U.S. Sen. J.D. Vance criticizes federal fair lending guidance for noncitizens

Whether it’s a home, a car, or starting a business, most big purchases rely on borrowing. But federal regulators contend noncitizens often have a difficult time getting credit, even when they’re otherwise qualified. Recent guidance from The Consumer Financial Protection Bureau and the Department of Justice warns lenders that over-reliance on immigration status in lending decisions could violate existing law.

Ohio Republican U.S. Sen. J.D. Vance and every other Republican on the Senate Banking Committee are pushing back, arguing lenders could be left holding the bag if a customer gets deported. They add that the directive seemingly reverses previous guidance without giving banks and lenders adequate opportunity to weigh in.

The Equal Credit Opportunity Act & the latest guidance

Congress passed fair lending legislation known as The Equal Credit Opportunity Act in the mid-1970s. Those provisions prohibit creditors from discriminating on the basis of race, color, religion, national origin or sex. But because immigration status itself isn’t a protected category the federal agencies are forced into a nuanced “proxy” argument.

“Immigration status may broadly overlap with or, in certain circumstances, serve as a proxy for these protected characteristics,” the agencies argue.

Lenders may consider a borrower’s immigration status, the guidance notes, but it needs to be tied to the borrower’s ability to repay the loan. The agencies’ letter warns practices like blanket refusals or excessive documentation for noncitizens risk violating the law.

“The overbroad consideration of certain criteria — such as how long a consumer has had a Social Security Number,” the letter adds, “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.”

The CFPB’s press release describes a 2021 complaint in which an auto loan agent made a couple an offer which they accepted. The agent said the applicant’s credit score and income were good enough there wouldn’t be a problem getting approval. Once the agent learned the applicant’s girlfriend was covered by DACA — Deferred Action for Childhood Arrivals — the agent immediately told the applicant they didn’t qualify.

“We felt very discriminated against since the decision was made solely and clearly based on her nationality,” the complaint reads.

Others describe a similar pattern. This April, a service member in Florida complained about a VA mortgage lender rescinding a pre-approval.

“While my wife (is) not a U.S. citizen, she has a valid Social Security number and have (sic) been a legal resident in the United States for about 2 years,” he wrote. “I provided all necessary documentation to verify my income, creditworthiness, and identity, but my application was still denied.”

The Senators’ argument

Vance and his colleagues argue back that considering immigration status is “nothing short of common sense.” They argue lending decisions boil down to two questions — can the borrower pay? And if not, can the lender hold them accountable?

“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 write.

They complain that the latest guidance contradicts existing regulations and interpretations of fair lending law. Their letter cites a regulation stating, “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 point to pre-existing CFPB interpretation that denial based on immigration status “is not per se discrimination based on national origin.”

In light of those provisions, the senators argue the new CFPB and DOJ guidance should have gone through the rulemaking process, which would’ve given banks and other lenders a chance to submit public comments.

The senators’ letter sticks to legal critiques and broad warnings about potential impacts on financial stability. Vance’s public comments go further — suggesting the directive effectively finances illegal immigration.

“Financial institutions are right to be concerned that they may never see a return on loans issued to illegal immigrants,” Vance said in a press release. “If someone is deported to their home country, how is a bank in Ohio supposed recoup the loan it was forced to issue? The federal government should be cracking down on illegal immigration — not encouraging more of it.”

Reactions

Ohio Capital Journal reached out to a handful of banking industry associations. Only the Ohio Credit Union League responded immediately.

“As trusted local lenders, credit unions responsibly serve all people, families, businesses, and communities,” they wrote. “Like most lenders, credit unions follow a consistent lending decision-making process. More specifically, credit unions determine an individual’s membership eligibility, require valid and verified government-issued identification, and follow risk-based underwriting procedures to extend credit to any qualified member.”

Meanwhile, Steve Tobocman argued immigrants provide an important economic engine in many communities, but access to lending is crucial to their growth. Tobocman leads Global Detroit, an organization that advocates for inclusive immigration policy in Southeast Michigan and the broader region. He argued immigrants help bolster the housing market, fill open jobs, and create new businesses of their own, but “access to credit is pretty critical piece of that puzzle.”

“If the country were to maintain an exclusionary practice of lending, and capital,” he argued, “it would really hinder our ability to integrate immigrant communities, and to roll out the welcoming mat for immigrants who are starting businesses and locating businesses in underserved retail markets in our inner cities, as well as in our rural communities.”

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