Does your credit union offer loans? If so, have you looked at your underwriting requirements recently? Specifically, what weight does the credit union give an applicant’s citizenship status? The Equal Credit Opportunity Act (ECOA) and Regulation B, section 1002.2(z) prohibits discrimination based on national origin. However, under section 1002.6(b)(7):
“A creditor may consider the applicant’s immigration status or status as a permanent resident of the United States, and any additional information that may be necessary to ascertain the creditor’s rights and remedies regarding repayment.”
As noted above, a creditor may consider immigration status to the effect that the status can affect the potential repayment of a loan. As an example of when differentiation is permitted based on immigration status, the commentary states that credit union can consider the differences between a long-time noncitizen resident and a noncitizen on a temporary student visa. The commentary also states that “[a] denial of credit on the ground that an applicant is not a United States citizen is not per se discrimination based on national origin.”
So, if the regulation permits the consideration of immigration status and a denial based on the fact a person is not a U.S. citizen is not per se discrimination, why am I writing this blog? Two reasons: 1) Guidance from the CFPB and DOJ and 2) An increase in lawsuits over the consideration of DACA status.
On October 12, 2023, the CFPB and DOJ issued a joint statement on the extent to which creditors should consider immigration status. Here is an excerpt:
“ECOA does not expressly prohibit consideration of immigration status, and, as explained further below, a creditor may consider an applicant’s immigration status when necessary to ascertain the creditor’s rights regarding repayment. However, creditors should be aware that unnecessary or overbroad reliance on immigration status in the credit decisioning process, including when that reliance is based on bias, may run afoul of ECOA’s antidiscrimination provisions and could also violate other laws.” (Emphasis added).
Based on the above, it appears that the DOJ and CFPB are taking a look at creditors who consider immigration status in their underwriting. One other point that is interesting in the statement is the mention of the possible violation of “other laws.” Credit unions should remember that states will often have their own anti-discrimination laws that are not generally preempted by ECOA and could be stricter than ECOA. Considering the new focus on immigration status, credit unions may want to take another look at applicable state anti-discrimination laws.
Beyond the CFPB/DOJ’s new focus on immigration status, credit unions also need to be careful of consumer lawsuits. In the past few years there have been an uptick in lawsuits over discrimination based on an applicant’s DACA status. DACA or the deferred action for childhood arrivals allows noncitizens who entered the United States as minors to stay and work in the U.S. DACA does not provide legal status; however, it defers any action against the person for a two-year period that can be renewed. DACA recipients are generally eligible to work in the United States.
As noted in this NBC news article, at least one organization has been suing credit unions and banks over their use of immigration status in connection with DACA recipient applicants. Considering recent success in settling these cases, it appears that new lawsuits will likely be forthcoming. As such, credit unions may want to review their policies in regards to immigration status, including whether an applicant is a DACA recipient.