Federal regulators are warning the banking industry to carefully consider the risks of lending to individuals who lack authorization to work in the United States, including income uncertainty and the risk of deportation.
“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 Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) said in joint guidance released on Monday.
The guidance does not impose new requirements or outright prohibit banks and credit unions from lending to such borrowers. Instead, it reminds them of their existing obligations.
Under current supervisory standards, financial institutions are expected to maintain prudent underwriting practices, including assessing a borrower’s willingness and ability to repay the loan in accordance with its terms. That includes evaluating the source of repayment, income stability, overall financial condition, resources, and other factors relevant to credit risk.
The agencies said lending to people without legal work authorization may involve elevated risk, since their ability to earn income, keep a job, and remain financially stable may be more uncertain.
The guidance cites several scenarios that could affect repayment. A borrower could lose their job if an employer discovers they lack valid work authorization or if the employer decides to comply more strictly with immigration law. A borrower could also be deported.
The guidance also says institutions should incorporate those risks into underwriting, account management, credit classification, allowance analysis, and compliance processes, while staying consistent with applicable consumer protection laws.
The guidance builds on an executive order signed by President Donald Trump in May that directs financial regulators to rethink “know your customer” rules, including whether banks should be required to more closely scrutinize customers’ lawful immigration status and work authorization.
The order describes the effort as part of a broader push to preserve the integrity of the U.S. banking system against what it calls “structural risks” posed by illegal immigrants, while also guarding against money laundering, terrorist financing, and other criminal activity. It specifically cites concerns involving Chinese money-laundering networks and Mexican cartels.
“My Administration will not tolerate national security and public safety risks caused by illicit cross-border financial activity, nor will it permit risks to our financial system posed by the extension of credit or financial services to the inadmissible and removable alien population,” the order states.
Prior to Monday’s lending guidance, the Treasury Department issued an advisory urging financial institutions to monitor for suspicious activity related to payroll fraud, identity theft, and the unlawful employment of individuals lacking work authorization. The advisory was issued jointly with the FDIC, OCC, and NCUA and in coordination with the Internal Revenue Service.
Employers who conceal or exploit non-work-authorized workers can gain an unfair advantage over lawful businesses, depress wages, facilitate identity theft, and evade payroll taxes, Treasury said.
That advisory included more than a dozen red flags to help banks detect, prevent, and report suspicious activity associated with such schemes.
Those include certain Social Security number mismatches, the use of foreign identity documents or Individual Taxpayer Identification Numbers in suspicious circumstances, recurring checks issued to many individuals, and large or unusual cash withdrawals that may indicate off-the-books payroll arrangements.
