CFPB, DOJ Issue Confusing, but Ominous, Warning to Creditors Who Deny Aliens Credit

‘Creditors should be aware’ – of what?

By Andrew R. Arthur on October 18, 2023

On October 18, the Consumer Financial Protection Bureau (CFPB) published a “joint statement” with DOJ in the Federal Register “to assist creditors and borrowers in understanding the potential civil rights implications of a creditor's consideration of an individual's immigration status under the Equal Credit Opportunity Act (ECOA)”. Assistance is great, and much needed in the lending realm, but this statement is far more confusing than it is enlightening — perhaps intentionally so.

The CFPB. The CFPB, a self-described “independent bureau within the Federal Reserve System that empowers consumers with the information they need to make financial decisions in the best interests of them and their families”, was created under Title X of the 2010 “Dodd-Frank Wall Street Reform and Consumer Protection Act” (Dodd-Frank), itself a response to the “Great Recession” of 2008.

The bureau was first proposed by then-Harvard professor (now progressive Democratic senator from Massachusetts) Elizabeth Warren in a 2007 article in the journal Democracy captioned “Unsafe at Any Rate: If it’s good enough for microwaves, it’s good enough for mortgages. Why we need a Financial Product Safety Commission”, which should give you an idea of where that project would be headed.

CFPB’s been the subject of any number of controversies over the years, not least of which was a dispute shortly after President Trump took office over who would be allowed to head the organization, which was later decided in favor of the administration.

A separate challenge was thereafter raised to the structure of the agency, and in 2020, the Supreme Court ruled that while the bureau could continue to operate, “the CFPB’s leadership by a single individual removable only for inefficiency, neglect, or malfeasance” under Dodd-Frank “violates the separation of powers”.

More recently, the Fifth Circuit held that the CFPB’s statutory funding scheme violates the appropriations clause in Article I, section 9, clause 7 of the U.S. Constitution. The board sought Supreme Court review of that decision, which was granted, and the justices heard argument on the matter on October 3.

Despite all of those challenges, however, CFPB is still standing — and still a powerful force to be reckoned with by those in the financial world.

The ECOA. As DOJ’s Civil Rights Division explains, the ECOA, part of Title 15 (the “commerce and trade” provisions) in the U.S. Code:

prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, because an applicant receives income from a public assistance program, or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act [CCPA].

The ECOA’s implementing regulations were originally within the purview of the Federal Reserve, but when CFPB was created in Dodd-Frank, that responsibility was transferred to the new board. Those regulations are referred to, rather inexactly, as “Regulation B”.

Consequently, that October 18 “joint statement” is not just the idle musings of some government bureaucrats — it is a serious notification to creditors of their responsibilities under the ECOA.

A Big, but Largely Unexplained, “However”. Again, that statement was ostensibly issued “to assist creditors and borrowers in understanding the potential civil rights implications of a creditor's consideration of an individual's immigration status under the” ECOA, but respectfully, it creates more confusion than anything else. Which, given the immigration policies of the current administration, may have been the point.

This is best illustrated by the following passage in that Federal Register publication:

ECOA does not expressly prohibit consideration of immigration status, and, as explained further below, a creditor may consider an applicant's immigration status when necessary to ascertain the creditor's rights regarding repayment. However, 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 antidiscrimination provisions, and could also violate other laws. [Emphasis added.]

In their guidebook for proper writing, The Elements of Style, William Strunk and E.B. White warned against beginning a sentence with the word “however” whenever the meaning is “nevertheless”. They were apparently concerned young writers would omit the crucial following comma and create ambiguity.

The comma’s not a problem with the usage of the word in that excerpt, however; instead, the entire sentence that follows it is itself problematically ambiguous, and that ambiguity is never resolved thereafter.

Some of that has to do with the “Bidenspeak” verbiage in that statement (the word “noncitizen”, which has no legal meaning under the Immigration and Nationality Act (INA) or any other federal statute I am aware of, appears six times therein, and “non-citizen” once), but the more serious issue is what the joint statement leaves unsaid.

I have read that statement through a number of times, and believe it can be boiled down to the following:

Alienage, that is the individual’s status as an alien, cannot be used as a proxy to discriminate on the basis of race, color, religion, national origin, sex, marital status, age, because an applicant receives income from a public assistance program, or because an applicant has in good faith exercised any right under the CCPA.

That’s not legal advice, and take that synopsis with a grain of salt, though when I was a young college graduate, my first job was working for a credit corporation of the sort that is governed by the ECOA and Regulation B.

We strictly complied with such guidance, largely because it was the law, but also because doing anything else was bad business. Our business was lending money, and so long as we concluded you would pay it back, that was good enough for us.

Big Unanswered Questions and Ominous Warnings. Of course, that was 35 years ago, and a much simpler time in the world of immigration, when the laws were more or less enforced. That “much simpler time” stretched up approximately to the point Joe Biden became president and threw immigration into a cocked hat.

Since then, more than 1.4 million aliens have been allowed to enter the United States on parole under section 212(d)(5)(A) of the INA, and by definition, parole is not a permanent status. Parolees can apply for employment authorization by regulation, but they don’t receive it automatically, or “incident to status”.

