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FAQs
ECOA PROHIBITED BASIS
Question: Does a bank violate Reg. B if it retains a photocopy, and or a description of a person’s identification card? There are many instances in which this information is needed by the bank; for example, to verify a customer’s identity for CIP purposes under the BSA, to identify beneficial owners under the BSA, and for UCC filing purposes to ensure financing statements are filed under a borrower’s name it appears on the driver’s license. Can a bank keep copies of documents provided to verify a customer’s identity without concern of violating fair lending laws?
Answer: Yes, in some situations it would be appropriate for a bank to make and retain copies of identifying documents that it uses to verify a customer’s identity. However, bank should implement procedures to ensure such documents are only used for their intended purpose.
See the following FAQ, as provided in FIL 4-2004:
31 C.F.R. § 103.121(b)(3)(i) – Required records
Can a bank keep copies of documents provided to verify a customer’s identity, in addition to the description required under 31 C.F.R. § 103.121(b)(3)(i)(B), even if it is not required to do so?
Yes, a bank may keep copies of identifying documents that it uses to verify a customer’s identity. A bank’s verification procedures should be risk-based and, in certain situations, keeping copies of identifying documents may be warranted. In addition, a bank may have procedures to keep copies of documents for other purposes, for example, to facilitate investigating potential fraud. (These documents should be retained in accordance with the general recordkeeping requirements in 31 C.F.R. § 103.38.) Nonetheless, a bank should be mindful that it must not improperly use any document containing a picture of an individual, such as a driver’s license, in connection with any aspect of a credit transaction.
Thus, as long as the driver’s license is only used for purposes of verifying identity for CIP purposes and to ensure proper UCC filing, a bank should not be criticized from a fair lending basis. Banks are advised to include a provision in their lending policy or underwriting guidelines specifically addressing the fact that if copies of photo IDs are retained in the loan file, the copies should only be used for purposes of verifying the borrower’s identity and ensuring proper perfection of the lender’s lien in the collateral offered by the borrower. Also, keep in mind state law prohibits photo copying of credit cards. Federal law prohibits making a photocopy of a US military or federal government issued identification card.
EVALUATING APPLICATIONS
Question: We had a request for a car loan from an individual living in our community who is from another country. He says he is not a permanent resident. I know we can open deposit accounts for him if we follow CIP requirements. What about loans? Can we make this car loan?
Answer: State and federal law neither prohibits you from making a loan to a person who is not a U.S. citizen or permanent resident alien, nor does it require you to do so. It is largely a bank policy matter.
Let’s assume this person qualifies for this loan based on his credit and has been granted “resident alien” status. A resident alien is someone who is a resident of another country who has been granted permission by the U.S. government to live in the United States. If they have been granted “permanent resident status,” they can stay in the United States indefinitely.
The bank can also make loans to people who are not permanent residents of the United States. A non-resident alien (NRA), is someone who has not established residency in the United States. The issue with lending to a non-resident alien is the length of time that they are granted permission to lawfully remain in the United States. If the applicant requests a five-year loan to buy a car and their work visa expires in two years, the NRA is not able to show that they will be able to remain in the U.S. long enough to pay off the loan. The bank could decide to make the loan anyway, but that would be a risk-based decision.
The bank may be concerned it will be criticized if the loan application is denied based on the applicant’s residency status. Banks are prohibited from making credit decisions based on national origin. Also, banks are prohibited from refusing to grant credit because a person is from a particular country. Fortunately, Reg. B (ECOA) does contain a provision that allows banks to inquire about residency and immigration status and make credit decisions based on the applicant’s immigration status. Creditors can use that information to determine the creditor’s rights and remedies regarding repayment. Reg. B also clarifies a bank can differentiate between a non-citizen who has established long-term residence and a non-citizen who is here temporarily.
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