The Agencies Changed the Rules on Lending to Undocumented Borrowers. Here's What Your Underwriting and Fair Lending Programs Need to Fix.

TL;DR

• July 2026 OCC, FDIC, and NCUA joint guidance formally incorporates immigration status into credit risk management for supervised institutions
• ECOA and Regulation B permit consideration of immigration status when relevant to credit risk — federal agencies are actively endorsing its use in underwriting and credit classification
• Biden-era federal fair lending protections for non-citizen borrowers were withdrawn in January 2026; ECOA’s national origin prohibition and state laws remain in effect
• Institutions need to document the credit risk rationale for immigration-status policies and update fair lending testing before the next exam cycle

You’ve probably seen the headline: federal banking regulators told institutions to pay attention to whether their borrowers are legally authorized to work in the US. What the headline doesn’t capture is what that means for your compliance program — specifically your underwriting policy documentation, fair lending testing methodology, credit classification system, and CECL allowance analysis.

This isn’t just a policy question. It’s an examination question. Here’s what changed and what you need to do about it before your next exam.

What the Guidance Actually Says

On July 13, 2026, the OCC, FDIC, and NCUA issued joint interagency guidance — OCC Bulletin 2026-31 — instructing supervised financial institutions to incorporate immigration and work authorization status into their credit risk management practices.

The guidance was issued pursuant to Executive Order 14406, “Restoring Integrity to America’s Financial System,” which directed federal financial regulators to address what the administration characterized as financial system risks from extending credit to inadmissible and removable individuals.

The agencies’ central message: non-work-authorized borrowers may present elevated credit risk because their income-generating ability, employment continuity, and overall financial stability may be more uncertain. Financial institutions are expected to reflect this assessment across five areas:

• Underwriting criteria and documentation requirements — does your application capture work authorization status and does your underwriting policy account for the associated risk?
• Ongoing account management — does credit monitoring flag accounts where the risk profile may have changed?
• Credit classification and risk rating systems — does your risk grading incorporate work authorization as a relevant attribute?
• Allowance for credit losses (CECL) analysis — does your qualitative factor methodology include work authorization status as a segment-level risk consideration?
• Compliance processes — does your consumer compliance program address the ECOA and TILA implications of immigration-status consideration?

The guidance is explicit that these changes must remain consistent with applicable consumer protection laws. That qualification is where the compliance complexity lives.

The Legal Framework: What ECOA Actually Permits

This is the part compliance teams need to get right before making policy changes: ECOA and Regulation B do not prohibit consideration of immigration status.

Regulation B expressly permits creditors to consider an applicant’s immigration status, and any additional information necessary to determine the creditor’s rights and remedies regarding repayment, to the extent those factors are reasonably related to credit risk. The July 2026 guidance frames immigration status precisely that way — as a credit risk factor relevant to income certainty and repayment capacity, not as a protected class characteristic.

What ECOA prohibits is discrimination based on national origin. The distinction matters, but the line requires care: a policy that evaluates work authorization status as a credit risk factor is facially neutral. A policy that functions as a proxy for national origin — effectively screening out borrowers from specific countries, ethnic backgrounds, or demographic groups — is a different legal question.

The Biden-era 2023 Joint Statement had argued that immigration-status policies could cross into national origin discrimination because of the high correlation between immigration status and national origin in some populations. That argument is now withdrawn as federal agency policy, but the underlying legal exposure isn’t gone — it’s just no longer being actively pursued by federal regulators.

What Changed in January 2026

In January 2026, the DOJ and CFPB jointly withdrew the 2023 Biden-era Joint Statement on Fair Lending and Credit Opportunities for Noncitizen Borrowers. That statement had cautioned that creditor policies focused on immigration or citizenship status “can raise serious concerns” under ECOA’s national origin prohibition.

The withdrawal changes federal agency enforcement posture. Federal examiners at the OCC, FDIC, NCUA, and CFPB are no longer advancing the position that immigration-status consideration in credit decisions is presumptively problematic. The July 2026 guidance goes further — it affirmatively expects institutions to incorporate immigration status as a credit risk factor.

For compliance teams, the practical effect is: the federal examination risk from immigration-status policies has shifted direction. The new examination risk is failing to incorporate immigration status into your risk management framework, not incorporating it.

The private right of action under ECOA hasn’t changed. State laws haven’t changed. And ECOA’s national origin prohibition is still the law.

For background on how the broader federal fair lending enforcement posture has shifted in 2026, see our analysis of CFPB’s final rule eliminating disparate impact from Regulation B.

