For many credit unions, helping people achieve the American dream is an idyllic fulfillment of their cooperative’s vision. Yet, providing products and services to individuals new to the country brings up a lot of questions for staff, particularly those unfamiliar with the day-to-day challenges of the immigrant journey. Quite a few of those questions are regulatory in nature, and credit unions are right to consider compliance as they research whether this strategy makes sense for their organization, its members and the larger community.
That said, the rules and regulations surrounding service to immigrants are not so onerous that they should stand in the way of a credit union’s pursuit of it. This is especially true if the outcomes of such service will have a positive impact on the cooperative’s local community.
Credit union executives and board members may find it difficult to visualize service to individuals who do not have social security numbers. Because those 10 digits have made up the cornerstone of our identities for so long, it’s difficult to see another way forward. However, many financial institutions have found exactly that – and are providing much-needed products and services to individuals by accepting what’s known as the ITIN in combination with other identifying data.
ITIN stands for Individual Taxpayer Identification Number, and it is issued by the IRS to individuals who do not have, and are not eligible to obtain, a social security number, but are still required to file an income tax return.
Granted, the use and acceptance of ITINs as a business practice has been somewhat controversial, and that’s largely because the majority of ITIN holders are undocumented immigrants. However, some credit unions have been willing to accept the risk associated with this segment because they see the possibilities, understand the value of inclusivity and want to provide needed products and services to their communities.
As you consider whether it makes sense to accept ITIN to further your cooperative’s mission, here are some things to think about…
No Regulation Says You Must Accept ITIN
Choosing not to accept ITINs for loans will not trigger a fair-lending concern. Denying an ITIN is not considered discriminatory. In fact, many credit unions (and banks) do not accept ITINs, mainly due to the unique risks involved with ITIN lending.
ITIN Acceptance May Set You Apart
Given the above, ITIN acceptance may provide your credit union with a competitive advantage in your area, especially if it is experiencing rapid growth of the Hispanic population – a segment that includes millions of ITIN holders. Membership growth is another potential outcome from executing the strategy of ITIN acceptance.
ITIN Can Not Stand Alone
It’s important to understand the ITIN is not a considered a form of identification. The IRS actually states on its website that the agency does not perform validation or verification of the information provided during the ITIN application process. So, it cannot be relied upon as a form of identification. However, Customer Identification Program (CIP) rules make it relatively easy to comply with account-opening Bank Secrecy Act (BSA) requirements for ITIN holders. All that is needed is name, date of birth, address and one of the following: U.S. taxpayer identification number, foreign passport, U.S. immigrant ID card or government-issued document evidencing nationality with a photo from a non-U.S. country.
ITIN + SSN = Red Flag
A person can have either an ITIN or a SSN, but generally not both. If someone presents both, additional research is needed. If you are unable to resolve this discrepancy, this could be a situation for which a suspicious activity report (SAR) may need to be filed.
Risk Tolerance Must Factor into ITIN Decision
Use of an ITIN does not automatically mean there is a higher risk the loan won’t be paid back. It does, however, present risk related to the collateral, such as the borrower being forced to leave the country before the loan is paid off. This should be considered as part of your credit union’s risk appetite.
There is no right or wrong answer as to whether your credit union should accept ITINs or offer loans using an ITIN as part of the documentation. It is a business decision for your board and executive management to make as they weigh the potential impact to the community against the associated risk to the cooperative.