Writer: Andrew Allen
Editor: Lillian Guevara-Castro
Reviewer: Adam West
Key Takeaways
The Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) have issued a notice of withdrawal regarding guidance on how lenders may consider a person’s immigration status when making decisions about extending credit.
The two agencies withdrew the joint statement they issued in October 2023 to avoid confusion regarding rules and regulations about lenders considering an individual’s immigration status when making lending decisions.
Subprime lenders can have a bigger share of customers who are not U.S. citizens. And creditors must ensure they are complying with any applicable laws that govern how they determine a borrower’s creditworthiness.
In their notice, the agencies made clear that the Equal Credit Opportunity Act (ECOA) prohibits lenders from discriminating against people based on various criteria, including their age, national origin, marital status, or race.
But lenders can lawfully consider a noncitizen borrower’s immigration status for legitimate underwriting reasons and risk assessment.
The two agencies had initially issued a joint statement on the matter in 2023, when former President Joe Biden was still in office. The CFPB and DOJ believe the statement from 2023 may have left some lenders with the wrong impression.
“The joint statement may have created the impression that either ECOA or the statement itself imposes limitations on the consideration of immigration or citizenship status when evaluating an application for credit,” the Bureau and DOJ said in their notice.
“No such limitation exists, and this withdrawal is intended to correct any such misimpression,” they continued.
CFPB and DOJ Leaders Explain Their Actions
Lenders have a number of rules and regulations that they must adhere to to do business in the U.S. Guidance from the Consumer Financial Protection Bureau and the Department of Justice can help lenders further understand a particular rule.
But many leaders at lending companies are not likely to complain about having one fewer piece of guidance to review with their teams. And that’s particularly true if the existing laws are clear and easily accessible.
Assistant Attorney General Harmeet K. Dhillon leads the Civil Rights Division within the DOJ. Dhillon and Russell Vought, Acting Director of the CFPB, issued a press release on Monday to explain the reasons behind withdrawing the guidance at this time.
In the release, Dhillon explained that the federal government has a commitment to steer clear of making statements that could create confusion about the law.
The guidance from 2023 may have created confusion for lenders over long-standing laws regarding fair lending.
All lenders, including those that serve individuals who cannot produce a Social Security Number or have a thin credit profile, would be wise to set time aside to ensure they understand and are following all applicable laws when it comes to their credit policies.
Vought clarified the position of the CFPB and DOJ in removing the guidance in his comments in the release.
“For decades, ECOA regulations have permitted lenders to consider a borrower’s lawful residence status and other information necessary to protect their rights and remedies with respect to repayment,” Vought said.
“We are correcting the last administration’s attempt to ignore these well-accepted and common-sense principles of our nation’s fair lending laws,” he added.
