Agencies issue guidance verify citizenship in accordance with EO
NCUA and other federal financial regulators Monday issued guidance to supervised financial institutions addressing existing credit risk management obligations, particularly as it relates to borrowers not legally authorized to work in the U.S. The guidance was issued in accordance with the May Executive Order on verifying citizenship.
It does not create any new obligations, but notes lending to individuals not legally authorized to work may present elevated credit risk because a borrower’s ability to generate income, maintain employment, and remain financially stable may be subject to greater uncertainty.
Among other things, the guidance advises financial institutions to identify, measure, monitor, and control these risks through safe and sound underwriting practices that assess a borrower’s willingness and capacity to repay according to the terms of the credit obligation.
It emphasizes the following underwriting considerations:
- Source of repayment, whether repayment capacity remains "adequate" under a variety of scenarios, including employment interruptions resulting from the borrower's inability to maintain lawful employment.
- Collateral considerations, as it may be more difficult to contact non-work authorized borrowers or locate and repossess unaffixed collateral;
- Documentation and verification, whether loans to non-work authorized borrowers exhibit signs of credit weakness regardless of delinquency status.
- Portfolio and concentration risk considerations, as financial institutions with "significant lending exposure" to borrowers concentrated in specific locations and industries may be disproportionately impacted by changes in immigration enforcement, and should consider how this could cause credit deterioration; and
- Consumer compliance risk, with CFPB advising creditors to consider an individual's underlying and continuing ability to earn income when residency in the United States is a necessary component of employment. The guidance mentions that the Equal Credit Opportunity Act states that creditors may take an applicant's immigration status into account when evaluating a borrower's ability to repay.