President Trump issued an executive order (EO) this week captioned “Restoring Integrity to America’s Financial System”. Among other things, that EO seeks to restrict access to the U.S. financial system by illegal aliens in the United States. (My colleague George Fishman offered some background to the issue yesterday.) One key paragraph in that EO makes a seemingly commonsense point: Would-be borrowers with no right to be in the United States, let alone to work here, are bad credit risks. It’s more profound than it appears, as it reverses a deliberately vague threat to lenders from the Biden DOJ and a shadowy quasi-independent government agency that denying credit to illegal aliens might have dire legal — and reputational — consequences.
“Warning to Creditors Who Deny Aliens Credit”
Back in October 2023, I published a piece headlined “CFPB, DOJ Issue Confusing, but Ominous, Warning to Creditors Who Deny Aliens Credit”.
The “CFPB” is the Consumer Financial Protection Bureau, 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”, and it was created under Title X of the 2010 “Dodd-Frank Wall Street Reform and Consumer Protection Act” (Dodd-Frank), a law passed in reaction to the “Great Recession” of 2008.
“Empowering consumers” sounds great until you read a February report by the White House Council of Economic Advisors, which states “that since 2011, the CFPB has cost consumers between $237-$369 billion, including fiscal costs”, and that the bureau “received $8.9 billion in total transfers from the Federal Reserve between 2011 and 2024 when adjusted for inflation”.
For that kind of scratch, you’d assume taxpayers received a load of empowering, but in reality, CFPB is the sort of agency you’d expect to have been created by politicians who think business owners are like Scrooge McDuck, and dive into a pool of gold coins at the end of a long day of exploiting their workers.
In any event, the focus of that article was a joint statement CFPB and DOJ had just published in the Federal Register, purportedly “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)”.
The ECOA is one of innumerable civil rights acts, and here is the key paragraph in the joint statement that purportedly provided the “assistance” in question:
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.]
There really wasn’t a clear explanation of what was permitted and what was prohibited under the ECOA or any other civil rights act “further below” in that joint statement, and as I explained at the time, that vague CFPB/DOJ publication was:
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, having worked in the credit industry in the (distant) past, I would have read the publication and concluded Biden’s prosecutors may come after me and my bank if I denied credit to an alien who wasn’t allowed to work but had a job anyway, but would leave me alone if I made that alien a loan.
Lenders Should Be “Attentive to the Credit Risks”
Which brings me to the new Trump EO, which if nothing else highlights the difference a change in administration can make.
The third paragraph of section 1 of that order makes clear what considerations lenders can and likely should make when confronted with a would-be borrower with a job but no right to work in this country. It states, in part:
Banks and other financial institutions should also be attentive to the credit risks posed by the extension of mortgage and auto loans, credit cards, and other consumer credit to the inadmissible and removable alien population. Many of those borrowers face the possibility of the loss of wages due to removal or their employers’ decisions to comply with immigration law. Lending to aliens without legal work authorization or who face a substantial loss-of-wage risk creates a structural “ability to repay” deficiency that undermines the safety and soundness of the national banking system.
Thus, as opposed to the CFPB and DOJ in October 2023, which vaguely threatened lenders with a nasty (and reputation-tarnishing) civil rights prosecution if they logically decided an alien without a right to work might not be a great credit risk, Trump makes clear that banks and other financial institutions must consider those facts, as should the financial industry as a whole.
“Vulnerabilities within Our Financial System”
The EO goes on, noting that shady employers of illegal aliens “may underreport wages, use mismatched or invalid Social Security numbers and taxpayer identification numbers, or fail to properly withhold or remit payroll taxes”, acts that “can create vulnerabilities within our financial system by obscuring income sources, distorting credit underwriting, and facilitating underground economic activity”.
In other words, and expanding on those points, the “knowing hire” and employment of illegal aliens isn’t a “victimless crime”, because the benefits unscrupulous employers receive from ignoring the immigration laws and the illicit actions they take to hide their naughty deeds screw with the financial system and feed a “black market” that could be exploited by other criminals (and possibly worse people, with even more dangerous intentions).
A heady combination of business interests and sanctimony has long prompted the government and industry alike to turn a blind eye to illegal immigration and its negative downstream effects on the U.S. economy and Americans’ security.
With Biden gone, the government is no longer threating lenders who believe illegal aliens aren’t great credit risks. In fact, Trump is now telling banks they must consider whether borrowers who might be deported tomorrow will pay off their loans in the future — or risk the stability of “our financial system”.