On May 19, the Trump Administration issued an Executive Order (Order) entitled “Restoring Integrity to America’s Financial System.” The Order cites risks associated with “the extension of credit or financial services to the inadmissible and removable alien population” and directs federal regulators to develop guidance addressing how banks and other financial services providers can identify and prevent such activity. The Order stops short of the widely anticipated requirement that financial institutions verify immigration status. Instead, it directs the Treasury Department to issue guidance within 60 days identifying “red flags” associated with unauthorized financial activity, including the use of non-U.S. identification documents and individual taxpayer identification numbers (ITINs) in credit applications. Importantly, the Order itself does not prohibit lending to undocumented borrowers or applicants using ITINs; rather, it directs federal agencies to study the issue, issue guidance, and potentially revise existing regulations.
Although the Order is primarily directed at depository institutions, it could also affect other providers of credit, including independent dealers with in-house financing operations. The Order specifically references “auto loans” and directs the Consumer Financial Protection Bureau (CFPB) to consider clarifying that a borrower’s potential deportation or loss of work authorization may be relevant to “ability to repay” determinations under Regulation Z, which implements the Truth in Lending Act. As a practical matter, the Order could prompt creditors to tighten underwriting standards for applicants relying on ITINs instead of Social Security numbers, unverifiable employment, cash-based income, or similar risk factors. Dealers may also see increased documentation requirements, enhanced income verification procedures, and additional scrutiny from indirect finance sources.
NIADA will be closely monitoring developments and engaging with the CFPB to ensure any new guidance on Regulation Z takes into account unintended consequences for NIADA members. The Order will also be a topic of conversation during the compliance-related education sessions at next month’s NIADA Convention in Denver, Colorado.
