On October 12, the Consumer Financial Protection Bureau (CFPB) and Department of Justice (DOJ) issued a joint statement emphasizing the risk associated with considering an applicant’s immigration status when making credit decisions. Specifically, the CFPB and DOJ emphasized that creditors should carefully consider how they use immigration status when accepting and evaluating applications and should guard against the use of immigration status as a proxy for a prohibited basis such as race or national origin.
The Equal Credit Opportunity Act (ECOA) and Regulation B, which govern consumer and business lending, broadly prohibit creditors from discriminating based upon any prohibited basis (e.g., race, sex, national origin, etc.) but explicitly allow creditors to consider immigration status to the extent “necessary to ascertain the creditor’s rights and remedies regarding repayment.” The CFPB and DOJ emphasize in the advisory opinion the limited permissible use for immigration status (i.e., immigration status can only be used to the extent necessary to ascertain the creditor’s rights and remedies) and indicated that the use of immigration status as a factor in credit decisions, if not carefully managed, can easily become a proxy for a prohibited basis such as race or national origin. The CFPB and DOJ specifically noted the risk associated with the following types of practices:
- Refusing applications from certain groups of noncitizens (e.g., holders of a particular type of visa), without considering individual credit qualifications;
- Requiring specific types of documents or identification from certain groups of noncitizens;
- Requiring certain groups of noncitizens to apply through a specific pipeline (e.g., requiring noncitizens to apply for loans in person when others are allowed to apply via other methods).
The CFPB and DOJ further noted that proxies for immigration status, such as a requirement that a borrower have a Social Security number, can be potentially problematic to the extent they are not necessary to ascertain the creditor’s rights and remedies and become proxies for a prohibited bases.
Based on the joint statement, creditors should consider the following steps to mitigate risks of impermissibly using immigration status:
- Be able to explain and document how immigration status is necessary to ascertain the creditor’s rights and remedies regarding repayment;
- Be able to explain and document the use of factors that could serve as a proxy for immigration status (e.g., a requirement to have a Social Security number for a specified period of time);
- Avoid making blanket credit decisions based on immigration status without consideration of other factors;
- Avoid policies that could disproportionately impact noncitizens who are otherwise creditworthy (e.g., requiring certain types of documentation or identification when other documentation or identification would allow the creditor to ascertain its rights and remedies regarding repayment, requiring noncitizens to apply using a specific method, etc.).