Treliant Takeaway…DOJ / CFPB Joint Statement On the Use of Immigration Status

Justice Department and Consumer Financial Protection Bureau Issue Joint Statement Cautioning that Financial Institutions May Not Use Immigration Status to Illegally Discriminate Against Credit Applicants

• Source: justice.gov

Takeaway:

A solid compliance management system with a strong fair lending component and commitment from senior management to take action on identified risks is key to avoiding heavy criticism from regulators. Treliant assists organizations in assessing compliance and fair lending programs and identifying areas for enhancements.

Highlights:

On October 12, 2023, the Department and Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB) issued a joint statement warning lenders against using immigration status to determine creditworthiness.

While the Equal Credit Opportunity Act (ECOA) allows creditors to consider immigration status, the agencies’ view is that creditors may be over relying on the applicant’s status and may be violating ECOA. The statement indicates that Regulation B does not provide a safe harbor for using immigration status and that, as a general matter, lenders should evaluate whether their reliance on immigration status or citizenship status is necessary to ascertain the ability of the applicant to repay the debt.

They warn that “[t]o the extent that a creditor is relying on immigration status for a reason other than determining its rights or remedies for repayment, and the creditor cannot show that such reliance is necessary to meet other binding legal obligations, such as restrictions on dealings with citizens of particular countries, the creditor may risk engaging in unlawful discrimination, including on the basis of race or national origin, in violation of ECOA and Regulation B.”

The agencies gave examples of creditor practices that could risk violating ECOA and Regulation B:

• A blanket policy of refusing to consider applications from certain groups of noncitizens regardless of the credit qualifications of individual borrowers within that group.
• The overbroad consideration of certain criteria, such as how long a consumer has had a Social Security Number.
• Requiring documentation, identification, or in-person applications only from certain groups of noncitizens, and this requirement is not necessary for assessing the creditor’s ability to obtain repayment or fulfilling the creditors’ legal obligations.

What This Means for Financial Institutions:

All lenders should review current policies and practices in light of the DOJ and CFPB position.  While providing additional guidance, it also raises questions, such as how lenders may appropriately use immigration status in their credit decision and how to balance Regulation Z’s ability to repay requirements for mortgage loans.

The key is to understand how much reliance your organization is putting on immigration status and to be aware that unnecessary or overbroad reliance may bring criticism or even risk of violations of law.