Similarly, somewhere in the neighborhood of 1.65 million aliens have pending asylum applications, and while some of those aliens are in lawful immigration status, most aren’t. As with parolees, certain applicants for asylum can apply for work authorization, but again, they don’t receive it incident to status until after they are granted asylum.

Under 31 U.S.C. § 5318(l), which was added to the “money and finance” provisions of the U.S. Code by section 326 of the post-9/11 USA PATRIOT Act to prevent foreign terrorists from exploiting the U.S. banking system, financial institutions are required to verify the identity of their customers. That’s why you have to produce identification whenever you open a checking account.

Moreover, Regulation B expressly states, under the header “Immigration status”: “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.”

So, can creditors ask to see the employment authorization documents of applicants who identify as aliens? Can they ask when an applicant’s employment authorization expires (a pretty key question when extending long-term credit), or would that somehow run afoul of the ECOA and Regulation B? Logically, those questions would be answered by the CFPB/DOJ October 18 joint statement. Except, they aren’t.

Instead, that statement offers such ominous but ambiguous warnings as these:

  • if a creditor has a blanket policy of refusing to consider applications from certain groups of noncitizens regardless of the credit qualifications of individual borrowers within that group, that policy may risk violating ECOA and Regulation B. This risk could arise because some individuals within those groups may have sufficient credit scores or other individual circumstances that may resolve concerns about the creditor's rights and remedies regarding repayment.
  • the overbroad consideration of certain criteria — such as how long a consumer has had a Social Security Number — may implicate or serve as a proxy for citizenship or immigration status, which in turn, may implicate a protected characteristic under ECOA like national origin or race.
  • if a creditor requires documentation, identification, or in-person applications only from certain groups of noncitizens, and this requirement is not necessary for assessing the creditor's ability to obtain repayment or fulfilling the creditors' legal obligations, that policy may violate ECOA and Regulation B by harming applicants on the basis of national origin or race. [Emphasis added.]

What “certain groups of noncitizens”, and what other “certain criteria” aside from “how long a consumer has had a Social Security number”, are no-go zones? “Race”, “color”, and “national origin” are already impermissible considerations, so it can’t be any of those.

Again, I have been both an “adjuster” at a credit corporation and an immigration lawyer (in the latter case for decades), and I have no idea how to interpret such “guidance” (yet another reason not to trust my synopsis above).

Lending money is all about risk, not just the risk that lenders won’t get their money back, but in this context that some combination of a lavishly funded independent agency and the world’s largest law firm are going to sue you into non-existence. That joint statement is both so scary and so vague, most lenders would be forgiven for assuming that even patently illegal alienage can’t be considered at all.

The Applicability of 42 U.S.C. § 1981. The guidance gets even muddier — and more threatening — in the penultimate paragraph of that joint statement:

In addition to potential violations of ECOA and Regulation B, creditors should be mindful of their obligations under 42 U.S.C. 1981. ... Section 1981 provides, in relevant part, 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[,]” 42 U.S.C. 1981(a), and has long been construed to prohibit discrimination based on alienage. To the extent that a creditor's consideration of immigration status would violate Section 1981, courts have made clear that the limited consideration of immigration status that is permissible under ECOA and Regulation B does not conflict with Section 1981, creditors must therefore comply with both statutes. Indeed, far from conflicting, courts 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. [Emphasis added; footnotes omitted.]

The unusual language in the referenced statute, 42 U.S.C. § 1981, can be explained by its genesis in the Civil Rights Act of 1866, one of a series of Reconstruction-era acts (including the “Ku Klux Klan Act”) to ensure that the rights of all those in the states of the former Confederacy are and were protected.

Go to the footnotes, however, and you will see that the applicability of section 1981 to aliens is not as clean-cut as the body of the statement would suggest. As the Fourth Circuit has recently held:

Though the Supreme Court has expanded § 1981's protections and implied a private right of action, it has not yet held that it encompasses alienage-based discrimination. But the Fourth Circuit has squarely done so.

That is not to say that 42 U.S.C. § 1981 should not “encompass alienage-based discrimination”, and Congress is free to amend the statute to do so, while the Supreme Court could follow the leads of the Fourth, Second, and Ninth Circuits and interpret the current language of that provision in doing so.

But when two extremely powerful government agencies — CFPB and DOJ — with control over the rights and livelihoods of countless Americans go throwing around such threats, they should be extremely — extremely — specific in telling those targeted what they can and cannot do. No vague references to “certain groups of noncitizens” or prohibited “certain criteria”.

What’s a Given — and What’s Not. No one seeking credit should be discriminated against on the basis of any of the criteria in the ECOA, and no creditor should be considering those criteria. That’s a given. What’s not a given is what CFPB and DOJ refuse to say.

According to an October 12 press release from CFPB and DOJ, this joint statement was issued:

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.

Plainly, those reports offered some real-world examples of what the two agencies considered to be transgressions of the law. What were they?

The October 18 joint statement by CFPB and DOJ is either (1) poorly drafted bureaucratese; (2) a “relief act” for the legion of lawyers who’ll be paid to interpret it; or (3) yet another attempt by the Biden administration to blur the lines between who is here lawfully and who is not. Regardless, Congress shouldn’t stand for it — and neither should the people who pay those agencies’ bills.