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#2266397 - 02/15/22 06:32 PM National Origin, OFAC, High-risk Jurisdictions
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Hi all,

How do financial institutions tread the line between fair lending and risk management as it pertains to high-risk jurisdictions?

We all know the protected factors for which you may not determine credit eligibility - national origin included - but how do banks and other financial institutions handle applicants/customers from high-risk jurisdictions, OFAC-sanctioned countries/regions, and other

For example: if an applicant from Cuba, Crimea, Iran, North Korea, or Syria (among other areas) applied for a U.S bank account and/or credit card, would the FI have grounds to not offer the card? Presumably the funds to load to the account, the funds to repay any balances, and ACH/wire transfers would come in and out of those locations.

In addition to OFAC sanctions, what if an FI determines a country to be too high-risk from a debt repayment, AML or Fraud perspective, and therefore are not within the risk appetite?

I'm wondering if the OFAC sanctions and risk management would still be overruled by ECOA.

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Fair Lending
#2266400 - 02/15/22 07:09 PM Re: National Origin, OFAC, High-risk Jurisdictions Crimson Compliance
rlcarey Online
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No - ECOA does not overrule OFAC. As far as a deposit account, you just tell them no. As far lending, you make a habit of lending to foreign nationals? Unless you have an international department devoted to that, just don't do it.

Paragraph 6(b)(7)
1. National origin—immigration status. The applicant's immigration status and ties to the community (such as employment and continued residence in the area) could have a bearing on a creditor's ability to obtain repayment. Accordingly, the creditor may consider immigration status and differentiate, for example, between a noncitizen who is a long-time resident with permanent resident status and a noncitizen who is temporarily in this country on a student visa.

2. National origin—citizenship. A denial of credit on the ground that an applicant is not a United States citizen is not per se discrimination based on national origin.
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#2266416 - 02/15/22 09:34 PM Re: National Origin, OFAC, High-risk Jurisdictions Crimson Compliance
Rocky P Offline
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I've been doing fair lending for the past 25 years, and Randy is spot on. Lending involves a risk and collection. The cites he gave have you covered. The only other issues are documentation and consistency. Make sure the bank has a clear policy, and that it is followed.
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#2266462 - 02/16/22 04:13 PM Re: National Origin, OFAC, High-risk Jurisdictions rlcarey
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Hi Randy,

Without revealing my employer, our target market is primarily foreign nationals immigrating to the U.S with little-to-no credit history in the U.S. We consider immigration status for students and working professionals.

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#2266466 - 02/16/22 04:53 PM Re: National Origin, OFAC, High-risk Jurisdictions Crimson Compliance
rlcarey Online
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Then you have decided to delve into a very high-risk niche and you most likely should engage qualified legal counsel and most likely a compliance operational specialist to help you develop your risk management and operating parameters. This is the subject of a term paper and not a one paragraph answer in a blog.
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#2266471 - 02/16/22 05:28 PM Re: National Origin, OFAC, High-risk Jurisdictions Crimson Compliance
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Trust me, the compliance and legal challenges are understood and certainly add some complexity to the business. But this is the risk with tackling a niche market in providing financial services to an underbanked community!

Navigating these risks and ensuring regulatory compliance is top priority

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#2266474 - 02/16/22 06:25 PM Re: National Origin, OFAC, High-risk Jurisdictions Crimson Compliance
ACBbank Online
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Randy is spot on, as is usually the case. I would add that different business units risk rate certain geographies differently. We do international lending and our credit department risk rates geographies differently than Risk Management and Financial Crime.

The one universal is that all transactions are prohibited with the new Axis of Evil (Iran, North Korea, Syria, and Myanmar).
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#2266847 - 02/24/22 09:18 PM Re: National Origin, OFAC, High-risk Jurisdictions Crimson Compliance
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Hi all,

Revisiting this thread as the new Ukraine-Russia sanctions make this a timely inquiry.

Again, without providing too much detail about my employer or its products, we lend to foreign nationals immigrating to the U.S. Per Randy's earlier comment, this is indeed a niche, high-risk market/product.

For the sake of ECOA compliance, such a company would be prohibited from offering such products from any one country - whether that be Mexico, Canada, U.K, China, wherever.

Perhaps this is different from what ACBbank commented, but how should a lender interpret the country of origin? For example, is an FI permitted to prevent applicants from an OFAC-sanctioned country on the basis of their passport, or should it be their current country of residence? I think I know the answer, but I think the waters are still quite muddy with respect to financial crime risk management, collections and lending risk, and fair lending.

Disclaimer: We do solicit the counsel of internal and outside legal and compliance teams. I do not consider any comments or responses on this post or on this forum to be legal advice.

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#2266849 - 02/24/22 09:35 PM Re: National Origin, OFAC, High-risk Jurisdictions Crimson Compliance
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National origin discrimination involves treating people (applicants or employees) unfavorably because they are from a particular country or part of the world, because of ethnicity or accent, or because they appear to be of a certain ethnic background (even if they are not).

Is an applicants' national origin based on their passport or their country of residence?

Going back to the OFAC vs ECOA discussion - if North Korea is banned for financial institutions, for example, then are FIs prohibited from considering 1) applicants residing in North Korea immigrating to the U.S. (forget for a second how unlikely this is); 2) applicants with a North Korean passport?

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#2266860 - 02/24/22 10:38 PM Re: National Origin, OFAC, High-risk Jurisdictions Crimson Compliance
rlcarey Online
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1002.2(z) Prohibited basis.

2. National origin. A creditor may not refuse to grant credit because an applicant comes from a particular country but may take the applicant's immigration status into account. A creditor may also take into account any applicable law, regulation, or executive order restricting dealings with citizens (or the government) of a particular country or imposing limitations regarding credit extended for their use.
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#2266876 - 02/25/22 01:29 PM Re: National Origin, OFAC, High-risk Jurisdictions Crimson Compliance
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Randy that's exactly the answer I was looking for.

"National origin" does not appear to be defined in the ECOA, thought I saw an excerpt that defines national origin as the country you or your ancestors were born in.

Another fair lending law, the Fair Housing Act (“FHA”), defines national origin to include birthplace, ethnicity, ancestry, culture, and language.

The term "comes from" is vague. If a Canadian resident, with a Spanish passport, and a U.K. place of birth applies for a U.S credit card as they are immigrating to the U.S, surely some aspect of their birthplace/country of residence has to be taken into account to satisfy OFAC sanctions and other related laws/regulations.

Is this relatively uncharted territory, or is there precedent for such a thing?

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#2266879 - 02/25/22 02:19 PM Re: National Origin, OFAC, High-risk Jurisdictions Crimson Compliance
rlcarey Online
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Well, you are either allowed to do business with them or you are not under OFAC or other law or executive order. If you are not allowed, end of story.

If you are allowed to do business with them and choose to make them a loan, then you have to do it in a non-discriminatory manner. If you want to specialize in lending to foreign nationals, then your underwriting needs to be based on the characteristics of the individual and not where they are from, born, live, have passports issued from, etc.
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#2267014 - 02/28/22 10:19 PM Re: National Origin, OFAC, High-risk Jurisdictions Crimson Compliance
ACBbank Online
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With respect to OFAC sanctions - you should be screening your applicants early on in the credit process. If they are not subject to comprehensive sanctions, what's the concern?

As Randy said, you are either allowed to do business with them or you are not.
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"100 victories in 100 battles isnt the most skillful. Subduing the other's military w/o battle is the most skillful." Sun-Tzu

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