The Consumer Financial Protection Bureau and the Justice Department warned financial institutions that discriminating against credit applicants based on their immigration status could violate the Equal Credit Opportunity Act.
The CFPB and DOJ issued a joint statement on Thursday reminding banks and other lenders that credit applicants cannot be rejected for loans or credit cards even if they are illegal immigrants. The two agencies cited the Equal Credit Opportunity Act, which protects credit applicants from discrimination based on their national origin, race and other characteristics.
"Creditors should be aware that unnecessary or overbroad reliance on immigration status in the credit decisioning process, including when that reliance is based on bias, may run afoul of ECOA's anti-discrimination provisions and could also violate other laws," the agencies said in the joint statement.
The agencies said that some financial institutions have maintained blanket policies denying credit to individuals based on their immigration status regardless of a demonstrated ability to repay. Other financial institutions have incorrectly claimed that the Equal Credit Opportunity 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.
Neither the Equal Credit Opportunity Act nor its implementing regulation, Regulation B, provide companies with a safe harbor from other laws barring discrimination on the basis of immigration status, the agencies said.
"Lenders should not deny people the opportunity to take out a loan to buy a home, build their businesses or otherwise pursue their financial goals because of unlawful bias and without regard to their actual ability to repay," Assistant Attorney General Kristen Clarke, of the Justice Department's civil rights division, said in a statement. "This guidance reminds lenders that denying someone access to credit based solely on their actual or perceived immigrant status may violate federal law."
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The CFPB said in a blog post that it has launched an initiative to understand the financial experiences of immigrants better. The bureau is urging immigrants to file complaints against companies that may be engaging in lending discrimination or other unlawful credit practices, wrote Sonia Lin, a senior fellow at the CFPB and a former adjunct law professor at Yeshiva University's Cardozo School of Law.
"The CFPB has received consumer complaints about loan denials due to immigration status," Lin wrote. "Consumers submitting complaints have described getting positive feedback from lenders about their credit scores, income, and other aspects of their financial history, but ultimately being denied a loan because of their immigration status, instead of their ability to repay the loan."
Consumers have reported being rejected for auto loans, credit cards and other personal and business loans due to their immigration status even when the applicants have strong credit histories and are otherwise qualified to receive the loans, the agencies said.
Lenders that refuse to consider "applications from certain groups of noncitizens regardless of the credit qualifications of individual borrowers within that group" may risk violating ECOA and Regulation B, the agencies said.
In addition, the agencies cited certain criteria used by lenders — such as how long a consumer has had a Social Security number — and said such a policy may serve as a proxy for citizenship or immigration status, which "may implicate a protected characteristic under ECOA like national origin or race."
