CFPB’s Immigration Review Order Complicates Lenders’ Decisions

New guidance from the Consumer Financial Protection Bureau calling for banks to consider a potential borrower’s immigration status in ability-to-repay reviews for mortgages and other credit is set to add significant complications for lenders.

The CFPB on Friday said lenders making credit decisions should take into account whether the immigration status of noncitizen loan applicants could result in them losing their jobs and being unable to pay off a loan. The Truth in Lending Act and its implementing regulation require banks and other lenders to determine a borrower’s ability to repay mortgages and other forms of credit, such as credit cards.

The CFPB said its policy statement, set for publication in the Federal Register June 8, is nonbinding. But banks and other lenders are going to have to be careful to make sure they’re following the CFPB’s instructions without running afoul of federal and state anti-discrimination laws that include national origin as a protected class, said Elena G. Babinecz, a former top CFPB regulatory attorney.

“This complicates things for lenders, and they have to look at it closely,” said Babinecz, now a shareholder at Baker, Donelson, Bearman, Caldwell & Berkowitz PC.

President Donald Trump required the CFPB to craft the policy statement as part of an executive order last month calling on regulators to help banks monitor immigration violations in the financial system.

Shifting Requirements

Lenders have long been required to determine a potential borrower’s ability to repay a loan, but how to consider immigration has been up for debate. That question has taken on even more importance with the Trump administration’s immigration crackdown.

“Because they’ve ramped up immigration enforcement, the likelihood that an individual may not be able to repay because of their immigration status has increased,” said Jonathan Joshua, a financial regulations specialist at Joshua Law Firm LLC.

That’s a shift from the Biden administration’s position.

The CFPB and the Justice Department issued guidance in 2023 stating that lenders can’t use immigration status in credit decisions under the Equal Credit Opportunity Act. National origin is a protected characteristic under the 1974 law.

The CFPB under acting Director Russell Vought withdrew that guidance in January.

The agency is now telling banks that failing to take into account a borrower’s changing immigration status—and the possibility of job losses or deportation—is a potential violation.

“A failure to do so would overlook key information regarding the consumer’s income, and may risk the creditor failing to reasonably assess the consumer’s ability to repay the credit sought,” the policy statement said.

Although the CFPB said the statement is nonbinding, agency examiners will likely be charged with ensuring compliance, Babinecz said. That could result in supervisory notices and even enforcement actions.

At the same time, the CFPB has dramatically curtailed supervision and asked for court permission to slash its examination and enforcement teams, potentially reducing some of the risk for lenders.

Debanking Focus

The CFPB’s new policy statement comes as the agency has made debanking for political or other reasons a top priority.

The policy is likely to have the effect of debanking immigrants, said Jesse Van Tol, the president and CEO of the National Community Reinvestment Coalition.

“The hypocrisy of discouraging lending to hard working immigrants who pay taxes, while claiming that banks improperly ‘debanked’ some wealthy people based on their highly risky, often international, crypto transactions should be lost on no one,” he said. “Favoring one while denigrating the other makes clear that this policy is not about risk: it’s about picking winners and losers.”

Vought has derided nonbinding policy documents issued by his predecessors and vowed to issue guidance only “where necessary and where compliance burdens would be reduced rather than increased.”

But lenders may now be hit with a new burden, forced to change their review processes and contend with conflicting laws as a result of the policy statement, Joshua said.