Executive Order Brings New Compliance Guidance

NCUA Advisory

The executive order directed the NCUA and other federal financial institution regulators to issue guidance within 60 days addressing potential credit risks associated with lending to individuals who are not legally authorized to work in the United States.

NCUA Guidance on Lending to Individuals Not Legally Authorized to Work

In response, the agencies issued joint guidance explaining that these borrowers may present elevated credit risk because their ability to earn income, maintain employment, and remain financially stable may be less predictable. The guidance encourages financial institutions to identify, measure, monitor, and manage these risks through safe and sound underwriting practices. Specifically, institutions should evaluate a borrower’s willingness and capacity to repay credit obligations based on the borrower’s individual circumstances and the terms of the loan.

Importantly, the guidance does not create new regulatory requirements or prohibit financial institutions from lending to individuals who are not legally authorized to work in the United States. Rather, it reinforces existing expectations for prudent, risk-based underwriting and credit risk management.

Treasury Advisory

Treasury issued a Joint Advisory to financial institutions regarding risks associated with the exploitation of the U.S. financial system by non-work-authorized individuals and those who employ or facilitate them. The advisory was issued in response to a directive requiring Treasury to provide guidance on potential suspicious activity and related red flags.

Treasury Guidance on Non-Work Authorized Populations and Risks and FinCEN's Joint Advisory on Non-Work Authorized Populations

The advisory does not create new legal or regulatory requirements. Instead, it reminds financial institutions to apply a risk-based approach and highlights potential indicators of suspicious activity, particularly when individuals use an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number. Treasury encourages institutions to conduct appropriate enhanced due diligence when warranted by the institution’s risk assessment.

Importantly, the advisory does not prohibit credit unions or other financial institutions from opening accounts or making loans to individuals using an ITIN. An ITIN remains an acceptable taxpayer identification number for many legitimate purposes. Financial institutions should continue to follow their Customer Identification Program (CIP), Bank Secrecy Act/Anti-Money Laundering (BSA/AML), and suspicious activity monitoring procedures. Institutions should use the advisory’s red flags as part of their overall risk-based compliance programs rather than treating ITIN holders as inherently suspicious.

The press release explains:

“The Advisory encourages banks to consider the use of an ITIN when applying appropriate risk-based procedures for customer due diligence, in light of the totality of other factors and available information. Specifically, when an ITIN is presented in lieu of a Social Security number or valid employment authorization document to obtain credit products or open an account, banks are encouraged to assess whether the use of an ITIN may be a relevant risk factor.”

Treasury/FinCEN Regulatory Proposal on BSA Due Diligence

The executive order also directed the Treasury Department, in consultation with federal financial institution regulators, to consider whether changes should be made to the Bank Secrecy Act’s implementing regulations to strengthen risk-based customer due diligence (CDD) requirements for covered financial institutions. Treasury was instructed to complete this review within 90 days.

Importantly, the executive order does not require a regulatory change. Instead, it directs the agencies to evaluate whether changes are appropriate. At this point, no proposed rule has been issued, and it is possible that no regulatory proposal will result.

If Treasury and FinCEN issue a proposed rule, one area that could be addressed is the use of the Mexican matricula consular card because the executive order specifically identified concerns related to that form of identification.

The Cornerstone League will continue to monitor developments and provide updates if and when FinCEN issues a proposed rule regarding customer due diligence requirements.

CFPB Advisory

The executive order directed the CFPB to consider issuing guidance clarifying that a borrower’s potential deportation or loss of employment authorization may be factors affecting a non-work-authorized individual’s ability to repay an extension of credit.

CFPB Statement on Ability-to-Repay and Immigration Status

The guidance does not create new legal or regulatory requirements. Instead, it reiterates existing requirements under federal lending laws and explains how they may apply when evaluating a borrower’s ability to repay.

Specifically, the guidance explains that Regulation Z, which implements the Truth in Lending Act, requires creditors in certain lending situations to make a reasonable determination that a borrower has the ability to repay. The CFPB notes that immigration status may be relevant if it could affect the borrower’s future income or continued employment, such as when the borrower may lose work authorization or face deportation.