New Federal Lending Guidance: Immediate Audit Implications

New interagency guidance from the OCC, FDIC, and NCUA sharpens supervisory expectations for lending to individuals not legally authorized to work in the United States. It takes effect immediately. The guidance does not prohibit such lending, but it raises the bar for underwriting, income verification, portfolio risk, and fair lending compliance. Here is what organizations need to evaluate now.

Executive Summary

On July 13, 2026, the OCC, FDIC, and NCUA issued Interagency Guidance on Lending to Individuals Not Legally Authorized to Work in the United States [1]. The guidance responds to President Trump’s May 19, 2026, Executive Order, “Restoring Integrity to America’s Financial System,” [2], which directed federal agencies to address risks associated with extending credit and financial services to certain noncitizen populations and to reinforce safe and sound lending practices. The guidance is effective immediately and does not prohibit such lending, but it sharpens expectations for underwriting, income verification, portfolio risk, collateral recovery, and fair lending compliance. Senior Management and business leaders should assess whether current programs adequately address these repayment and compliance risks. From a fair lending perspective, the guidance does not prohibit lending to individuals not legally authorized to work in the United States and should not be interpreted as directing institutions to make lending decisions based on immigration or work-authorization status. Instead, it reminds institutions that they must appropriately identify, measure, monitor, and control the credit risks associated with borrowers whose ability to generate income and repay debt may be affected by a lack of legal work authorization. The agencies emphasize existing expectations for underwriting, source-of-repayment analysis, portfolio risk management, collateral valuation and recovery, and compliance with applicable fair lending and consumer protection requirements.

---

Key Takeaways

•  Effective immediately, the guidance clarifies supervisory expectations under existing requirements, so institutions should respond now.

•  Lending is not prohibited. Credit decisions must not be based on immigration or work-authorization status and must comply with ECOA and Regulation B.

•  Repayment risk is the primary concern, concentrated in consumer and retail lending (mortgage, indirect auto, and other employment-income-dependent lending).

•  Audit focus areas: underwriting and income verification, ability-to-repay analysis (in light of the CFPB’s June 8, 2026, Statement on Ability to Repay and Immigration Status), portfolio concentration and CECL, collateral and recovery risk, and fair lending controls.

•  A documented enterprise-wide exposure assessment is the recommended best practice for demonstrating that management has proactively evaluated the guidance.

Management Considerations

This new guidance technically applies to all institutions supervised by the OCC, FDIC, and NCUA and to all lending activities, but the substantive discussion primarily focuses on consumer and retail lending, where repayment depends on an individual’s employment income. When assessing necessary changes to consumer, mortgage, indirect auto, or other retail lending functions, consider whether management has appropriately addressed the following areas:

Underwriting, Income Verification, and Ability-to-Repay

• Determine whether underwriting policies appropriately address repayment risks related to income continuity and employment stability, including situations in which a borrower’s ability to maintain employment may be uncertain.
• Assess whether income verification processes support a reasonable determination of repayment ability, including the use of appropriate documentation (e.g., pay stubs, W-2s, tax returns, employer verifications, and bank statements).
• Evaluate whether underwriting considers the stability, sustainability, and continuity of income, including factors that could affect a borrower’s ability to continue earning income.
• Confirm that management has evaluated whether to update underwriting criteria, documentation standards, quality control reviews, and compliance management processes in light of the CFPB’s June 8, 2026, Statement on Ability to Repay and Immigration Status.

Portfolio Risk Management

• Identify concentrations by geography, industry, employer, or borrower segment.
• Assess whether economic, workforce, regulatory, or employment-related disruptions could lead to correlated credit deterioration across affected borrower segments.
• Evaluate impacts on CECL, risk ratings, criticized assets, and concentration risk.

Collateral and Recovery Risk

• Determine whether collateral-dependent lending programs account for potential recovery and repossession challenges associated with movable collateral.
•  Assess whether collection and recovery strategies remain effective across varying borrower-location scenarios..

Fair Lending and Compliance Controls

• Determine whether management’s response to the guidance remains consistent with ECOA and Regulation B.
• Assess whether underwriting criteria are applied consistently and supported by legitimate credit-risk factors.
• Evaluate whether fair lending monitoring should be enhanced after any policy or process changes.
• Evaluate whether governance, training, and oversight processes are sufficient to ensure that credit decisions are based on permissible credit-risk considerations and not on prohibited bases under ECOA and Regulation B.

Potential Best Practice Suggestion

Consider conducting a documented, enterprise-wide assessment of exposure to borrowers whose repayment capacity relies primarily on employment income that may be subject to elevated interruption risk (optional: due to employment authorization concerns). The assessment should include the following:

• Portfolio segmentation and concentration analysis.
• Review of underwriting standards and exception practices.
• Evaluation of income-verification controls.
• Assessment of CECL and risk-rating implications.
• Fair lending and regulatory compliance review; and
• Board or committee reporting as appropriate.

This type of assessment would provide evidence that management has proactively evaluated the guidance and determined whether policy, process, monitoring, or control enhancements are warranted.

Celeste Burton is Compliance Practice Director at AuditOne, with more than 30 years of experience in banking, internal audit, and regulatory compliance. A Certified Internal Auditor and graduate of the ABA National Compliance School, she has held senior Internal Audit and Compliance roles at Bank of America, Countrywide, and American Express. She holds a dual major B.A. in Accounting and Finance from the University of California, Berkeley. Her decades of governance and independent oversight experience across lending, operations, and consumer compliance directly inform her view that institutions must act now to strengthen underwriting, income verification, repayment-risk analysis, and fair lending controls in response to the new interagency lending guidance.

References

1. Interagency Guidance on Lending to Individuals Not Legally Authorized to Work in the United States (OCC, FDIC, NCUA): https://www.occ.gov/news-issuances/news-releases/2026/nr-ia-2026-57a.pdf
2. Executive Order 14406, Restoring Integrity to America’s Financial System (May 19, 2026): https://www.whitehouse.gov/presidential-actions/2026/05/restoring-integrity-to-americas-financial-system/