ANALYSIS: Does your credit union consider a loan applicant’s immigration status when deciding whether to extend credit? If so, you should be aware that recent class action lawsuits and guidance from federal authorities are challenging traditional compliance thinking about what you can and cannot do.
To help Wisconsin credit unions avoid potential liability, this Courier will:
- Explore the compliance issues that arise when making lending decisions involving non-citizens;
- Review regulators’ guidance from 2023 that you may have missed;
- Discuss the claims made in the lawsuits;
- Explore some suggested “do’s and don’ts” for lenders that consider immigration status; and
- Explain why some immigrants present valid Social Security cards that say they are for “work only.”
Background: Reg. B, discrimination, and immigration status
- A credit union can make loans or open accounts for anyone in its field of membership, even if that person may be a non-citizen.
- Our ii Release No. 0157 summarizes the compliance issues involved with serving non-citizens, with a focus on tax reporting.
- Reg. B is the set of federal regulations under the Equal Credit Opportunity Act (ECOA). We summarize Reg. B compliance in The League’s ii Release No. B041. It explains that a creditor cannot discriminate against loan applicants on the basis of race, or national origin, or several other factors. These are referred to as “prohibited bases” for discrimination.
- However, Reg. B allows a lender to take an applicant’s immigration status into account when deciding whether to grant credit. Under Reg. B §1002.5(e), “A creditor may inquire about the permanent residency and immigration status of an applicant or any other person in connection with a credit transaction.” Also, Reg. B §1002.6(b)(7) says, “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.”
- The CFPB’s Staff Commentary to Reg. B offers more details:
- “National origin. A creditor may not refuse to grant credit because an applicant comes from a particular country but may take the applicant’s immigration status into account.” Comment 2 to Reg. B §1002.2(z).
- “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.” Comment 1 to Reg. B §1022.6(b)(7).
- “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.” Comment 2 to Reg. B §1022.6(b)(7).
- If your credit union’s loan policies address immigration status (which Reg. B permits), be sure to apply the policies evenly. For instance, do not refuse loans to Latino non-citizens when you are giving loans to Canadian non-citizens. And do not require proof of a legal presence in the U.S. just because of a person’s race, color, religion, etc.
- Other state and federal anti-discrimination laws may apply, and the credit union should be cautious about violating them, consulting its own attorneys about any uncertainties.
CFPB & DOJ take a tougher view on what Reg. B allows
The CFPB and federal Department of Justice (DOJ) issued a joint statement in 2023 to clarify the civil rights implications involved. The joint statement emphasized that lenders should carefully consider how they use immigration status when accepting and evaluating applications and guard against the use of immigration status as a proxy for a prohibited basis such as race or national origin.
“Lenders … cannot use a consumer’s or entrepreneur’s immigration status to justify unlawful discrimination,” the agencies wrote. They warned that lenders using immigration status in their decision-making could risk violating the law.
In announcing the release of the joint guidance, the DOJ wrote:
Some financial institutions have maintained blanket policies denying credit to individuals based on their immigration status, regardless of their personal circumstances and demonstrated ability to repay, arguing that the ECOA, and the regulation that implements it, protect them whenever they consider immigration status in making a credit decision. Others have incorrectly claimed that the Act shields lenders from liability under other federal and state civil rights laws that bar discrimination on the basis of someone’s status as an immigrant or noncitizen.
The joint statement explains that while the ECOA allows creditors to consider immigration status when necessary to ascertain the creditor’s rights regarding repayment, unnecessary or overbroad reliance on immigration status may violate the Act’s prohibition of discrimination on the basis of national origin, race or another prohibited basis. The joint statement also confirms that neither the ECOA nor its regulations provide companies a safe harbor with respect to other laws barring discrimination on the basis of immigration status.
MALDEF lawsuits and claims
The lawsuits were brought by the Mexican American Legal Defense and Educational Fund (MALDEF), which describes itself as “the nation’s leading Latino legal civil rights organization.” Since 2017, MALDEF says that it has filed 18 lawsuits against credit unions and other lenders, alleging that they discriminated by denying loans to DACA (Deferred Action for Childhood Arrivals) recipients.
DACA, a U.S. immigration policy, was established in 2012. It allows certain undocumented immigrants who were brought to the U.S. as children to receive deferred action from deportation and obtain work permits. DACA recipients are authorized to work in the U.S. (Litigation is pending on the lawfulness of DACA. For now, current DACA recipients can continue to renew their status and work authorizations, but first-time DACA applications are not being processed.)
MALDEF’s lawsuits have alleged that denial of loans to DACA recipients violates the federal Civil Rights Act of 1866 as well as various state anti-discrimination laws. “There are currently thousands of DACA recipients who have held that status for over a decade; there is simply no excuse for treating DACA recipients differently than other long-term residents, including citizens,” said Thomas A. Saenz, MALDEF president and general counsel. MALDEF stresses that DACA recipients are legally present in the U.S. and should not be treated differently based on their immigration status when it comes to accessing credit.
