A pedestrian passes the seal of the Office of the Comptroller of the Currency displayed outside the organization’s headquarters in Washington, D.C., on March 20, 2019.
Andrew Harrer | Bloomberg | Getty Images
The Trump administration on Monday issued guidance that experts say could reduce banks’ lending to certain unauthorized immigrants, the latest move by the White House to use the financial system to enforce stricter immigration policy.
The guidance issued by three federal bank regulators — the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and National Credit Union Administration — said people who aren’t authorized to work in the U.S. may pose an “elevated credit risk” because their “ability to generate income, maintain employment, and remain financially stable may be subject to greater uncertainty.”
However, the guidance doesn’t appear to impose new rules on banks.
Instead, the regulators “remind” banks of their duties to manage the risks of lending to borrowers who lack U.S. work authorization, including assessing a borrower’s “willingness and capacity to repay” debt, according to the guidance.
“Banks have an obligation to know their customer. That’s a pre-existing obligation,” Jonathan Gould, Comptroller of the Currency, said during an interview Monday with CNBC’s Squawk on the Street.
Critics have said such federal guidance could have a chilling effect on the use of banks, even among immigrants with work authorization, and could raise compliance costs for banks. It may also push money outside the regulated banking system, potentially increasing the risk of fraud and abuse, they said.
Data on undocumented immigrants’ access to loans is scarce, since banks aren’t required to collect citizenship information from customers.
While most mortgages require borrowers to have a Social Security number — so lenders can verify their identity and pull credit history — some can get mortgages using an Individual Tax Identification Number, according to the Urban Institute, a think tank. Most ITIN holders are unauthorized immigrants, it said.
It estimated that a small number — 5,000 to 6,000 — of ITIN mortgages were made in 2023. For context, there were about 4.6 million mortgage originations in 2023, according to the National Community Reinvestment Coalition, an equity advocacy group.
The guidance from bank regulators follows an executive order from President Donald Trump in May directing regulators to crack down on the use of the financial system by unauthorized immigrants.
In it, he said financial institutions should pay attention to credit risks of issuing mortgages, auto loans, credit cards and other consumer credit to unauthorized immigrants.
“Importantly, while the [executive] order clearly pushes regulators to treat immigration status and work authorization as relevant risk factors, it appears to stop short of requiring financial institutions to verify every customer’s immigration status,” attorneys at the law firm Troutman Pepper Locke wrote at the time. “Instead, it reinforces a risk-based approach and calls for targeted regulatory and supervisory actions.”
