A group of eleven Republican Senators who are members of the Senate Banking Committee have sent a letter to CFPB Director Rohit Chopra and Attorney General Merrick Garland to urge the CFPB and DOJ to retract the joint statement the agencies issued last month regarding “the potential civil rights implications of a creditor’s consideration of an individual’s immigration status under the Equal Credit Opportunity Act (ECOA).”

In the statement, the agencies indicated 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 cited 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 cautioned that “Regulation B does not, however, provide a safe harbor for all consideration of immigration status.” 

Specifically, the agencies stated that 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.” They warned 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.”

In their letter, the Senators assert that the joint statement “not only flies in the face of responsible lending standards, risk-based pricing, and sound risk management, but also contradicts and rewrites decades worth of guidance from the CFPB and the federal banking regulators—all without an official rulemaking pursuant to the Administrative Procedure Act, giving financial institutions the chance to comment, or even offering any other semblance of advanced notice.”  They also express concern that the joint statement “appears to be at odds with the official guidelines for various federal lending programs, many of which require U.S. citizenship or permanent residency to qualify.”

The Senators point to the “longstanding interpretation of Reg. B [in the Official Staff Commentary that] states an ‘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.’” They also cite “the CFPB’s longstanding interpretation that ‘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’” and assert that this “also appears to explicitly rebut the CFPB and DOJ’s joint statement.”

According to the Senators, “[f]inancial institutions have long relied on this guidance in their assessment of credit risk.”  They observe that before an institution can assess an applicant’s credit history and other financial risk factors, it “needs to ensure that an applicant will be not only in their community for the length of the loan, but also be located somewhere where they can recoup potential unpaid debts.”  They observe further that “[a] borrower’s likelihood of repayment significantly falls if there is no guarantee that they will be residing in the same community let alone the same country or legal system.”

The Senators conclude their letter by asserting that the joint statement “poses serious risks to financial stability—encouraging financial intuitions to ignore critical dispositive factors in their calculation of risk and by calling on the agencies to retract the statement and “instead endorse risk-based lending practices that promote safety and soundness in the banking sector.”

In the blog post we published last month when the policy statement was issued, we criticized the lack of clear guidance in the policy statement.  In particular, we observed as follows:

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.

We recommend that the CPFB and DOJ focus their efforts on providing clear guidance to the industry that is consistent with existing ECOA and Regulation B precedent.