As one example, in Camacho v. Alliant Credit Union (filed in the U.S. District Court, Northern District of California, in 2022) MALDEF alleged that Chicago-based Alliant Credit Union denied an auto loan because the applicant was a DACA recipient and not a citizen or legal permanent resident of the U.S. Other class action plaintiffs joined the lawsuit because they were similarly denied loans, MALDEF alleged.
According to the complaint, the plaintiff informed the credit union that she was neither a visa holder, permanent resident, nor naturalized citizen, but instead was a DACA recipient. A credit union representative stated that the credit union does “not lend on DACA status” and recommended that the plaintiff’s husband apply in his own name. An adverse action notice sent to the plaintiff indicated that the only reason for denying her loan was her “Residency Status.”
MALDEF claimed that the credit union violated 42 U.S.C. Section 1981 – which is part of the federal Civil Rights Act of 1866. They also claimed a violation of a California state civil rights statute.
The credit union asked the court to dismiss the case. It argued that the ECOA and Reg. B preempted plaintiff’s claims because the ECOA allows a lender to consider immigration and residency status in creditworthiness and repayment analysis.
In 2023, the court denied the credit union’s motion to dismiss, holding that it is possible to comply with both Reg. B and Section 1981. The court, quoting opinions from other courts, wrote:
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.” … Section 1981 prohibits discrimination on the basis of alienage. … Section 1981 and the ECOA thus both address discrimination in the realm of contract. Section 1981 is a general statute that “prohibits discrimination in the making of any type of contract,” while the ECOA is a more specific statute that “prohibits discrimination in the making of a specific type of contract, namely, a contract for credit.”
***
The ECOA and §1981 “can be read to give effect to both, in that §1981 precludes a creditor from discriminating on the basis of race or alienage, whereas the ECOA precludes a creditor from discriminating on additional grounds, such as religion and national origin.” It is possible for a creditor to comply with both the ECOA and Section 1981 “by not discriminating on the basis of any of the categories listed in the two statutes.”***[T]he Court finds that it is possible to give effect to both Regulation B and Section 1981, as a creditor can comply with both.… Further, Regulation B does not allow a creditor to decline credit solely on the basis of residency or immigration status.
In August 2024, the court approved a class-action settlement agreement. The credit union agreed to change its policies and establish a settlement fund of $86,750 to be paid to class members, plus attorney’s fees and other costs.
The settlement reinforces the point that Reg. B is not the only issue to consider when evaluating credit applications and considering immigration status.
Practices your credit union should avoid
What not to do
Credit unions should avoid several lending practices that might violate the ECOA and Reg. B:
- A blanket policy denying credit to individuals based on their immigration status, regardless of their personal circumstances and demonstrated ability to repay – a practice that is coming under scrutiny lately.
- A blanket policy of refusing to consider applications from certain groups of non-citizens, regardless of the credit qualifications of individual borrowers within that group.
- The overbroad consideration of certain criteria, such as how long a consumer has had a Social Security number.
- Requiring documentation, identification, or in-person applications only from certain groups of non-citizens, when this requirement is not necessary for assessing the ability to obtain repayment or fulfilling legal obligations.
Other practices are good ideas to help your credit union avoid unlawful discrimination:
- Carefully review your lending policies in relation to immigration status, including how your credit union handles applications from DACA recipients and other immigrants.
- Ensure that your credit union’s policies and procedures are not overly broad in ways that may result in discrimination claims.
- If your credit union relies on immigration status for a reason other than determining its rights or remedies for repayment, and if it cannot show that such reliance is necessary to meet other binding legal obligations, then it may risk engaging in unlawful discrimination.
- Remember that any practices which could be viewed as discriminatory, even if they are framed as evaluations of credit risk based on immigration status, could draw regulatory scrutiny.
One last topic: “Work only” Social Security cards
Credit unions sometimes call The League’s Legal Affairs team to ask about handling loan or membership applications from people who present Social Security cards that say: “VALID FOR WORK ONLY WITH DHS AUTHORIZATION.” (“DHS” refers to the Department of Homeland Security.)
Such cards, and the Social Security Numbers they provide, are valid. The Social Security Administration says, “We issue this type of card to people lawfully admitted to the United States on a temporary basis who have Department of Homeland Security (DHS) authorization to work.”
DACA recipients may present “work only” Social Security cards, but other immigrants are eligible to obtain such cards, as well. Non-citizen loan applicants may present other forms of identification, too.
In many of the MALDEF lawsuits, credit unions and other lenders allegedly denied loans after applicants presented “work-only” Social Security Cards. However, the issues discussed in this Courier are not limited just to applicants that have such cards.