New Interagency Guidance on Lending to Non-Work Authorized Individuals: Implications for Banks and Credit Unions

The banking industry is adapting to evolving regulatory expectations around credit risk, customer due diligence, and compliance. Two key developments in May and July 2026 demand close attention: President Trump’s Executive Order 14406, “Restoring Integrity to America’s Financial System” (issued May 19, 2026), and the subsequent Interagency Guidance on Lending to Individuals Not Legally Authorized to Work in the United States, released by the FDIC, OCC, and NCUA on July 13, 2026.

These actions underscore a policy focus on safeguarding the financial system from illicit finance risks while reinforcing safe and sound underwriting practices. For community banks, regional institutions, and credit unions, they provide timely reminders—and practical direction—on managing potential credit and compliance exposures.

Background: The Executive Order’s Core Directives

The May 19 Executive Order highlights national security and public safety concerns tied to illicit cross-border financial activity, including money laundering, terrorist financing, narcotics trafficking, and labor-related schemes. It directs federal functional regulators to:

• Issue advisories on red flags for suspicious activity (e.g., payroll tax evasion patterns, use of ITINs without verified work authorization, structuring, and labor trafficking indicators).
• Strengthen Bank Secrecy Act (BSA) customer due diligence and identification requirements.
• Address structural credit risks from lending to non-work authorized borrowers, who may face employment instability due to enforcement actions or employer compliance.

The order explicitly ties these issues to “ability to repay” considerations and calls for guidance on credit risk management.

Key Elements of the July 13 Interagency Guidance

The interagency guidance directly implements aspects of the EO. It reminds supervised institutions of existing obligations under safety and soundness standards, without creating new legal requirements. Core themes include:

1. Credit Risk and Underwriting Considerations Lending to individuals without legal work authorization may introduce elevated credit risk due to uncertainties in income stability, employment continuity, and borrower location. Institutions should apply robust underwriting that evaluates:

• Source of Repayment: Assess stability and sustainability of income. Wages from unauthorized employment may be vulnerable to sudden termination, inability to re-employ lawfully, or removal. Scenario analysis for income interruptions is recommended.
• Collateral Considerations: Challenges in contacting borrowers or recovering unaffixed collateral (vehicles, boats, etc.) if the borrower becomes unreachable.
• Documentation and Verification: Strengthen review of paystubs, tax returns, employer verifications, and work authorization evidence. Loans or segments showing credit weakness (even if current) warrant appropriate classification and ALLL treatment.
• Portfolio and Concentration Risk: Monitor exposures in geographies, employers, or industries sensitive to immigration enforcement or labor disruptions. Correlated defaults could emerge rather than isolated cases.

2. Consumer Compliance Risk The guidance references the CFPB’s June 8, 2026, Statement on Ability to Repay and Immigration Status. Under TILA/Regulation Z, creditors must make reasonable, good-faith determinations of repayment ability for dwelling-secured loans (and consider minimum payments for credit cards). Immigration status and related income risks may be factored in. ECOA/Regulation B expressly permits consideration of immigration status where relevant to repayment rights and remedies.

Alignment and Contrast with Prior Guidance

This 2026 interagency guidance and related actions represent a notable evolution in tone and emphasis compared to prior regulatory communications, while remaining grounded in longstanding statutory authorities.

Key Prior Framework (2023 Joint CFPB/DOJ Statement): In October 2023, the CFPB and Department of Justice issued a joint statement on fair lending and credit opportunities for noncitizen borrowers under ECOA. It cautioned that blanket policies denying credit based solely on immigration status—or overbroad reliance on it—could violate ECOA’s prohibition on discrimination based on national origin, race, or other protected classes, even if the borrower had strong credit and U.S. ties. While acknowledging that ECOA/Regulation B permits consideration of immigration status when necessary to assess repayment rights and remedies, the statement stressed that such consideration must be tailored and not based on bias.

Withdrawal and Shift in 2026: On January 12, 2026, the CFPB and DOJ withdrew the 2023 joint statement, noting that it may have created confusion and that ECOA/Regulation B have long permitted consideration of citizenship and immigration status for creditworthiness purposes.

The June 8, 2026, CFPB Statement on Ability to Repay and Immigration Status, referenced in the July interagency guidance, builds on this by clarifying that creditors may be obligated to consider immigration-related risks to income continuity (e.g., potential removal or employment disruption) when relying on U.S.-based employment for repayment analysis under Regulation Z. This marks a shift toward encouraging proactive evaluation of these factors as sound compliance practice, rather than primarily cautioning against potential discrimination risks.

Alignment with Longstanding Principles:

• The new guidance reinforces core safety and soundness expectations (e.g., Interagency Guidelines for Real Estate Lending and safety and soundness standards) that have always required evaluation of repayment capacity, income stability, and collateral risks.
• It aligns with Regulation B’s explicit allowance for considering immigration status.

Points of Contrast/Evolution:

• Tone and Focus: Earlier emphasis (2023) leaned toward protecting access to credit and warning against unnecessary barriers. The 2026 materials prioritize risk identification and mitigation, including structural “ability to repay” deficiencies and illicit finance red flags.
• BSA/AML Integration: The EO introduces stronger directives on customer due diligence, beneficial ownership, and red flags which expand beyond prior fair lending-focused discussions.
• Practical Impact: Institutions may now face greater supervisory scrutiny for under-considering these risks in underwriting or portfolio management, whereas prior guidance highlighted risks of over-reliance.

Overall, the updates clarify and amplify existing authorities in light of current policy priorities, without overturning core ECOA protections. They encourage risk-based, documented decision-making rather than blanket policies.

Practical Implications for Your Institution

• Policy and Procedure Updates: Review underwriting, account management, and concentration risk policies to explicitly address these considerations. Enhance risk-based due diligence, particularly where ITINs or foreign identity documents are presented.
• Training and Monitoring: Ensure lending, compliance, and BSA teams understand red flags from the forthcoming Treasury Advisory. Update monitoring for correlated risks in specific portfolios.
• Fair Lending and Non-Discrimination: While immigration status can be considered for creditworthiness, maintain consistent application to avoid disparate treatment claims. Document decisioning carefully.
• Opportunities for Proactive Risk Management: Institutions already using advanced analytics (e.g., regression modeling for disparity analysis or portfolio segmentation) are well-positioned to layer in these risk factors. Tools like those in Radiant Lending platforms can help with proactive monitoring.
• BSA/AML Enhancements: Prepare for potential regulatory changes on customer identification and beneficial ownership, especially regarding foreign consular cards and nominee structures.

Looking Ahead

These developments align with broader efforts to promote integrity, reduce systemic vulnerabilities, and ensure lending practices support long-term stability. Banks that treat this as a catalyst for stronger risk management—rather than mere compliance—will be better positioned amid evolving enforcement and economic conditions.

Institutions should consult legal counsel and their primary regulator for institution-specific application. Monitor forthcoming Treasury advisories and any proposed BSA rule changes for additional detail.