Loan Denied to Illegal Alien- Adverse Action?

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Question:

A bank has made a decision not to make consumer loans to illegal immigrants. If during the course of obtaining information a loan officer determines that an applicant is an illegal immigrant and therefore denies the loan, is the bank required to send an adverse action notice to the applicant based on an incomplete application since not all information regularly obtained was considered, or is the bank even required to send a notice in this scenario?

Answer:

Answer by Dan Persfull: You would be required to send an AAN denying the applicant based on their immigration status. See the Commentary to 202.6(b)(7)(1).

Answer:

Answer by Lucy Griffin: You do indeed have to send a notice. Applicants are protected by ECOA without regard to their immigration or citizenship status. Whenever you have a policy such as this one, which could have an impact on certain national origins, you should consider it carefully. The illegal status of the applicant is a sound reason for denying a loan, but be careful to avoid any abuse or over-use of this policy that could have a disparate impact on the basis of national origin.

You also asked about the incompleteness notice. That is not relevant here since when you learned that the applicant was illegally in the U.S. you knew all you needed to know to deny the application. That means the application is completed.

First published on BankersOnline.com 3/26/07