Is it illegal to deny student loans to DACA students?

February 2, 2017 at 9:25 am Leave a comment

perez

Is it a violation of federal law to deny someone a student loan based on their status as a Dreamer? That is the central question posed by a class action lawsuit brought byCalifornia college  students who claim that Wells Fargo denied them student loans in violation of both, Federal and California Law. The lawsuit has the potential of putting financial institutions front- and- center in the debate over the protections the country affords to immigrants.

In June 2012, President Obama’s Department of Homeland Security announced that it would no longer deport young immigrants who had lived in this country for most of their lives, but whose parents were here illegally, and who themselves had never obtained legal status. Under the Deferred Action for Childhood Arrivals (DACA), eligible individuals receive a renewable two year authorization granted by the federal government to stay in the country. Eligible individuals receive a work permit and obtain employment authorization documentation, which entitles them to legally look for work.

The lawsuit was brought by Mitzie Perez, she claims that in August of 2016 she applied for a student loan online. While completing the application she indicated that she was neither a US citizen or a permanent resident. She was immediately denied the loan. Curious as to why she was denied, when she completed the same application a second time, she indicated she was a permanent resident, she was told that “based on the citizenship status you provided, a US Citizen Co-signer will be required for this application”. Should would be able to obtain a co-signer.

She claims the bank violated 42USCA Section 1981. This law provides that “All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens…” She also argues that because of the documentation she is able to provide the bank under DACA, Wells Fargo can provide her a loan without violating the Customer Identification Procedure requirements of the Bank Secrecy Act.

Leaving aside the emotional pull of the argument, the responsibility of financial institutions towards persons who are not permanent legal aliens is ambiguous. Regulation B, which implements the Equal Credit Opportunity Act, makes it illegal to discriminate against an applicant on a prohibited bases, including the applicants’ national origin. Here is where it gets tricky; the commentary accompanying this prohibition explains that while “A creditor may not refuse to grant credit because an applicant comes from a particular country.” A financial institution “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.” (12 C.F.R. § Pt. 1002, Supp. I).

Wells Fargo is in a tough spot. On the one hand, I agree with those who argue that there is something distinctly un-American about throwing DACA individuals out of the country. Many of them have spent almost their entire lives growing up as Americans. That being said, the law is the law and just as President Obama extended legal protections with an Executive order in 2012, President Trump could eliminate their legal status with the stroke of a pen. Financial institutions not only have the right but the legal obligation to consider this possibility when deciding whether or not to extend loans to students like Ms. Perez. What decisions they should make based on this information is a much tougher call. This case underscores why congress needs to craft common sense immigration reform.

Entry filed under: Compliance, Legal Watch, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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