Global: U.S. Banking Regulators Advise Lenders to Assess Credit Risks Linked to Unauthorized Employment

U.S. banking regulators have advised financial institutions to exercise greater caution when extending credit to individuals who are not legally authorised to work in the United States, warning that income derived from unauthorised employment may present higher repayment risks.

The guidance was jointly issued by the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA). While it does not introduce new regulatory requirements, it reinforces existing risk management expectations for banks and credit unions.

According to the regulators, borrowers whose income depends on employment without legal work authorisation may face greater financial uncertainty, making their ability to repay loans less predictable.

The agencies noted that repayment risks could arise from factors such as job loss resulting from immigration status, the inability to obtain lawful employment, or removal from the United States, all of which could disrupt a borrower’s source of income.

“When a borrower’s income is derived from employment that is not legally authorized, the source of repayment may be less reliable and may present increased credit risk,” the guidance stated.

The regulators emphasised that the advisory is intended to remind financial institutions of their existing obligations to assess borrowers’ repayment capacity and manage credit risk appropriately, rather than impose new compliance requirements.

The guidance forms part of the implementation of an executive order signed by President Donald Trump in May, directing the U.S. Treasury Department and other federal agencies to identify potential financial system risks associated with individuals residing in the country without legal immigration status.

The executive order focused on preventing the potential misuse of financial services while strengthening risk oversight across the banking sector. However, the administration stopped short of requiring banks to collect citizenship or immigration status information from account holders—a proposal that had previously raised concerns within the financial industry.

The latest advisory underscores the regulators’ expectation that banks continue to apply prudent underwriting standards, robust credit assessments, and effective risk management practices when evaluating borrowers, regardless of customer category, while remaining compliant with existing banking regulations.