FDIC, NCUA, and OCC Issue Guidance on Lending to Individuals Not Authorized to Work in the US

On July 13, the Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA), and Office of the Comptroller of the Currency (OCC) issued guidance to supervised financial institutions regarding risks associated with borrowers that are not legally authorized to work in the United States (Non-Work Authorized Borrowers). The guidance advises that a lack of work authorization may make credit worthiness factors, like income, less consistent. The guidance encourages financial institutions lending to Non-Work Authorized Borrowers to consider: (1) source of repayment; (2) collateral considerations; (3) documentation and verification; (4) portfolio and concentration considerations; and (5) consumer compliance risk in light of the particular risks associated with Non-Work Authorized Borrowers, such as different documentation or work consistency. The guidance asserts that lenders may take an applicant’s immigration status into account under the Equal Credit Opportunity Act, and encourages incorporating consideration of the particular risks associated with Non-Work Authorized Borrowers in underwriting and account management policies and processes.

On July 16, the FDIC, the OCC, and the Board of Governors of the Federal Reserve System (Federal Reserve) issued a joint statement addressing the handling of highly sensitive information (HSI) — such as confidential or proprietary information, technology/network diagrams and schematics, detailed penetration test results, technical information regarding technology control weaknesses, and succession planning — during bank examinations. The statement clarifies that supervised institutions should provide HSI to examiners only when necessary to fulfill supervisory objectives and encourages institutions and examiners to work together to determine whether less sensitive information can achieve the same purpose. The agencies also identify several alternatives to transmitting sensitive information, including on-site review, direct digital review from a bank’s systems, redacted or summarized documents, and other appropriate safeguards. The agencies further commit to notifying affected supervised institutions of a potential or confirmed material compromise of confidential supervisory information as soon as practicable, but no later than 72 hours after determining there is a reasonable basis to believe a compromise has occurred, subject to applicable legal considerations. The statement reinforces existing supervisory practices and information security safeguards and does not establish new supervisory expectations or legal requirements.

On July 20, the FDIC published in the Federal Register a notice and request for comment on proposed reporting forms and instructions that would implement the proposed information collection requirements described in its April 10 notice of proposed rulemaking under the GENIUS Act for FDIC-supervised Permitted Payment Stablecoin Issuers (PPSIs). The proposed forms include: (1) a detailed weekly report of payment stablecoin activity and reserves for PPSIs with at least $1 billion in total outstanding issuance value or $100 million in average daily transaction volume; (2) a streamlined weekly report of payment stablecoin activity and reserves for PPSIs below both thresholds; and (3) a quarterly report of financial condition. Separate weekly reports would be required for each brand of payment stablecoin issued. Comments on the proposed forms and instructions must be submitted by September 18.

On July 22, the New York Department of Financial Services (NYDFS) published a notice of proposed rulemaking in the New York State Register intended to create a new regulatory framework governing NYDFS-authorized payment stablecoin issuers. The proposed rule would establish a comprehensive regulatory framework governing payment stablecoin issuance and redemption, reserve asset composition and custody, governance and risk management, operational resilience, consumer disclosures, reporting, examinations, and independent audits, while aligning New York’s payment stablecoin regulatory regime with the federal GENIUS Act. The proposal also reflects NYDFS’ existing supervisory approach to payment stablecoins, including requirements relating to reserve backing, redemption at par, and independent attestations. Comments on the proposed rule are due September 21.

On July 10, the FDIC announced the closure and receivership of Kentland Federal Savings and Loan Association of Kentland, Indiana. The sole branch was permanently closed. Kentland Bank of Kentland, Indiana subsequently purchased substantially all assets and assumed all deposits. Depositors of Kentland Federal Savings and Loan Association automatically became depositors of Kentland Bank, and deposits remained insured by the FDIC. The FDIC estimates that the Association’s failure will cost the Deposit Insurance Fund approximately $1.2 million.

On July 17, the FDIC announced the closure and receivership of Small Business Bank in Lenexa, Kansas. The Farmers State Bank of Oakley, Kansas subsequently assumed substantially all deposits and agreed to purchase certain assets of Small Business Bank. The lone Small Business Bank branch will reopen as a branch of Farmers State Bank, and deposits will remain insured by the FDIC. The FDIC estimates that Small Business Bank’s failure will cost the Deposit Insurance Fund approximately $5.7 million.