The Consumer Financial Protection Bureau (CFPB) has issued a significant directive to creditors, reminding them that an applicant’s immigration status must be considered when assessing their ability to repay mortgages and certain open-end credit products. Released on Friday, June 5, the statement underscores that this consideration is an integral part of creditors’ obligations under the Truth in Lending Act (TILA) and its implementing Regulation Z.
According to the CFPB, the emphasis on immigration status stems from the potential for removal from the United States to disrupt a consumer’s income. The agency’s statement, which was posted on the Federal Register’s public inspection issue on Friday and is scheduled for official publication on Monday, June 8, explicitly states, “This statement emphasizes to creditors that these requirements may obligate consideration of a consumer’s immigration status, especially where removal from the United States may disrupt the consumer’s income.”
Russ Vought, who serves as the director of the Office of Management and Budget (OMB) and acting director of the CFPB, previewed this impending guidance on Thursday, June 4, via a post on X. Vought’s social media communication, which included a link to a Fox Business report on the then-forthcoming statement, unequivocally asserted, “An individual’s illegal immigration status must be factored into their ‘ability to repay’ under the Truth in Lending Act.”
The CFPB’s guidance outlines several avenues through which creditors might ascertain an applicant’s immigration status, or lack thereof. Creditors may learn that an applicant may not be lawfully present in the country, and thus at risk of removal, through direct inquiry. Other indicators could include an applicant’s use of identification methods typically issued to individuals without proof of legal residency, or information gleaned from other sources. Such information, the agency notes, could signal that an applicant might be unable to earn income should they be removed from the United States.
The Bureau’s position is clear regarding compliance. “The Bureau expects compliance with law and 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,” the CFPB stated. This serves as a stern reminder to lenders about the potential ramifications of overlooking this critical factor in their underwriting processes.
Reversal of Previous Stance
This latest guidance marks a notable reversal from a previous stance taken by the CFPB. In January, the CFPB, in conjunction with the Department of Justice, withdrew a joint statement issued in 2023. That earlier statement had cautioned lenders against considering an applicant’s immigration status when extending credit. The withdrawn guidance had specifically warned lenders that policies related to a borrower’s status could potentially violate provisions of the Equal Credit Opportunity Act (ECOA) and its implementing Regulation B, which prohibit discrimination based on protected classes such as race and national origin.
In a January press release announcing the withdrawal of the 2023 joint statement, Russ Vought provided context for the policy shift. He highlighted that ECOA regulations have, for decades, permitted lenders to consider borrowers’ residence status and other relevant information. Vought articulated the rationale behind the withdrawal, stating, “We are correcting the last administration’s attempt to ignore these well-accepted and common-sense principles of our nation’s fair lending laws.” This indicates a deliberate effort to realign CFPB policy with what Vought described as long-standing and common-sense principles within fair lending legislation.
Implications for Creditors
The updated guidance from the CFPB places a renewed onus on creditors to meticulously evaluate an applicant’s immigration status as a component of their ability-to-repay assessment. For institutions engaged in mortgage lending and offering certain open-end credit products, this means integrating potential immigration-related income disruption into their risk models and compliance frameworks. The clarity provided by the CFPB’s statement, particularly its emphasis on TILA and Regulation Z requirements, aims to eliminate ambiguity for lenders navigating complex credit assessment criteria.
The CFPB’s latest directive solidifies the expectation that lenders must proactively consider the stability of an applicant’s income, extending this consideration to include the potential impact of their immigration status. This move reinforces the Bureau’s commitment to ensuring that credit decisions accurately reflect a borrower’s genuine capacity to fulfill their financial obligations, thereby fostering a more robust and compliant lending environment.
