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Credit Decisions Regarding Non-U.S. Citizens Considered

By James T. Bork, J.D., LL.M., editor, CCH BANKING COMPLIANCE LIBRARY.  Bork has practiced banking law and served as in-house bank counsel. He also has written articles and spoken on bank regulatory and compliance issues. 

Compliance professionals and bank lending officers are aware that an applicant’s national origin is one of the prohibited bases listed in the Equal Credit Opportunity Act (ECOA) and 12 CFR 202 (Regulation B), the Federal Reserve Board’s implementing regulation. They know that they cannot take into consideration a loan applicant’s national origin in connection with a credit transaction.

The question arises from time to time, however, about whether a bank can legally implement a lending policy that denies applications for all types of credit solely because the applicant is not a U.S. citizen. This question focuses on the distinction between national origin and alienage—the difference between being from a particular country and being from any country other than the United States.

Reg. B is quite clear about some issues related to this question and much less clear about others. It is important to be aware of some of the ambiguities.

RESIDENCY AND IMMIGRATION STATUS

When evaluating a credit application, Reg. B allows a lender to consider whether an applicant is a permanent resident of the United States, the applicant’s immigration status, and any additional information that may be necessary to ascertain the lender’s rights and remedies regarding repayment of the credit applied for.

The Official Staff Commentary to Reg. B provides additional detail regarding this and states that 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.” It goes on to say that a creditor “may consider and differentiate, for example, between a noncitizen who is a long-time resident with permanent resident status and a noncitizen who is temporarily in this country on a student visa.” (Reg. B Commentary, Paragraph 202.6(b)(7)).

These statements in the regulation and commentary fall short of the assurance that bankers might want before implementing a policy to deny applications for all types of loans based on alienage.

CITIZENSHIP STATUS

Citizenship status is not a “prohibited basis” under the ECOA and Reg. B. Despite this, the Official Staff Commentary is more equivocal regarding the matter. In an entry under the heading “[n]ational origin—citizenship,” it states that “[u]nder the regulation 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.” (Reg. B Commentary, Paragraph 6(b)(7)).

This section of the commentary supports the view that as long as a bank does not single out and deny credit to noncitizens from particular nations, a bank’s policy to deny applications for all types of credit to all noncitizens would not be a per se violation of ECOA and Reg. B. If a bank singled out specific nations, it would be vulnerable to allegations that it was engaged in discrimination based on national origin, which is a prohibited basis under ECOA.

FEDERAL AND STATE CIVIL RIGHTS LAWS

In addition to ECOA and Reg. B, a bank should consider the possibility that federal or state civil rights laws may address the question of whether lenders can legally adopt policies under which they deny all credit applications solely on the basis of alienage.

Any discussion of this issue must address the federal civil rights law codified at 42 USC 1981. In addition, many states have enacted their own civil rights laws. State laws may provide greater or lesser protection than the federal law, and may define offenses differently.

The federal statute provides in part:

All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, . . . and to the full and equal benefits of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other. (42 USC 1981(a)).

There have been very few lawsuits that allege a bank’s violation of this law in connection with credit applications by noncitizens. The few decisions rendered by federal trial and appellate courts do not present a single, reliable view as to whether 42 USC 1981 prohibits private discrimination based on a person’s alienage. In light of this, a bank would be wise to consult legal counsel before implementing a policy to deny all credit applications on the basis of alienage.