The Department of Justice (DOJ) has issued a warning to financial institutions for refusing credit applications from illegal immigrants.
On Thursday, the DOJ and the Consumer Financial Protection Bureau (CFPB) published a joint statement. In a press statement, the DOJ and CFPB stated that illegal immigrants had submitted complaints regarding credit application rejections.
“The Justice Department and CFPB are issuing this statement because consumers have reported being rejected for credit cards as well as for auto, student, personal and equipment loans because of their immigration status, even when they have strong credit histories and ties to the United States and are otherwise qualified to receive the loans,” stated the agencies.
The two agencies asserted that the Equal Credit Opportunity Act (ECOA) protections for national origin and race extended to alienage, although there were no express clauses stating their view. The agencies acknowledged that creditors could use immigration status to determine repayment capabilities, but warned against “unnecessary or overbroad reliance” on immigration status.
“[W]hile 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,” said the agencies. “Immigration status may broadly overlap with or, in certain circumstances, serve as a proxy for these protected characteristics.”
Immigration status is listed as an acceptable cause for denying an applicant under Regulation B, which offers extra standards for analyzing credit applications, to ensure “creditor’s rights and remedies regarding repayment.” The agencies also claimed that because no specific permits existed, creditors could not discriminate based on citizenship status unless they could demonstrate serious repayment issues.
The agencies also cautioned against “overbroad consideration” of certain procedures, such as querying how long an individual has had a Social Security number or needing specific types of documentation, identification, or in-person application materials. These screening procedures, the authorities warned, could be regarded as unlawful discrimination based on national origin or race.
Finally, the agencies interpreted Section 1981 of the 1866 Civil Rights Act to proclaim that illegal immigrants enjoy the same rights and protections as citizens.
“[C]reditors should be mindful of their obligations under 42 U.S.C. § 1981 (Section 1981) [which] has long been construed to prohibit discrimination based on alienage,” said the agencies. “[C]ourts have observed that ECOA’s prohibition of national origin discrimination and Section 1981’s prohibitions complement one another and that discrimination that arises from overbroad restrictions on lending to noncitizens may violate either or both statutes.”
The Supreme Court has not ruled on whether Section 1981 applies to alienage, although the Fourth Circuit Court of Appeals has.
The DOJ may sue those who are accused of engaging in a pattern or practice of discrimination based on race, color, religion, sex, sexual orientation, or gender identity, in addition to national origin, under the ECOA.
There were five referrals containing charges of race or national origin discrimination, according to the DOJ’s most recent annual fair lending report from 2021.
The report for 2022 has yet to be released.
The CFPB’s most recent fair lending report, from 2022, did mention considering immigrants’ financial needs. Last year, the CFPB referred to the DOJ four referrals concerning race and national origin discrimination in mortgage lending.
The idea that lenders cannot evaluate the legality of a potential debtor’s immigration status when deportation might adversely effect the debtor’s capacity to pay is (expletive) absurd.
Lenders have a fiduciary obligation to both investors and depositors to make sound lending decisions based on competent risk management standards. When lenders fail to do so, we experience a financial crisis, as we did in 2008.
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