Can a U.S. Credit Union Refuse to Lend to Non-U.S. Citizens?

I get this question a lot.  My first answer is always:  “why would you want to do that?” But for those credit unions who want to exclude non-citizens from lending there are issues of which you need to be aware.

Regulation B prohibits discrimination based on a wide variety of factors, including race and national origin.  Nonetheless, Reg B does allow a creditor to consider such things as (and I’m paraphrasing):  permanent residency versus being a temporary visitor; immigration status and information concerning the lender’s ability to collect payments from the borrower.  See generally:  Rev. Reg. B §202.6(b)(7).

Moreover, in the Official Staff Commentary to Reg. B, the Board has stated:  “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.”  Now before you think this makes it a slam dunk, remember that bright lines in law are few and far between.  If, for example, a credit union were to allow some citizens from some countries to apply for loans but not others, then the credit union would have a problem under Reg. B. 

Also, just because something might be acceptable under Reg. B does not mean that there isn’t another law that makes the activity illegal.  The Civil Rights Act allows aliens to enter into contracts for example.    Your particular state laws may come into play on this issue as well.

Has this issue been litigated?  Yes.  Look at Nguyen v. Montgomery Ward & Co., 513 F. Supp. 1039 (N.D. Tex. 1981)  (Plaintiff’s claim that she was denied credit because she was not a U.S. citizen dismissed) and Bhandari v. First National Bank of Commerce, 808 F.2d 1082 (5th Cir. 1987) (Plaintiffs claim for discrimination on the basis of alienage dismissed where plaintiff was denied credit (other claims were allowed however)).

Ultimately, a credit union has to decide whether it wants to be the next test case on this issue.  In other words, is a policy of refusing to lend to Non-U.S. citizens worth the potential litigation exposure (and potential bad press).

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