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Country Risk Analysis and ECOA
The financial regulatory agencies have issued guidance on "Sound Country Risk Management Practices." Issued by the FDIC as FIL-23-2002, it is available on each agency website.
The issuance advises financial institutions to assess the risk of doing business and the risk of exposure for each country in which the institution has business risk exposure. The process involves risk-rating each country and making business decisions based on this risk.
There is a difference between country risk rating and discrimination based on national origin. Measuring risk involves taking a close, fact-based look at the opportunities and risks, including economic and political, in the country and then making business decisions based on that analysis. The business decision is made in the context of the risk analysis, not simply the country's classification.
This is similar to the issues that arise under ECOA and Regulation B when an applicant's national origin becomes an issue. Relevant risk issues are the applicant's citizenship or immigration status, the applicant's reasons for being in this country, the applicant's likelihood of remaining in this country and the ability of the creditor to collect the debt should the applicant return to the country of origin. Except for the last consideration, these issues are individual to the applicant, and not a condition resulting from national origin.
A customer whose country of origin is a high-risk country may still be a good customer. For example, if the applicant is a naturalized citizen, the risk of their country of national origin is not relevant. To take that risk into account could only be construed as discrimination. On the other hand, an individual in this country on a temporary visa should be evaluated in the context of the expected time in this country relative to the credit requested.
Copyright © 2002 Compliance Action. Originally appeared in Compliance Action, Vol. 7, No. 5, 5/02
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