The Consumer Financial Protection Bureau (CFPB) issued a statement reminding creditors that assessing a consumer’s ability to pay debt obligations under the Truth in Lending Act (TILA) may warrant or require consideration of immigration status when relying on an individual’s employment income. The statement follows a recent White House executive order designed to mitigate risks to the financial system “posed by the extension of credit or financial services to the inadmissible and removable alien population.”
Background
Currently, TILA and its implementing Regulation Z require creditors to assess a borrower’s ability to pay before extending credit, including mortgages and credit cards. With respect to mortgages, creditors must make ‘‘a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to pay the loan,” including considering the borrower’s current or reasonably expected income. Creditors relying on a consumer’s current income must consider current employment status. Similarly, before opening a new account or increasing a line of credit, credit card issuers must consider the borrower’s ability to make the required minimum periodic payments, including consideration of current or expected income or assets. When deciding whether to extend credit, lenders only need to assess a borrower’s ability to pay based on the information available at the time the credit decision is made – they are not required to predict future changes in income absent information suggesting a potential future change in payment ability.
The statement
In its statement, the CFPB provides that these requirements may require consideration of immigration status, particularly if “documentation in the consumer’s application or records indicates that the consumer’s repayment ability will change on account of their immigration status.”
Note that the statement does not have the force or effect of law. Further, the statement purportedly builds on existing authority and does not create new obligations for creditors. Existing Regulation B, which implements the Equal Credit Opportunity Act (ECOA), expressly permits a creditor to take into account an applicant’s immigration status and “any additional information that may be necessary to ascertain the creditor’s rights and remedies regarding repayment.” However, by clarifying when creditors may be affirmatively obligated to act on immigration status information already present or documented in the application file, the statement places immigration status considerations squarely within the ability-to-pay compliance obligations for creditors.
Looking forward
Based on the CFPB’s statement, creditors – particularly mortgage lenders and credit card issuers –should review and update their policies and procedures to address when and how immigration status may impact ability-to-pay determinations. Note that fair lending obligations have not diminished, and creditors should consider documenting their reasoning for credit decisions, as well as immigration status analysis tethered to income continuity risk.