ITIN loans and compliance: cutting through the fog


ITIN loans represent a growth opportunity for CUs.

ITIN loans represent a strong marketing demographics for credit unions. Is Your Credit Union Taking Full Advantage? Otherwise, you should be. Here’s why. The Filene Research Institute recently concluded its incubator loan project in December 2017, with the ITIN loan being the most popular segment of the experiment. The program introduced the following five immigrant / minority loan packages:

  • Auto refinance loans
  • Small dollar loan qash
  • Micro-finance loans to small businesses (community-based)
  • Payday installment loans
  • ITIN loan

To make these loans possible, credit unions used targeted data mining and alternative relationship factors in addition to credit scores, alternative data, and ITIN numbers rather than Social Security numbers as the basis for identification. And while this segment carries risk, it can be measured. Plus, the numbers speak for themselves.

At the end of the test, 40 credit unions were recruited and 58,482 loans totaling $ 84.4 million were issued. However, out of the five, ITIN loans were the most popular among immigrant lenders and borrowers. Additionally, 99% of immigrant borrowers were classified as minorities, marking a strong loan demographics for the incubator project.

Yet this is where the statistics get really interesting. Two-thirds of immigrant ITIN borrowers were new to credit unions. (The search for your next major membership marketing demographic is over!) Better yet, 97% of ITIN borrowers surveyed said they would recommend an ITIN loan to family and friends. The combined ROA was 3.84% (industry-wide it is 0.75%).

Differences between ITIN loans and traditional loans

While traditional loans use Social Security numbers as proof of identity, ITIN loans require a little more. The reason involves the IRS. According to the Internal Revenue Service, an individual tax identification number alone is not sufficient as proof of identity. In other words, just because you have one doesn’t mean you are who you say you are, at least as far as Uncle Sam is concerned.

Individuals need additional proof. However, the rules of the Client Identification Program make it easy for ITIN holders to comply with the Bank Secrecy Law, which governs financial policy. Members simply need to provide the following three pieces of information:

  • Last name
  • Date of Birth
  • Address

So, if your credit union is in an area with a rapidly growing Hispanic population, ITIN loans might be suitable, as there are literally millions of ITIN holders in that space. And while there is no rule that says you must accept ITIN lenders, it could position your credit union as inclusive, forward-thinking, and on the cutting edge of technology. Also, think about the potential membership growth.

Points to consider with the ITIN loan

Finally, there are a few things you should keep in mind regarding ITIN loans. Pay attention to these points to see if an ITIN loan is a good choice for your credit union.

Spanish membership documents and loan forms

Since your credit union offers different loan solutions, keep in mind that providing documents in Spanish can open the market for your credit union. Listening to and serving your members is the key to the growth of your caisse. Making your loan documents available to all potential members fosters a sense of transparency and caring for the needs of your credit union community. Even the CFPB offers a spanish version of its location. Make sure your translated documents meet state and federal requirements.

ITIN in itself is not enough

Remember that individual tax identification numbers alone are not sufficient to establish the validity of a loan. As stated previously, it must be associated with a name, address and date of birth. All of these work together to corroborate identity verification.

ITIN and SSN are a huge red flag

Typically, consumers will have an ITIN or a Social Security number, but not both. If so, you will need to research the problem for clarity. If you are unable to clarify the duality, you may need to file a suspicious activity report.

Risk tolerance

There is a risk with the ITIN loan, however, it is not necessarily that the loan will not be repaid. This, however, could lead to a situation where the borrower is forced to leave the country before the loan is repaid. Consider this element of risk when determining whether an ITIN loan is ultimately right for your credit union.

The best way to think about ITIN lending involves risk versus reward. This is a decision your board and senior management will make together, as they will weigh the potential positive impact on the community against potential risk factors.

Richard gallagher

Richard Gallagher is CEO of Oak Tree Business Systems, Inc. He can be reached at 800-537-9598 or [email protected]


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