Immigration status and student loans

A few months ago, we blogged about the scope of Regulation Z’s student loans rule and advertising student loans. In this blog, I will cover the fair lending implications of immigration status when evaluating credit applications.

A credit practice that treats applicants differently on a prohibited basis violates the law. The Equal Credit Opportunity Act (ECOA), which is implemented by regulation B, generally prohibits a credit union from discriminating based on any prohibited basis (race, color, religion, national origin, sex, marital status, age, etc.). The scope of the regulation “covers all dealings, without exception, between an applicant and a creditor, whether or not addressed by other provisions of the regulation.” See, 12 CFR Part 1002, Supp. I, Comment 4(a)-1. Including, for example, application procedures, criteria used to evaluate creditworthiness, administration of accounts, and treatment of delinquent accounts.

Under the regulation, “disparate treatment on a prohibited basis is illegal whether or not it results from a conscious intent to discriminate.” See, 12 CFR Part 1002, Supp. I, Comment 4(a)-1. However, the regulation permits credit unions to inquire about and consider immigration status or status as a permanent resident of the United States, in evaluating credit applications if it will affect the credit union’s ability to collect on the loan. See, 12 CFR §1002.6(b)(7). The rationale behind this is that an applicant’s ability to repay a debt may be affected by his immigration status and ties to the community. It is important to clarify that, even though the rule permits credit unions to consider immigration status, it prohibits credit unions from basing credit decisions on where an applicant is from (national origin). See, 12 CFR §1002.6(b)(9).

 

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