Best Practices in ITIN Lending

Best Practices in ITIN Lending
Miriam De Dios
Coopera,
CEO
May 21, 2015
Preview
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Serving Foreign Nationals/Immigrants
Customer Identification Program (CIP) requirements
Individual Taxpayer Identification Numbers (ITINs)
ITIN Lending Nuances
ITIN Lending Best Practices/Examples
Questions
Note
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It is important to remember that credit unions should always
consult with their legal counsel and compliance team on
questions related to regulation and compliance.
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Coopera cannot accept responsibility for the implementation
of the credit union’s policies or for their compliance with
applicable federal or state regulations.
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It is each credit union’s responsibility to remain current with
regulatory changes.
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Coopera is providing this presentation for information
purposes. This information does not constitute legal,
compliance or regulatory counsel.
DO YOU OFFER ITIN LENDING TODAY?
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Serving Foreign Nationals
• Financial institutions can serve foreign nationals.
• Financial institutions can accept non-U.S. government
forms of ID and documentation for account-opening.
• Financial institutions can accept a taxpayer
identification number such as an individual taxpayer
identification number (ITIN) for interest-bearing
accounts and loans reported to the credit bureaus.
Foreign Nationals: Individuals who are not citizens or
permanent residents of the country they reside in.
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Serving Foreign Nationals
• Not all foreign nationals are undocumented.
• Not all ITIN holders are undocumented.
• Immigrant households may have family members with
varying immigration statuses (U.S. Citizens, U.S. Residents,
Temporary Residents, Undocumented and Adjusting
Immigration Status, etc.)
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Customer Identification Program (CIP)
• Section 326 of USA Patriot Act
• Verify member’s identity and maintain records of
documentation
• Monitor potential terrorist activity, not
immigration status
First Culture
• Board
approved
CIP
policy
outlining
account opening
First Culture
procedures and acceptable forms of ID
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CIP Requirements
At minimum the credit union must obtain the following information prior
to opening or adding a signatory to an account:
• Name
• Date of birth (for individuals)
• Residential or business street address, APO or FPO or address of
next of kin (individual) or principal place of business, local office or
other physical location (corporation, partnership, etc.); and
• Taxpayer identification number (U.S. person) or passport number
and country of issuance, alien identification card number, or other
government issued document bearing a photo or similar safeguard
(non-U.S. person)
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DO YOU ACCEPT ALTERNATIVE FORMS
OF ID FOR ACCOUNT OPENING?
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Account Opening Vs. Lending
Note:
CU’s can
provide noTIN loans
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NCUA Opinion Letter 03-0964 (2003)
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Your board of directors recently approved a plan to assist members who lack social security
numbers in establishing a credit history and to provide lending services to them. You indicate
that for several years La Causa FCU has accepted the matricula consular and ITIN as
identification from new members opening share and share draft accounts. Under the new plan,
we understand these members may also use the matricula consular and ITIN to apply for loans.
La Causa FCU will perform credit checks and report borrower activity to credit reporting
agencies for these members based on their ITIN or matricula consular numbers. We are aware
of no law that prohibits a creditor from reporting borrower data by an identification number
other than the social security number. Further, although the credit reporting agencies more
frequently maintain information by an individual’s social security number, we know of no law
that prohibits them from maintaining information by another identification number as long as
they comply with the Fair Credit Reporting Act’s provisions requiring that they have
reasonable procedures to assure the information’s maximum possible accuracy. 15 U.S.C.
§1681e(b).
In connection with the new plan, La Causa FCU’s board of directors must also ensure that its
policies and procedures identify and address any risks associated with the new lending
activities.
NCUA Opinion Letter:
http://www.ncua.gov/Resources/RegulationsOpinionsLaws/OpinionLetters/2003_letters/03-0964.htm
INDIVIDUAL TAXPAYER
IDENTIFICATION NUMBERS (ITIN)
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ITINs
• The IRS issues an Individual Taxpayer Identification Number
(ITIN) to nonresident or resident aliens who are required to
have a U.S. taxpayer identification number (TIN), but who do
not have, and are not eligible to obtain, a social security
number (SSN).
• An ITIN is a tax processing number, which contains nine
digits. The first number begins with a 9 and the fourth and
fifth numbers range from 70-88. The ITIN is formatted like a
SSN (XXX-XX-XXXX).
