CFPB Issues Guidance Stating that Immigration and Citizenship Status Should be Considered in Lending Decisions for Certain Loans, but New York Law Still Prohibits Discrimination Based on Such Status

The Consumer Financial Protection Bureau (the "CFPB") has issued guidance (the “Guidance”) stating that lenders are allowed—and may, under certain circumstances, be obligated—to consider a consumer applicant’s immigration and citizenship status when making credit decisions on certain mortgages and open-end credit products. This Guidance raises an issue for lenders in New York, as a state law prohibits a lender from discriminating against applicants for credit based on immigration and citizenship status.

A. CFPB Guidance

The Truth in Lending Act and its implementing Regulation Z require lenders to assess a consumer’s ability to repay a loan when making certain mortgages and open-end credit lines of credit. For mortgages to consumers for personal, family and household purposes, this requirement is known as the “Ability-to-Repay” rule which was adopted pursuant to the Dodd-Frank Act. The “Ability-to-Repay” rule requires a lender to make a “reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms.”

The Guidance notes that a loan applicant’s immigration and citizenship status may have an impact on that applicant’s ability to repay a loan. For instance, a loan applicant who is not in the country legally and/or is not authorized to work in the country, or whose right to remain and/or work in the country is subject to change, will likely impact that person’s ability to repay the loan.

The Guidance states that “considering whether information regarding an applicant’s immigration status indicates a reasonably expected change in future income is a matter of sound compliance practice,” and that “failure to account for such a reasonably expected change in income may not comply with a creditor’s obligation to reasonably assess a borrower’s ability to repay the loan or line of credit sought.”

B. New York State Executive Law Section 296-a

New York Executive Law Section 296-a(1)(b) states that it shall be an unlawful discriminatory practice for any creditor to “discriminate in the granting, withholding, extending or renewing, or in the fixing of the rates, terms or conditions of, any form of credit, on the basis” of, among other things, citizenship or immigration status.

The term “citizenship or immigration status” is defined in Executive Law Section 292(41) as “the citizenship of any person or the immigration status of any person who is not a citizen of the United States.” The definition notes that taking such status into consideration does not “preclude verification of citizenship or immigration status where required by law, nor shall an adverse action based on verification of citizenship or immigration status be prohibited where such adverse action is required by law.”

C. Issue for Lenders in New York

The CFPB Guidance creates an issue for lenders in New York making loans and lines of credit subject to the Guidance. On one hand the Guidance advises lenders to take immigration and citizenship status into account to determine a borrower’s ability to repay a loan, while New York law prohibits lenders from discriminating in lending based on immigration and citizenship status.

Lenders in New York should use caution in navigating these somewhat conflicting mandates. For loans subject to the CFPB Guidance, lenders should consider how the applicant’s immigration and citizenship status may impact the applicant’s ability to repay a loan. If the immigration and citizenship status raises a reasonable concern that the applicant may not be able to legally continue employment in the country, then that fact would seem to be relevant to the underwriting of the loan. In that case, the application file should properly document the concern about continued employment and the impact such concern had in the underwriting process. To help avoid violating Executive Law Section 296, lenders should not have a blanket prohibition on lending to non-citizens or people with certain immigration issues. Lenders should be able to establish and document that the reason a person was denied credit was based on a reasonable concern about repayment, rather than just on immigration and citizenship status.

D. Further Information

This advisory is a general overview of the issue of taking immigration and citizenship status into account in lending decisions and is not intended as legal advice. If you have any questions, please feel free to contact Joseph D. Simon at (516) 357-3710 or via email at jsimon@cullenllp.com, Elizabeth A. Murphy at (516) 296-9154, or via email at emurphy@cullenllp.com, David Curatolo at (516) 357-3773 or via email at dcuratolo@cullenllp.com, or Gabriela Morales at (516) 357-3850 or via email at gmorales@cullenllp.com.