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My bank plans to decline loan requests from non-U.S. citizens, including permanent resident aliens. Are there any potential Regulation B (ECOA) issues to consider?

Due to an increase in fraud, my bank is revising its loan policy and plans to decline loan requests from non-U.S. citizens, including permanent resident aliens (green card holders) who live and work in our community. Are there any potential Regulation B (ECOA) issues we should consider when making this policy change?

Although Regulation B permits banks to consider immigration status, the bank must focus its consideration on the bank's ability to be repaid or to collect on the debt, if necessary. Additionally, some state and federal civil rights laws prohibit discrimination based on alienage.

Under Regulation B, creditors may consider citizenship but not national origin. Section 1002.6(b)(7) states that a creditor may consider the applicant's immigration status or status as a permanent resident and any additional information that may be necessary to ascertain the creditor's rights and remedies regarding repayment. A permanent resident alien is a lawful resident of the United States who has been granted the right to live and work in the United States indefinitely. In contrast, other aliens may lawfully stay in the United States on a temporary basis, e.g., persons who hold visas to study or work in the U.S. for a specified time.

Comment 2 to §1002.6(b)(7) states that denial of credit because the applicant is not a citizen "is not per se discrimination based on national origin." The Commentary further states that a person's immigration status and ties to the community (such as employment and residence) could have a bearing on a creditor's ability to obtain repayment. Finally, the Commentary is clear that creditors may differentiate between non-citizens: those who are permanent residents that have resided in the US for a long time and those who are temporarily in the US, e.g., on a student visa.

Banks should consider that under the regulation, creditors may look at and consider immigration status in determining the applicant’s ability to repay and likelihood of repaying the loan and the creditor's ability to collect the debt if the applicant were to default. However, if a bank lends only to citizens and declines applications from permanent resident aliens who otherwise meet the bank's standards of creditworthiness, it should be prepared to explain the reasoning behind its policy. Additionally, lawsuits have been filed (and settled) challenging banks’ policies of lending only to citizens and permanent resident aliens under state and federal civil rights laws that prohibit discrimination on the basis of alienage (lack of citizenship). (October 2020)

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