Written by Shereefat Balogun, Regulatory Compliance Counsel
Seems like immigration is on many minds these days. In fact, we’ve received a number of questions concerning an applicant’s immigration status in evaluating loan applications. The general question often looks like this:
A member came in applying for a VISA credit card. He is not a permanent resident of the U.S. He has a work permit that expires in July 2017. Are we able to deny a credit card to someone who is not a permanent resident of the U.S?
As many of us are aware, the Equal Credit Opportunity Act (ECOA) prohibits discrimination related to any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, age, and income derived from public assistance. See, 15 U.S.C. §1691(a); 12 C.F.R. §§ 1002.1(b), 1002.4(a). That said, a credit union may consider a member’s credit status or status as a permanent resident in determining the member’s creditworthiness and the credit union’s rights and remedies regarding repayment. Indeed, section 1002.5 of Regulation B, which implements ECOA, provides in relevant part:
§1002.5 Rules concerning requests for information.
(e) Permanent residency and immigration status. A creditor may inquire about the permanent residency and immigration status of an applicant or any other person in connection with a credit transaction.
12 CFR 1002.5(e)(emphasis added.)
Moreover, in section 1002.6, the rule states:
§1002.6 Rules concerning evaluation of applications.
(a) General rule concerning use of information. Except as otherwise provided in the Act and this part, a creditor may consider any information obtained, so long as the information is not used to discriminate against an applicant on a prohibited basis. The legislative history of the Act indicates that the Congress intended an “effects test” concept, as outlined in the employment field by the Supreme Court in the cases of Griggs v. Duke Power Co., 401 U.S. 424 (1971), and Albemarle Paper Co. v. Moody, 422 U.S. 405 (1975), to be applicable to a creditor's determination of creditworthiness.
(7) Immigration status. 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.
12 CFR 1002.6(b)(7) (emphasis added.)
The Official Interpretation to 1002.6(b)(7) provides more detail:
Paragraph 6(b)(7) .
1. National origin—immigration status. The applicant's immigration status and ties to the community (such as employment and continued residence in the area) could have a bearing on a creditor's ability to obtain repayment. Accordingly, the creditor may consider immigration status and differentiate, for example, between a noncitizen who is a long-time resident with permanent resident status and a noncitizen who is temporarily in this country on a student visa.
2. National origin—citizenship. 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.
12 CFR 1002, Supp. I, comments 1002.6(b)(7) – 1 and 2 (emphasis added.)
While Regulation B generally gives credit unions the ability to consider residency and immigration status in evaluating a loan application, there may be some risks associated with denying a loan based on the member’s citizenship status. Comment 2 above indicates that a denial of credit based on citizenship status is not per se discrimination based on national origin. This suggests that the denial in and of itself may not be discriminatory; however an examination of the facts and circumstances may form the basis of a discriminatory claim exposing the credit union to litigation risks. One issue that may arise concerns claims that the credit union’s policy is not being applied consistently. For example, if citizens of countries A and B are ok but citizens of C and D are not, then it can be argued that the credit union is discriminating on the basis of national origin, i.e. the place of origin rather than status as a non-citizen. The credit union may want to make sure applicants are being treated consistently across the board and that any different treatment has a legitimate business purpose.
One thing to consider is that the rule seems to focus on the credit union’s ability to look at immigration status in determining the member’s ability to repay. See, 12 C.F.R. 1002.6. Based on this, the credit union may want to focus on the repayment aspect and the particular risks a noncitizen applicant poses. This is alluded to in the commentary. See, 12 CFR 1002, Supp. I, comments 1002.6(b)(7) – 1 and 2. For example, a member who is new to the country, with no employment, and no past credit history may pose more risks to the ability to repay, than a person who has been in the country for 10 years, working as a physician at $450k a year, with satisfactory credit history and owns a home.
Notably, Form C-1 located in Appendix C to Part 1002, is a sample adverse action form and provides a few adverse action options that may apply to these situations. For example, some reasons listed such as “Temporary or Irregular Employment”, “Length of Employment”, “Length of Residence”, or “Temporary Residence” may be applicable. Ultimately, though, the rule requires credit unions to look at their underwriting criteria and select the appropriate reasons.
Also, here are some useful resources which may be helpful:
- NCUA’s Fair Lending Guide
- Letter to Credit Unions No. 174. This letter includes a white paper that’s geared towards risk-based lending. Starting on page 3, there is a pretty good discussion of consumer compliance and discrimination issues.
As always, if you have any questions concerning ECOA/Regulation B, or any other issue, please feel free to contact the NAFCU Compliance team. We’re here for you!
Trivia: What is ECOA’s record retention period for consumer credit applications?
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