Regulators: Unauthorized borrowers carry heightened credit risk

Potential borrowers who are not legally allowed to work in the United States present heightened credit risk to banks, according to guidance issued July 13. .The guidance, issued July 13 by the Office of the Comptroller of the Currency, Treasury, FDIC and National Credit Union Administration, said the heightened risk stems from greater uncertainty over whether the borrower can maintain employment, generate income and be financially stable. The agencies called for financial institutions to evaluate whether uncertainties tied to employment authorization could impact “the stability and sustainability of income, repayment capacity, collateral recovery, or other factors relevant to credit risk.” The nonbinding guidance did not include new requirements for banks. The advisory is connected to an executive order Trump issued in May that addressed perceived risks to the financial system from extending credit or financial services to noncitizens who are banned from legally entering or gaining lawful status. The executive order also included risks from noncitizens inside the country who have violated the terms of their stay. “As with all lending activities, financial institutions should 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,” according to the guidance.