Katie BaileyCredit unions are facing increased scrutiny and legal risk around how they handle account openings and lending for immigrants, Deferred Action for Childhood Arrivals (DACA) recipients, and other non-permanent residents. A recent lawsuit filed by the Mexican American Legal Defense and Educational Fund (MALDEF) against a New York credit union underscores the potential for reputational, financial, and legal consequences when policies are viewed as discriminatory.
Some lawsuits have alleged membership or credit denials based solely on immigration status—even when applicants held valid Social Security numbers, passports, or work authorizations. These cases often cite violations of the Equal Credit Opportunity Act (ECOA) and state anti-discrimination laws, leading to costly settlements, retraining requirements, and policy overhauls.
Key Risks for Credit Unions
- Discrimination Claims: Blanket policies that exclude nonresident aliens, DACA recipients, or other immigrants can create liability under ECOA and state law.
- Reputational Harm: Public lawsuits can damage a credit union’s reputation locally and beyond.
- Regulatory Scrutiny: Regulators expect due diligence to focus on identity verification, creditworthiness, and repayment ability—not citizenship status alone.
Best Practices to Reduce Risk
Credit unions can mitigate risk while maintaining compliance and financial inclusion by:
- Applying consistent Customer Identification Program (CIP) and Bank Secrecy Act (BSA) requirements to all members, with clear guidance on acceptable ID (passports, visas, W-8BEN, etc.).
- Focusing underwriting on financial risk factors, not immigration or citizenship status.
- Reviewing automated underwriting systems to ensure they don’t contain exclusionary rules tied to residency.
- Updating policies to prohibit denials based solely on immigration or citizenship status.
- Providing periodic staff training on ECOA, anti-discrimination, and inclusive onboarding.
- Establishing escalation procedures for complaints related to discrimination or service denials.
To help credit unions navigate this issue, The League Compliance and Risk Management Department created a one-page resource with a compliance checklist for onboarding, underwriting, and fair lending practices. This guide is designed to help your institution strengthen policies, avoid discriminatory practices, and reduce the risk of litigation.
