The Consumer Financial Protection Bureau and Department of Justice have issued a joint statement regarding “the potential civil rights implications of a creditor’s consideration of an individual’s immigration status under the Equal Credit Opportunity Act (ECOA).”

The agencies begin the statement by observing that while ECOA and Regulation B do not expressly prohibit consideration of immigration status, they do prohibit creditors from using immigration status to discriminate on the basis of national origin, race, or any other protected characteristic.  They cite the statement in Regulation B that a “creditor may consider [an] 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.”  However, they caution that “Regulation B does not, however, provide a safe harbor for all consideration of immigration status.”  Specifically, because “immigration status can broadly overlap with or, in certain circumstances, serve as a proxy for [protected characteristics such as race and national origin], [c]reditors should therefore be aware that if their consideration of immigration status is not ‘necessary to ascertain the creditor’s rights and remedies regarding repayment’ and it results in discrimination on a prohibited basis, it violates ECOA and Regulation B.”

The agencies state that, as a general matter, creditors should evaluate whether their reliance on immigration status, citizenship status, or “alienage” (i.e., an individual’s status as a non-citizen) is necessary or unnecessary to ascertain their rights or remedies regarding  repayment.  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 give the following 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.  Compliance risk could arise because some individuals within those groups may have sufficient credit scores or other individual circumstances that may resolve concerns about the creditor’s rights and remedies regarding repayment.
• The overbroad consideration of certain criteria, such as how long a consumer has had a Social Security Number.  This could implicate or serve as a proxy for citizenship or immigration status, which in turn, can implicate a protected characteristic under ECOA like national origin or race. Any claims that such policies are necessary to preserve the creditor’s rights and remedies regarding repayment or to meet other binding legal obligations should be supported by evidence and cannot be a pretext for discrimination.
• 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.

The agencies further caution that, in addition to potential violations of ECOA and Regulation B, creditors should be mindful of their obligations under 42 U.S.C. § 1981. Section 1981 provides that “[a]ll persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts . . . as is enjoyed by white citizens[.]”  The agencies indicate that this provision “has long been construed to prohibit discrimination based on alienage” and that except to the extent consideration of immigration status is permissible under ECOA and Regulation B, creditors must comply with both statutes.  As a result, according to the agencies, “discrimination that arises from overbroad restrictions on lending to noncitizens may violate either or both statutes.  (The agencies note that neither of them has enforcement or regulatory authority under Section 1981. Section 1981 can be enforced in private actions.) 

While we do not take issue with the agencies for reminding creditors about the ECOA and Regulation B rules regarding immigration status, we find it troubling that the agencies have done so without providing any clear guidance about how creditors may appropriately use immigration status in their credit decisions.  Regulation B allows a creditor to consider the amount and probable continuance of any income in evaluating an applicant’s creditworthiness for credit.  Most notably, the joint statement does not address how creditors can use  immigration status in assessing the likelihood of continuation of income in the context of specific ability to repay determination requirements, particularly the requirements of the Regulation Z ability to repay (ATR) rule for mortgage loans.  This omission is particularly glaring because of the significant liability that mortgage lenders can face for violating the ATR rule.

The first two general requirements under the ATR rule are that the creditor must consider the “consumer’s current or reasonably expected income or assets, other than the value of the dwelling, including any real property attached to the dwelling, that secures the loan” and “if the creditor relies on income from the consumer’s employment in determining repayment ability, [the creditor must consider] the consumer’s current employment status.”  It would have been helpful for the joint statement to have addressed how a creditor, in deciding whether to make a long-term mortgage loan, should assess the likelihood of continuation of income if an individual is in the United States on a temporary work visa or has no legal basis to be in the United States.

In a related blog post, the CFPB discussed the statement as part of the initiative it has launched “to better understand the financial experiences of immigrants in the United States.” Among other things, the blog post highlights the financial experiences of immigrant borrowers protected under the Deferred Action for Childhood Arrivals (DACA) program.

By not providing clear guidance on when the consideration of immigration status can cross the line into improper discrimination based on race or national origin, the agencies make it difficult for us to avoid the conclusion that the agencies’ primary goal in issuing the statement is to scare creditors away from using immigration status in credit decisions.

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