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ITINs and SSNs
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Documented immigrants can have ITINs
An ITIN holder may be eligible for a SSN in the future
Upon eligibility of a SSN, individual must cease using ITIN
Credit can be built under an ITIN and then transferred to
a SSN
• ITINs will expire if not used on a federal income tax
return for any year during a period of 5 consecutive years
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ITINs
• For tax purposes only
• Does not entitle individual to
social security benefits or Earned
Income Tax Credit (EITC)
• Does not authorize an individual
to work in the United States
• Any individual who is legally
eligible for employment in the
United States must have a Social
Security number
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Source: IRS.gov
ITINs
• Taxpayer must file form W-7
Application for IRS Individual
Taxpayer Identification Number
• Typically filed with a federal
income tax return
• Must supply documentation that
establishes their foreign status
and identity
• Can seek filing assistance from
an ITIN Acceptance Agent
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Source: IRS.gov
ITIN Acceptance Agents
• ITIN Acceptance Agents are individuals, businesses or
organizations authorized by the IRS to assist individuals in
obtaining ITINs.
• Certifying Acceptance Agents review applicants’
documentation, complete a certificate of accuracy and
forward the certificate and application along with a tax return
to the IRS for processing.
• Search for ITIN acceptance agents by state
http://www.irs.gov/Individuals/Acceptance-Agent-Program
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Source: IRS.gov
New ITIN Expiration Rules
• If an ITIN is not used to file a federal income return for any
year during a period of five consecutive years, the ITIN will
expire
• ITINs issued after January 1, 2013 have an expiration date
• ITINs assigned in 2014 and after will include an expiration date
on the authorization letter
• The IRS will not begin deactivating ITINs until 2016
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Source: IRS - http://www.irs.gov/Individuals/ITIN-ExpirationPeriod-Frequently-Asked-Questions
ITIN LOANS
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ITIN Loan Products
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Personal/signature loans
Credit builder loan programs
Auto loans
Mortgages
ITIN Lending Opportunities/Risk
• Thirst for lending
• Inherent risk in all lending
• ITIN borrowers may:
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Have non-traditional credit histories
Use non-traditional/alternative forms of ID to verify identity
Encounter job stability issues
Be impacted by immigration laws
Incorporate ITIN Lending into Risk
Assessment
• How do you determine risk?
• What communities are you serving?
• Have you identified the risk associated in providing
these products?
• How are you mitigating that risk?
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BEST PRACTICES & EXAMPLES
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Have a Flexible CIP
• Align policy with procedures
• Accept non-U.S. government forms of ID such as the
matricula consular, cedula, voter registration card & new
forms of U.S ID’s for immigrants
• Provide training for compliance and frontline staff on
alternative forms of ID
• Have bilingual capacity to read/verify non-U.S. forms of ID
• Partner with Mexican and Guatemalan consulates and
establishing processes to verify ID
• Clearly communicate acceptable ID to membership
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Matriculas, Cédulas, Voter ID Cards
Mexican Matricula Consular
DPI – Documento Personal de
Identificacíon
*Add new
driver’s
licenses &
municipal ID’s
for immigrants
to CIP policy &
procedures
Mexican Credencial Para Votar
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Sources: Secretaria de Relaciones Exteriores Mexico, Republica de Guatemala RENAP,
Instituto Nacional Electoral, Instituto Federal Electoral (IFE) Mexico
Repackage Existing Loan Products
• Repackage, leverage and adapt your existing products
• Focus on adapting:
– Underwriting
– Staff training
– Marketing
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ITIN Loan Example
Loan Structure
• Two step personal loan for credit-building
– $500 for 6 months (18% interest)
– $1000 for 12 months (15% interest)
• 60 day membership requirement
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ITIN Loan Example
Adaptations:
• Accept ITIN, tax returns, letter from employer & direct
deposit history for documentation
• Require two personal references
• Train staff on pulling credit reports, verifying income and
account opening processes
• Staff review credit report, credit-building process with all
members and provide financial education w/brochure
• Develop specific bilingual brochure and advertise in local
Spanish media
