Monday that banks already have a duty to know their customers. He described that as an existing obligation, rather than a new one created by the guidance.

Why the data is limited

There is no clear public count of how many unauthorized immigrants currently have access to loans. CNBC reported that banks are not required to collect citizenship information from customers, which limits the available data.

Mortgages are one example of how the issue can surface. Most home loans require a Social Security number so lenders can confirm identity and review credit history. The Urban Institute has said some borrowers can obtain mortgages using an Individual Tax Identification Number, or ITIN, which is issued by the IRS to certain taxpayers who do not have a Social Security number.

The Urban Institute said most ITIN holders are unauthorized immigrants. It estimated that 5,000 to 6,000 ITIN mortgages were originated in 2023. By comparison, the National Community Reinvestment Coalition said there were about 4.6 million total mortgage originations that year.

Critics warn of broader effects

Critics cited by CNBC have argued that the guidance could discourage some immigrants from using banks, including people who are authorized to work in the U.S. They also said it could increase compliance costs for banks and push more money outside regulated financial institutions, where consumers may face greater exposure to fraud or abuse.

The regulators’ move follows a May executive order from President Donald Trump that directed agencies to address the use of the financial system by unauthorized immigrants. In that order, Trump said financial institutions should consider credit risks tied to mortgages, car loans, credit cards and other consumer credit for borrowers without legal work authorization.

Attorneys at Troutman Pepper Locke wrote after the order that it appeared to direct regulators to treat immigration status and work authorization as relevant risk factors. They also wrote that it did not seem to require banks to verify every customer’s immigration status, instead pointing to a risk-based regulatory approach.

This story draws on original reporting from CNBC.