Consideration of Immigration and Citizenship Status in Lending Decisions

A class action lawsuit has been filed against a New York state-chartered credit union alleging violations of both federal and New York State laws prohibiting discrimination based on immigration and citizenship status. This lawsuit reflects a broader wave of class actions and enforcement matters in which non-citizen borrowers, often Deferred Action for Childhood Arrivals (“DACA”) recipients or other lawfully-present individuals, allege that lenders are denying credit outright to applicants who are neither U.S. citizens nor lawful permanent residents (“LPRs”), imposing loan term limits pegged to the expiration date of immigration documents regardless of renewal eligibility, and/or having lending policies that explicitly differentiate on the basis of immigration and citizenship status.

The named plaintiff in the class action filed on August 22, 2025 in the U.S. District Court for the Southern District of New York, a DACA recipient, alleges that the New York credit union violated the Civil Rights Act of 1866, as codified at 42 U.S.C. § 1981, and the New York State Human Rights Law, as codified at New York Executive Law § 296-a. The specific allegations are that the credit union initially approved him for a five-year auto loan but subsequently revoked that approval and limited him to a two-year loan solely because his driver’s license reflected “Limited-Term” status and he lacked U.S. citizenship or LPR status. The plaintiff also alleges that the credit union maintained written and unwritten policies under which non-citizens and non-LPRs are categorically denied or offered inferior credit terms.

1. Overview of Statutory Framework

A. Civil Rights Act of 1866 (42 U.S.C. § 1981)

42 U.S.C. § 1981 guarantees “all persons within the jurisdiction of the United States” the same right “to make and enforce contracts” as is enjoyed by white citizens. The term “make and enforce contracts” includes the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship.

B. New York State Human Rights Law (New York Executive Law § 296-a)

New York Executive Law § 296-a prohibits discrimination against applicants for credit based on covered protected characteristics. This law was amended in December 2022 to add citizenship and immigration status to the list of covered protected characteristics. New York Executive Law § 296-a is more specific and, in several respects, broader than 42 U.S.C. § 1981. The New York law expressly prohibits creditors from:

• “Discriminating in the granting, withholding, extending or renewing…any form of credit” on the basis of citizenship or immigration status;
• Denying credit where similarly qualified applicants of like overall creditworthiness receive it;
• Imposing special conditions (e.g., shorter terms, higher rates, additional collateral) because of citizenship or immigration status; and
• Using any form of application for credit that “expresses, directly or indirectly, any limitation, specification or discrimination” on that basis.

The 2022 amendments to New York Executive Law § 296-a follow a similar provision in California Civil Code § 51, which provides that “[a]ll persons within the jurisdiction of this state are free and equal, and no matter what their sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever.”

As early as 2017, citizenship discrimination class actions were filed against creditors in California. For example, in Perez v. Wells Fargo & Co., 2017 U.S. Dist. LEXIS 122722 (N.D. Cal. Aug. 3, 2017), the plaintiffs alleged that Wells Fargo engaged in discrimination on the basis of immigration status by refusing to extend loans and other financial products to individuals who were not U.S. citizens or permanent residents. Ultimately, the case ended up settling for approximately $20 million.

Since this law went into effect, California has seen a rise in litigation alleging discrimination based on immigration status in areas such as student loan refinancing and credit card approvals. The enactment of the 2022 amendments to New York Executive Law § 296-a raises the possibility of similar litigation arising in New York.

2. The Equal Credit Opportunity Act and Regulation B’s Treatment of Immigration Status

Another important law impacting this issue is the federal Equal Credit Opportunity Act (“ECOA”) (15 U.S.C. §§ 1691 et seq.). ECOA and its implementing Regulation B (12 C.F.R. pt. 1002) prohibit discrimination on the basis of national origin and other protected characteristics; however, Regulation B expressly permits creditors to consider immigration status, or the creditor’s rights and remedies regarding repayment solely to the extent necessary to ascertain the creditor’s ability to enforce the obligation.

The Commentary to Regulation B further provides that “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 immigration status and differentiate, for example, between a non-citizen who is a long-time resident with permanent resident status and a non-citizen who is temporarily in this country on a student visa… 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.” As such, citizenship and immigration status may be used as an underwriting factor under ECOA and Regulation B in evaluating whether to extend credit to prospective borrowers.

3. Eliminating Blanket No-Lending Policies Based on Immigration or Citizenship Status

Financial institutions must tread carefully if they consider immigration and citizenship status in their lending decisions. In light of the recent class action lawsuit against the New York credit union and other similar cases, financial institutions should review their lending policies and procedures regarding the consideration of immigration and citizenship status and help ensure that they are narrowly tailored to ascertain the financial institution’s rights and remedies regarding repayment.

This advisory is a general overview of the rise in litigation associated with lending to non-citizens and non-LPRs and is not intended as legal advice. If you have any questions about this advisory in general, 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.