Yesterday, the federal banking regulators issued new interagency guidance directing supervised financial institutions to take a closer look at credit risk when lending to individuals who are not legally authorized to work in the U.S. The guidance, issued jointly by the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and National Credit Union Administration (NCUA), follows a May 2026 Executive Order (discussed here) aimed at addressing perceived risks to the financial system arising from the extension of credit to the non-work authorized population.
Link to Background Background
On May 19, 2026, the President signed Executive Order 14406, “Restoring Integrity to America’s Financial System,” directing federal regulators to address risks associated with providing credit or financial services to individuals who are inadmissible or removable under the Immigration and Nationality Act. In response, the OCC, FDIC, and NCUA issued interagency guidance reminding supervised institutions of their existing credit risk management obligations as they apply to non-work authorized borrowers. Shortly before, on June 8, 2026, the Consumer Financial Protection Bureau (CFPB) separately issued its “Statement on Ability to Repay and Immigration Status,” (discussed here) addressing creditor obligations under the Truth in Lending Act (TILA) and the Equal Credit Opportunity Act (ECOA). Together, these agency actions signal a coordinated regulatory focus on immigration status as a factor in lending decisions.
Link to Key Facts in Yesterday’s Guidance Key Facts in Yesterday’s Guidance
- Elevated Credit Risk: Regulators warn that lending to non-work authorized borrowers may present heightened credit risk because income stability, continued employment, and financial sustainability are subject to greater uncertainty due to immigration enforcement activity.
- Source of Repayment: Institutions must assess whether a borrower’s income will remain stable throughout the life of the loan. Risks include employment termination due to lack of work authorization, inability to find lawful reemployment, and removal from the U.S.
- Collateral Challenges: The guidance states that repossessing or enforcing security interests in collateral (e.g., automobiles, boats, recreational vehicles) may be more difficult if a non-work authorized borrower becomes unreachable or is removed from the country.
- Documentation and Verification: Institutions should consider requiring and reviewing paystubs, W-2s, tax returns, employer verifications, bank statements, or evidence of continuing work authorization. Loans showing signs of credit weakness, regardless of delinquency status, should be considered for classification and allowance for credit losses purposes.
- Portfolio Concentration Risk: The guidance goes beyond factors applicable to individual applicants and states that institutions with significant exposure to borrowers concentrated in specific geographic markets, employers, or industries disproportionately affected by immigration enforcement may face elevated concentration risk, with changes potentially affecting the repayment capacity of multiple borrowers simultaneously.
- Consumer Compliance — TILA/Regulation Z: The guidance highlights the CFPB’s assertion in its statement that creditors may, and in some circumstances must, consider immigration status and its impact on a borrower’s continuing ability to earn U.S.-based income when making ability-to-repay determinations for mortgage and credit card products.
- Consumer Compliance — ECOA/Regulation B: The guidance (again citing the CFPB statement) notes that ECOA expressly permits creditors to consider an applicant’s immigration status in underwriting.
Link to Our Take Our Take
This guidance does not create new law or impose new legal requirements. Instead, it is a reminder of existing obligations, filtered through the lens of the current immigration enforcement environment. But the coordination across agencies and the specificity of the risk warnings raise the possibility that examiners will be paying close attention to how institutions manage this risk going forward and may make specific inquiries about this subject.
To us, the surprising element of the guidance is the concentration risk warning. The agencies are signaling that immigration enforcement is not simply a borrower-by-borrower underwriting variable; rather, it is a macro-level portfolio risk factor. If enforcement activity intensifies in a particular region or targets a specific industry, the repayment capacity of multiple borrowers could be disrupted simultaneously — producing not isolated borrower-level stress, but correlated credit deterioration across an entire segment of the portfolio. According to the guidance, an institution may have applied sound underwriting to every individual loan and still find itself exposed to outsized losses if enforcement actions sweep through the communities or employers it serves. For community banks, credit unions, and regional institutions serving agricultural, construction, hospitality, or other industries with significant immigrant workforces, the implications are particularly significant, although it is not clear how a financial institution would know whether or when immigration enforcement will choose to target a particular employer, industry, or region.
It is also surprising that the Federal Reserve Board did not join the other federal banking agencies in issuing the interagency guidance. It remains to be seen how vigorously the prudential regulators will pursue the concepts in this guidance, and how the tension between the guidance and traditional fair lending principles will play out. We will continue to monitor this issue closely and report on any developments.