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Can Lenders Legally Discriminate and Limit Access to Credit Based on Applicants' Immigration Status?

Many immigrants in the U.S. who are not on the path to citizenship, particularly those previously protected by the DACA program, still pursue the American dream of a college education and buying their own home and car along with other major purchases.

Attempting to finance this dream, as many immigrants learn, can be an almost insurmountable goal. Unlike race and national origin, which may not be considered as factors for potential lenders, citizenship and immigration status is a more unsettled question.

Legal Protections From Discrimination

There are a number of federal laws that prohibit discrimination in lending based on an individual's protected characteristics. The Equal Credit Opportunity Act (ECOA) makes it illegal for a creditor to discriminate in any aspect of a credit transaction based on race, color, religion, national origin, sex, marital status, age, or receipt of income from any public assistance program. ECOA prohibits denying credit to those who otherwise qualify, discouraging applicants from seeking credit, offering credit on less-favorable terms (with higher rates, for example) than what they offer to other similarly-qualified applicants, or closing a borrower's account.

State and local laws also protect borrowers from discrimination based on similar protected characteristics. Nevertheless, numerous reports reveal widespread discrimination based on race, religion, ethnicity, and national origin in small business lending, auto lending, and mortgage rates.

How DACA Affects Immigration Status

In June 2012, President Obama implemented the Deferred Action for Childhood Arrivals (DACA) initiative, a program that allowed young immigrants who were brought to the U.S. illegally as children or have expired legal status to legally remain in the U.S. and obtain Social Security numbers and federal work permits. To be eligible, recipients are required to meet certain rigorous qualifications based on age, academic pursuits, and clean criminal records.

Under a directive from the Department of Homeland Security secretary, DACA recipients are granted a type of temporary permission to stay in the U.S. called "deferred action." When their two-year permits expire, they may petition for renewal. The program was terminated on September 5, 2017, and its status going forward is uncertain. Current participants, however, are living and working in the country legally until the expiration of their permits. The cancellation of the program did not revoke their current legally protected status or otherwise impair their ability to work or prove their identity.

Are Discriminatory Corporate Policies or Practices Permissible?

A number of banks have lending practices that openly deny credit to applicants based on their immigration status or citizenship without investigation into an applicant's individual circumstances.

One lender, Wells Fargo & Co., is currently facing a federal lawsuit for its lending and credit policies brought by Outten & Golden on behalf of six individuals and the California United League of Latin American Citizens. The lawsuit alleges that Wells Fargo's categorical exclusion of DACA recipients from loans and credit is impermissible discrimination under 42 U.S.C. § 1981, a federal civil rights law, and California's Unruh Civil Rights Act. The lead plaintiffs seek class action status to include all persons in the United States with DACA and similar legally protected immigration statuses who were denied credit and loans from Wells Fargo because of their lack of citizenship or because of their immigration status.

The American Dream - Deferred or Denied?

Unsettled questions exist as to whether an applicant's citizenship or immigration status - for example, status under the DACA program - may be used to determine his or her eligibility for credit, and, if so, under what circumstances. So far, courts have unanimously found plausible civil rights claims where a lender-or employer-categorically denied or rejected applicants because of their immigration status. To what degree, however, immigration status might be permitted to play some role in credit decisions is uncertain.

Pending litigation could result in a decision that it is permissible to consider an individual's immigration status in loan applications, possibly as part of an objective evaluation of the overall reasonableness of extending credit. Alternatively, a court may find that it is entirely impermissible to consider an individual's status at all under federal civil rights law.

The ultimate result will impact an enormous number of DACA recipients and other non-citizens' access to higher education and credit. We will continue to monitor developments surrounding this and related issues and report back as events unfold.

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