Ability-to-Repay Meets Immigration Status: Banking Regulators Issue Guidance
The Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) issued interagency guidance on July 13 directing banks and credit unions to sharpen how they underwrite and manage loans to borrowers who lack legal authorization to work in the United States. The guidance carries out Executive Order 14406, “Restoring Integrity to America’s Financial System,” which President Trump signed on May 19, 2026, and gave banking regulators 60 days to act on credit risk tied to this population. We previously wrote about the Executive Order here, and guidance from the CFPB here.
Why Regulators Are Focused on This
The agencies’ core concern appears to be: a borrower’s income and employment can be less stable when that employment is not authorized. Job loss, an expired work permit, an inability to find another lawful job, or removal from the country can all cut off a borrower’s source of repayment with little warning. The guidance directs institutions to build that uncertainty into underwriting rather than treat it as a side issue.
Underwriting Areas to Watch
The guidance identifies at least five areas for institutions to consider building into credit risk frameworks:
Source of Repayment: evaluate whether projected repayment capacity holds up if employment or income is interrupted.
Collateral: unaffixed collateral (cars, boats, RVs) may be harder to locate and recover if a borrower cannot be reached.
Documentation and Verification: paystubs, W-2s, tax returns, employer verifications, and proof of continuing work authorization all become relevant underwriting inputs; institutions may also need to classify weak credits even where payments are current.
Portfolio and Concentration Risk: exposure clustered in specific markets, employers, or industries could produce correlated losses if immigration enforcement or labor conditions change.
Consumer Compliance Risk: institutions should reread the Consumer Financial Protection Bureau’s (CFPB) June 8, 2026 Statement on Ability to Repay and Immigration Status alongside their own underwriting policies.
Existing Consumer Protection Laws Still Apply
The guidance ties back to two existing statutes rather than creating new ones. Under the Truth in Lending Act and its implementing Regulation Z, creditors making a reasonable and good faith ability-to-repay determination can, and in some cases must, weigh whether a borrower’s income depends on continued U.S. residency. Under the Equal Credit Opportunity Act and its implementing Regulation B, creditors are expressly permitted to factor in an applicant’s immigration status and any information relevant to the creditor’s rights and remedies on repayment.
Possible Fair Lending Protection?
While not stated, this guidance also may be viewed as providing possible relief for lenders from zealous, even if unfounded, criticism of lenders under fair lending laws. If lenders are required to probe these areas in underwriting, there is less likelihood that the lenders can be criticized for doing so. This juxtaposition, however, also creates some possibly undesired unclarity where a lender may face a Catch-22 scenario. We will have to wait to see how this plays out.
Bottom Line
Nothing in the guidance changes the law. It tells institutions how examiners will expect current safety-and-soundness and underwriting standards applied to non-work-authorized borrowers. Institutions should:
Confirm underwriting policies document how employment-authorization risk gets factored into repayment analysis
Revisit classification and allowance practices for affected loans
Map portfolio concentrations against markets, employers, or industries exposed to immigration enforcement
Line up underwriting and account management practices with the CFPB’s June 8 statement
Questions about this guidance or related compliance obligations? Contact troy@garrishorn.com.