On June 8, the Consumer Financial Protection Bureau (CFPB) issued guidance reminding creditors of their obligations under the Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, when evaluating a consumer’s ability to repay certain credit obligations. The guidance is consistent with Executive Order 14406, “Restoring Integrity to America’s Financial System.” While the guidance is primarily focused on mortgages, credit cards, and other forms of open-ended credit, Executive Order 14406 makes a direct reference to auto loans. Under TILA and Regulation Z, creditors must make a reasonable and good-faith determination that a consumer has the ability to repay before extending certain credit products. The CFPB notes that Regulation B, which implements the Equal Credit Opportunity Act, permits creditors to consider an applicant’s immigration status and other relevant information when evaluating repayment risk. According to the CFPB, immigration status may be relevant where it affects a consumer’s ability to remain employed or otherwise generate income in the United States.
The guidance further explains that when information available to a creditor indicates that a consumer’s ability to repay may be affected by immigration-related factors, those factors should be considered as part of the ability-to-repay analysis. For example, if a creditor knows that a consumer is not lawfully present in the United States or lacks authorization to work, the creditor may need to consider the potential impact that removal from the country or loss of employment could have on the consumer’s future income and repayment capacity. The CFPB states that failing to consider such information could, in some circumstances, result in noncompliance with TILA and Regulation Z. Despite its strident tone, the CFPB notes that the statement is guidance only and does not have the force and effect of law. As a result, while the guidance reflects the CFPB’s current interpretation of federal requirements, it is not legally binding.
NIADA reminds dealers that some state fair lending and consumer credit laws may differ from federal requirements. Dealers should carefully evaluate both the CFPB’s guidance and the laws and regulations applicable in the states where they operate before making changes to underwriting or credit decision practices.