The CFPB’s June 2026 Ability-to-Repay Statement

On June 8, 2026, the CFPB issued a statement on Ability to Repay and Immigration Status reminding creditors of their continuing obligations under TILA and ECOA, even as the policy environment shifted.

The statement is important context for how to apply the July 2026 guidance. You must still assess ability to repay under TILA for covered credit products — and for borrowers whose work authorization is uncertain, income documentation becomes more complex. How do you verify income when a borrower’s employment authorization may not persist? What documentation is adequate? The CFPB’s statement doesn’t resolve those operational questions, but it signals that TILA’s ability-to-repay requirements apply regardless of immigration status — and that the documentation burden can’t simply be waived because the policy environment changed.

What State Laws Still Require

Federal guidance withdrawal does not preempt state law. Multiple states maintain their own non-discrimination protections that apply to financial institutions operating in those states.

California’s Department of Financial Protection and Innovation has taken active positions on consumer financial services non-discrimination, and the Unruh Civil Rights Act covers financial institutions. New York’s Human Rights Law prohibits discrimination in financial transactions. Illinois enacted AI-specific fairness legislation in 2025 with credit decision implications. Several other states are considering similar measures.

For a detailed look at how state AG enforcement is continuing to fill the federal fair lending void, see our analysis of state AG fair lending enforcement in 2026.

Institutions with significant portfolios in California, New York, Illinois, or other active enforcement states cannot assume that the federal guidance shift resolves their state law exposure. State AG enforcement doesn’t require federal agency sign-off to proceed.

What Your Program Needs to Do Now

Audit your underwriting policy

Determine whether your current underwriting criteria address immigration or work authorization status, and if so, how. If they don’t, consider whether incorporating this factor is appropriate given your product mix, risk profile, and geographic footprint — and what documentation and disclosure requirements would be triggered.

If you do incorporate immigration status, document the credit risk rationale explicitly: why is this factor relevant to repayment risk for your specific product and customer base? That documentation is your foundation for any examination or legal challenge. “We were following agency guidance” is a start; “here is the specific credit risk rationale tied to income documentation and employment continuity risk for our product type” is a defense.

Update your fair lending testing

Your fair lending testing program should now monitor immigration-status policies for disparate impact on protected classes, particularly national origin. Even where consideration of immigration status is legally permissible, a policy that produces statistically significant adverse impact on borrowers of particular national origins remains potentially vulnerable to ECOA challenge.

The 2023 Joint Statement may have been withdrawn as federal agency policy, but the legal principle underlying it — that facially neutral policies with disparate impact on a protected class can violate ECOA — was established law before that statement existed. Courts and private plaintiffs don’t need federal agency backing to bring those claims.

For how the disparate impact analysis shifted under the July 2026 regulatory environment, see our analysis of the Reg B overhaul’s practical implications for credit teams.

Update credit classification and CECL analysis

If your credit risk rating system doesn’t currently capture work authorization as a risk attribute, assess whether it should given the July 2026 guidance. CECL’s qualitative factor methodology requires identifying concentration risks and specific portfolio risk attributes — and the guidance creates an examination expectation that work authorization status is considered as a relevant factor where it affects repayment probability.

Document how you’ve evaluated this factor in your CECL allowance determination, even if the conclusion is that it doesn’t warrant a separate qualitative adjustment for your portfolio. The documentation is what examiners will look for.

Review adverse action notice procedures

If work authorization status affects underwriting decisions, your adverse action notices must specifically identify it as a basis. Generic adverse action codes that don’t accurately reflect the reason for denial create ECOA notice compliance exposure independent of the substantive fair lending question.

So What?

The July 2026 interagency guidance is not a permission slip to use immigration status as a proxy for national origin. It’s a directive to treat work authorization as a legitimate credit risk factor — with the documentation, fair lending testing, and consumer protection compliance that implies.

The institutions that navigate this well will build specific, credit-risk-grounded rationale into any policy that incorporates immigration status, test systematically for disparate impact, and maintain clear adverse action documentation. The ones that struggle will adopt a broad “consider immigration status” policy without supporting documentation and find themselves facing state AG scrutiny, private ECOA claims, or examination findings when the rationale can’t be produced.

Federal enforcement posture changed. The legal framework didn’t disappear.

Sources:

• OCC Bulletin 2026-31
• OCC/FDIC/NCUA interagency guidance news release
• Consumer Financial Services Law Monitor analysis
• Mayer Brown analysis
• National Law Review fair lending analysis