Backlash against rule tying immigration cases to credit history
WASHINGTON — Consumer advocates and the credit reporting industry are taking issue with a Trump administration plan to use an immigrant's credit history to determine eligibility for legal residency.
The plan, announced last week, will include credit scores and credit reports among expanded factors used by the Department of Homeland Security to decide whether immigration applicants would be a "public charge," meaning they would be dependent on the government for assistance and therefore eligible to be rejected for legal status.
Financial industry observers say credit scoring was never intended to be used, nor should it be, as part of the criteria for seeking a green card or visa. Adding that factor, they say, sets applicants up for rejection since a foreigner seeking entry into the U.S. is unlikely to have a credit file with a U.S.-based consumer reporting agency.
“It’s an absurd idea. … Many immigrants don’t have a credit history,” said Chi Chi Wu, a staff attorney at the National Consumer Law Center. “Credit reports and credit scores, especially credit scores, aren’t designed for these purposes. They are designed to predict whether someone will be late on a loan."
Ken Cuccinelli, acting director of the U.S. Citizenship and Immigration Services office in DHS, said at a White House briefing last week that the "rule ... encourages and ensures self-reliance and self-sufficiency for those seeking to come to, or to stay in, the United States."
But the plan had some financial services insiders scratching their heads.
“When the initial rule came out, we were as surprised as anybody by it,” said a source close to the credit reporting industry, who spoke on the condition of anonymity.
The source noted a potential flaw in that the USCIS rule requires immigration applicants to provide the credit history information, rather than requiring immigration officers to get the information from one of the three major credit bureaus — Equifax, Experian or TransUnion. Lenders have traditionally gone directly to the credit bureaus for loan applicants’ reports.
“This doesn’t seem to be ... designed very well,” the source said. “You have to get the credit report and share it with the immigration officials. That’s different from virtually every other use of credit reports. … The consumer doesn’t usually get involved in the acquisition of the credit report.”
DHS said in its justification of the policy that a good credit history is a positive indicator that an immigrant is likely to be “self-sufficient.”
“DHS's use of the credit report or scores focuses on the assessment of these debts, liabilities, and related indicators, as one indicator of an alien's strong or weak financial status, so that in the totality of the circumstances and as part of all considerations affecting the alien, the alien is more or less likely to become, in the future, a public charge,” it said in its rulemaking. “DHS believes it is useful information in determining whether aliens are able to support themselves.”
But observers said the rule puts credit bureaus in the position of casting immigrants in a harsher light than was ever intended for the credit scoring process. Having spent little time in the U.S. consumer market, a foreigner likely would have a thin credit file, if any, making it likely that someone's credit history would contribute to the denial of immigration status.
“I think that this is driven by the Trump administration and an interest in taking a more restrictive view on immigration overall,” said Chad Blocker, a partner at Fragomen Worldwide who has counseled the financial services industry on immigration matters. “People are going to be penalized for credit scores that may be more derogatory than they should be. So there is a fundamental fairness concern here.”
Carlos Guevara, a senior policy adviser on immigration at the advocacy organization UnidosUS, echoed the concern that the policy is strictly intended to restrict legal immigration to the U.S.
“From our perspective this is really one of the measures that this administration is taking to frankly try to redefine who is American and who is not,” Guevara said.
The DHS rule is also vague about how credit scores will be used in determining whether an individual is eligible for a green card or visa, critics say.
“The DHS rule doesn’t even define what a good credit score is,” said Deborah Goldstein, executive vice president at the Center for Responsible Lending. “DHS didn’t really put out any kind of plan for how they are going to use credit scores.”
The new policy, set to take effect Oct. 15, will likely affect people seeking asylum in the U.S. who may satisfy other eligibility requirements but who lack any credit history.
“You have a different kind of array of people applying for immigration benefits,” Blocker said. “Some might have a family relationship, others may have an employer who is sponsoring them. … A lot of people in the asylum arena are not going to have credit scores at all.”
Goldstein added that credit reports produced abroad aren’t necessarily compatible with the U.S. reporting model.
“The credit scoring system is unique to the U.S.,” Goldstein said. Some immigrants’ credit reports “don’t really translate” to a U.S. credit report, she said.
Wu noted that the U.S. credit reporting industry has a long history of inaccuracy in reports.
“There are way too many errors in credit reports for them to be used reliably,” Wu said in a press release last week. “The Federal Trade Commission found that about 20% of consumers had confirmed errors in their credit reports and 5% had serious errors. Denying one in 5 or even one in 20 immigrants a visa or green card because of erroneous information is unconscionable.”
Some observers also question whether a credit history is an appropriate measure of whether an immigrant will become a public charge.
“We haven’t seen a causal connection before between credit reporting scoring and immigration,” said Ed McAndrew, a partner at DLA Piper. “That’s certainly not what the laws are designed to do or what the industry is designed to do. The industry is designed to determine creditworthiness.”
Goldstein said the administration is “dragging the credit reporting industry into a field that they are not necessarily experts in.”
While the credit scoring company FICO would not comment specifically on the immigration policy, it echoed the view that credit scores are designed to determine whether consumers can pay off a loan on time.
“Credit scores are a tool for financial institutions to help them assess the likelihood that a borrower will become 90 days late on a credit obligation,” said Joanne Gaskin, vice president of scores and analytics at FICO, in a statement to American Banker. “The FICO Score does not consider income, ethnicity, gender, or age in its calculation.”