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ITIN Mortgage Providers
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Latino Community Credit Union
Guadalupe Credit Union
Self Help Credit Union
Venta Financial Group (FL, GA, TX, CA, WA, NV, AZ)
Citigroup & Neighborhood Assistance Corporation of
America (NACA)
• Wells Fargo (exploring)
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Source: http://www.msnbc.com/msnbc/american-dream-undocumented
Have Flexible Documentation
Requirements
• Accepting non-traditional documentation for:
– Proof of address
– Employment & income verification
– Credit/payment history
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Proof of Address/Payment History
Considerations
• If individual does not own home, will likely be renting or
living with roommates this could impact rental/lease
agreements and utility bill requirements being in his/her
name
• Alternatives:
– Cell phone bills
– Remittance receipts (i.e. Western Union, Vigo, etc)
– English as a Second Language (ESL), citizenship or other educational
classes/course registration receipts
– Medical bills
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Employment & Income Verification
• Federal income tax returns
• Account statements with direct deposit of payroll
• Letters from employers
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Credit History Considerations
• Alternative Credit Scores for Thin Files or No Files
• Internal Credit History:
– Usage of prepaid reloadable card history
– Account statements
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Start Small
• Small Dollar Personal Loans
• Credit Builder Loans
• Deferred Action for Childhood Arrivals (DACA) or
Dreamer Loans
• Other Immigration Loans
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Provide Financial & Other Education
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ITIN acceptance agents
ITIN to SSN guidance with credit bureaus
Credit tracking services
How to build credit education
Managing different card products – ATM cards, debit
card, credit cards, prepaid cards
• Transitioning member to traditional products or next
step product
Resources: BALANCE, Appleseed
Centers, El Poder es Tuyo, FTC Videos,
Spanish Seminars in a Box…
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Market Your ITIN Loans
• Focus on marketing efforts within the targeted
community
• Focus on highlighting the cultural relevancy of the loan
in print and advertising materials
• Note acceptable forms of ID and documentation
• Incorporate financial education when possible
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Be Prepared for ITIN & SSN Discrepancies
• ITIN & SSN discrepancy
– ITIN number on one document and SSN on another
• Pulling ITIN credit score
– ITIN inquiry pulls in SSN because of name and address match
• Acceptance of ITIN for car buying process
• Identity Theft Red Flag Rules & BSA Compliance
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Train Staff
• Alternative Forms of ID
• Working with Immigrant Populations
• BSA Compliance with TIN discrepancies
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Know Your State Requirements
• Driver’s Licenses & Municipal IDs
– AB 1660 in CA
– NYC municipal ID
• Registering a vehicle with an ITIN
• Auto Insurance
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Questions?
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Matricula Usage
These links provide resources that support credit
union usage of the matricula consular
• http://www.dhilton.com/resources/articles/Charters%20%20Interview%20with%20Debbie%20Matz.pdf
• http://www.ncua.gov/Legal/OpinionLetters/OL20030964.pdf
• http://www.cuna.org/Legislative-And-RegulatoryAdvocacy/Legislative-Advocacy/Letters-to-Congress/Letterto-Representative-Ruben-Hinojosa-regarding-matriculaconsular/
• http://legacy.cuna.org/gov_affairs/legislative/testimony/032
603.html
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Upcoming Hispanic Growth Educational
Webinars through CUNA
• June 24 – Lessons Learned from Hispanic Outreach
Credit Union Professionals
• August 20 – Lending to Hispanics: An ROI Case Study
• October 6 – Marketing to Hispanics: An ROI Case Study
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Learn more and register at training.cuna.org/webinars
Hispanic Growth Resources
• White Papers
http://www.cooperaconsulting.com/hispanic-expertise.cfm
• Hispanic Outreach Insights Monthly E-newsletter
http://www.cooperaconsulting.com/
• Hispanic Outreach Connection LinkedIn Group (CCHOC)
http://www.linkedin.com/groupInvitation?groupID=2148195&
sharedKey=5F7335401508
• Coopera Blog http://blog.cooperaconsulting.com/
• Coopera on Twitter Follow Coopera @_Coopera
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Contact Coopera
1500 NW 118th Street
Des Moines, Iowa 50325
866.518.0214
cooperaconsulting.com
blog.cooperaconsulting.com
[email protected]
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cannot be used without expressed written consent from Coopera.