Expanding Your Community Through ITIN Lending
POSTED on July 19, 2019 IN PolicyWorks LLC
CUs may be missing out on a great opportunity to expand their business to immigrants located across the U.S.
Credit unions across the country may be missing out on a great opportunity to expand their membership and lending business, particularly to individuals who use Individual Taxpayer Identification Numbers.
Across the United States, there are immigrant communities that are financially underserved and lack access to traditional financial services, including savings accounts, and loans for purchasing homes and autos or expanding their businesses.
Credit unions can provide that access by expanding their lending programs to serve these new consumers. As with any lending program, compliance is an important component of success, along with flexible policies and procedures that address the unique needs of this segment of the credit union’s local consumer base.
First, it is important to understand the makeup of the local community, and then ensure that account opening and lending policies and procedures allow for the use of non-traditional identification and documentation.
All credit unions must know their members and have a member identification policy (MIP). That policy should include the acceptability of an ITIN for a new member, since account opening is usually the first step a new member will take at the credit union. An ITIN, issued by the Internal Revenue Service in lieu of a Social Security number, can be used to open interest bearing accounts and to lend to individuals.
Many credit unions today are already engaged in offering accounts and lending to members with ITINs, and they are doing so successfully and expanding their membership and asset base. It doesn’t require much more effort than any other type of loan or account, but there are important considerations to ensure compliance with federal and state regulations.
Understanding the ITIN
An ITIN is formatted very similar to a Social Security number, but is issued in the form of a letter instead of a card.
Immigrants, and ITIN holders specifically, may not have traditional forms of identification or documentation, such as a driver’s license or U.S. passport that is typically required for opening accounts. This is where a credit union must have a flexible policy that includes non-traditional identification and documentation.
One such form of non-traditional identification might be a consulate card, depending on the native country of the individual. Mexico and Guatemala, for instance, issue consulate cards to identify their citizens who reside in the U.S. Under a MIP, a consulate card would qualify for identification purposes even though it is not a U.S.-based form of identification. In addition, the identity of the individual via the card can be cross-checked with the consulate offices issuing the cards.
Along with a flexible policy comes the need for staff training for front-line and lending staff who are interacting with these potential members. It is important that they understand the financial needs of these members, what products and services may meet those needs best, their language preference and how they can fulfill the credit union’s membership requirements.
What About Credit Rating?
There are other considerations as well. For instance, where do you begin to determine a credit rating for an individual who lacks a traditional credit history but may very well be a good candidate for a loan? Again, a flexible policy is important for a credit union that is truly attempting to serve this market.
Perhaps the individual’s payment history – if they can demonstrate how they have paid recurring bills or rent in a timely and consistent way – can serve as a proxy for the traditional credit history. A credit union can also help an individual build a credit history by setting them up with a small credit-building loan or credit card aimed at establishing their future creditworthiness.
Other Regulatory Considerations
There are additional compliance considerations. The Equal Credit Opportunity Act and UDAAP (Unfair, Deceptive, or Abusive Acts or Practices) regulations must be kept in mind as the credit union strives to treat each individual and assess their needs in an equitable manner. There may also be state regulations and tax law considerations, for which the credit union should always seek expert assistance from its legal counsel, tax advisor and state credit union league potentially.
The same is true for documents and other materials that are presented in languages other than English. For the immigrant community that the credit union is serving, English may not be the first language, so members may have varying levels of proficiency.
As a credit union strives to work with new consumers in their native language, it is critical to ensure that interpreters or bilingual staff are available, and that a translation strategy is in place to ensure all relevant information is accurately translated, leaving no room for misconceptions or deception. This is an area that may also require special attention to state consumer regulations.
Because there are often many ways to translate a word or phrase from one language to another, it is important to seek experts who understand financial terminology – specifically credit union financial terminology – for any required translation work. You want accuracy, consistency and relevancy in your translations, so you don’t want to use Google Translate for something this important.
ITIN lending is less about starting a completely new program and more about expanding lending to serve immigrant populations in the community. It is a significant opportunity, as immigrant populations are represented all across the U.S.
Success in addressing this new market will come from knowing your demographics and community, and having the right options available to anyone who comes to your credit union with a need. That includes training your staff in understanding the needs of these new consumers and assisting a potential member through the account opening and lending processes with the non-traditional identification, documentation and information they have.
This article was written by Miriam De Dios Woodward, CEO of PolicyWorks.