A pedestrian passes the Office of the Comptroller of the Currency seal outside the organization’s headquarters on March 20, 2019, in Washington, DC.
Andrew Haller Bloomberg | Getty Images
The Trump administration on Monday released guidance that experts say could reduce bank lending to certain undocumented immigrants, the latest move by the White House to use the financial system to enforce tougher immigration policies.
Guidance 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 states that people who are not authorized to work in the United States may be exposed to “increased credit risk” because their “ability to generate income, maintain employment, and maintain financial stability may be subject to greater uncertainty.”
However, the guidance does not appear to impose new rules on banks.
Instead, regulators are “reasserting” banks of their obligation to manage risks when lending to borrowers without U.S. work authorization, including assessing a borrower’s “willingness and ability to repay” debt, according to the guidance.
“Banks have a duty to know their customers. That’s an existing duty,” Comptroller of the Currency Jonathan Gould said Monday in an interview with CNBC’s Squawk on the Street.
Critics say such federal guidance could have a chilling effect on banking usage, even among immigrants with work permits, and could raise compliance costs for banks. It also allows funds to flow outside the regulated banking system, potentially increasing the risk of fraud and abuse.
Banks are not required to collect citizenship information from their customers, so data on loan usage by undocumented immigrants is lacking.
The Urban Institute, a think tank, says that while most mortgages require borrowers to have their Social Security number so lenders can verify their identity and pull up their credit history, some home loans allow them to use an individual’s tax ID number to make a mortgage. Most ITIN holders are illegal immigrants.
It is estimated that only a small number (5,000 to 6,000) of ITIN mortgages will be made in 2023. For reference, there were about 4.6 million mortgage originations in 2023, according to the National Community Reinvestment Coalition, an equity advocacy group.
The guidance from banking regulators follows President Donald Trump’s executive order in May directing regulators to crack down on illegal immigrants’ use of the financial system.
He said financial institutions should be mindful of the credit risks when issuing home loans, auto loans, credit cards and other consumer credit to illegal immigrants.
“Importantly, while this (executive) order clearly encourages regulators to treat immigration status and work authorization as relevant risk factors, it appears to stop short of requiring financial institutions to verify the immigration status of all their customers,” attorneys at law firm Troutman Pepper Locke wrote at the time. “Instead, we will strengthen our risk-based approach and call for targeted regulatory and supervisory actions.”
