Evaluating Immigration Status in Lending Situations

By BOL Guru Jack Holzknecht
Pegasus Educational Services, LLC

In recent years, police departments across the nation have been criticized for profiling. In many cities, drivers who are young, black and male are stopped for traffic violations with greater frequency than any other group of drivers. In the past, airport security personnel have been criticized for profiling and selecting certain passengers for baggage checks and other security measures.

In the wake of recent terrorist activities, law enforcement personnel nationwide will likely increase profiling activities and the general population may tend to do the same. Viewing other passengers with increased scrutiny, refusing to conduct business with those of certain national origins or religious beliefs, or physical attacks on people or property are only a few ways that profiling will result in discriminatory practices.

Statistics show that the flow of immigration into the United States continues to be significant. People from all over the world continue to find this country to be the destination of choice.

What is changing is where immigrants locate. The usual destinations remain the same - California, Texas, Florida and New York; but every state is seeing the impact of immigration.

Every financial institution must have firmly established policies and procedures for dealing with national origin issues. Those policies and procedures must assure consistency of treatment, treatment that is permissible under the Equal Credit Opportunity Act and Regulation B.

The Issue
Regulation B allows creditors to differentiate applicants based on immigration status as follows:

TABLE B IF THE APPLICANT IS? THEN THE APPLICATION IS EVALUATED? A U.S. citizen Solely on factors other than immigration status Not a citizen On factors including immigration status

Guidance from Regulation B and the Official Staff Commentary is limited and not totally satisfying (see Table B). If denying credit "on the ground that an applicant is not a United States citizen" is not discrimination, then what is it? If such a denial is not overt discrimination, then it is at least an effects test issue that would be very difficult to justify.

TABLE B Regulation B 202.6(b)(7) Immigration status. A creditor may 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 creditor's rights and remedies regarding repayment. Official Staff Commentary Paragraph 6(b)(7)1. National origin - immigration status. The 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. Accordingly, the 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.2. National origin - citizenship. Under 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.

Is Determining Immigration Status an Act of Discrimination?
Most applications used for real estate loans include an inquiry into citizenship and residency status. If the application form is completed (every blank) for every applicant, then all applicants are treated consistently. Presenting the citizenship/residency questions only to certain applicants (i.e.; those who appear to be of different national origin) appears to be disparate treatment on a prohibited basis.

A similar inquiry generally does not appear on applications used for consumer, business or agricultural loans. So, if a lender asks some applicants questions about citizenship/residency status, but not others, such "profiling" again appears to be disparate treatment.

The Cure
One method to assure consistent treatment on the citizenship/residency issue is to employ the concept of "Know Your Customer" to lending operations. The concept is well established for deposit operations.

When a lender does not know a particular customer, the lender should always raise citizenship/residency issues, even if they appear to be from no further away than the next county. Do not raise the issues only for those who appear to be from another country.

Another aid to consistency is to ignore citizenship/residency issues altogether. Evaluate other issues - income, credit history and stability factors, such as time on job and time in residence.

Basic compliance concepts work for any issue. In this case, the board of directors should establish a policy and procedures for dealing with citizenship/residency issues. The policy and procedures should be:

Communicated to all affected employees;
Incorporated into training; and
Covered in periodic audits.

In these emotional times, regrettable actions will undoubtedly take place. Innocent parties will be unjustly punished for the evil actions of a few. To avoid profiling problems, develop a program that assures all loan department personnel continue to treat all applicants in a professional manner.

First published on BankersOnline.com 10/10/01