Regulators issue new guidance on bank lending risk tied to borrowers living illegally in US

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WASHINGTON (AP) — The Trump administration is taking additional steps to prevent people living in the U.S. illegally from using the nation's banking system, cracking down on financial institutions that are lending money to them.

On Monday, a group of financial regulators is set to issue guidance intended to remind banks and other financial institutions of their know-your-customer requirements with respect to credit risk management, particularly as it relates to borrowers who are not authorized to work in the U.S.

The newest warning is one of several measures the Trump administration has taken to discourage people in the U.S. illegally from interacting with the larger U.S. financial system. The measures, over the last nine months, are designed to strongly encourage banks to remove them as customers while not expressly mandating that the banks do so.

The joint announcement is planned from three of the nation's bank regulators: the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the National Credit Union Association. The agencies said that banks should take into account that people in the U.S. illegally may not be able to repay a loan because of deportation. In short, they say, people working in the U.S. illegally pose overall risk to the financial system.

There is limited data on how many people in the U.S. illegally have bank accounts and have loans through the banks.

This comes as part of President Donald Trump’s executive order signed in May that requires banks and other financial institutions to take a closer look at the citizenship of their customers. That order started the most recent wave of banking regulation changes, ordering bank regulators and government departments to look for signs that people without legal status are opening accounts or obtaining loans or credit cards.

Among other things, the guidance being issued Monday advises financial institutions to “identify, measure, monitor, and control these risks through safe and sound underwriting practices that assess a borrower’s willingness and capacity to repay according to the terms of the credit obligation” according to a news release.

In May, Treasury’s financial crimes arm — also known a FinCEN — issued an advisory to banks telling them to watch out for identity theft, payroll tax fraud, and money laundering schemes tied to hiring people who are not authorized to work in the U.S.

The advisory calls on financial institutions to be alert for more than a dozen red flags that indicate an individual is in the U.S. illegally.

The White House has also taken other measures to discourage people in the U.S. illegally from using the financial system. The Treasury last November announced that it would reclassify certain refundable tax credits as “federal public benefits,” which bars some immigrant taxpayers from receiving them, even if they file and pay taxes and would otherwise qualify.

Tax experts said immigrants brought to the U.S. illegally by their parents as children, known as Deferred Action for Childhood Arrivals, or DACA, recipients, and immigrants with Temporary Protected Status would be affected by the planned change.

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Sweet contributed from New York.