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Credit and Immigration

posted by David Yen

Credit and immigration have been in the news recently. Bank of America started a pilot program that offers credit cards to customers even if they don't have social security numbers. Miriam Jordan and Valerie Bauerlein, Bank of America Casts Wider Net For Hispanics, Wall Street Journal, February 13, 2007, Page A1. 

A credit union in Chicago will lend legal permanent residents the money to apply for naturalization and go through a required fingerprint check.  Antonio Olivo, Loans for citizenship applications offered, Chicago Tribune, February 19, 2007, Online edition,
http://www.chicagotribune.com/news/local/chicago/chi-0702190130feb19,1,5609562.story

The Federal Reserve sponsors a service that allows customers without Social Security numbers to wire money through the Fed system to Mexico's central bank.  The cost is much less than what was the going rate charged by private wire services.  Molly Hennessy-Fiske, Immigrants who wire money get help from the Fed, Los Angeles Times, February 26, 2007, http://www.latimes.com/news/nationworld/nation/la-na-remit26feb26,0,6622923.story?coll=la-home-nation.   

Several members of Congress have introduced a bill to limit the forms of identification that can be accepted by financial institutions. HR 1314, the Photo Identification Security Act. One of the sponsors, Marsha Blackburn, (R.TN) said that the effect of the bill would be "You can’t get a Visa without a visa.”  Bartholomew Sullivan,  Bill would block credit cards for illegals, Memphis Commercial Appeal, March 6, 2007, http://www.commercialappeal.com/mca/business/article/0,1426,MCA_440_5397139,00.html

Bankruptcy and naturalization do share the same clause in the Constitution.  Article I, Section 8, clause 4.   Are there more significant relationships between them?

To a lender a borrower who it knows is undocumented is in one way more attractive than a citizen or legal resident: he or she is effectively barred from filing bankruptcy.   Strictly speaking, there is no requirement that someone be in the United States legally in order to be a debtor in bankruptcy.   But someone who is undocumented and wants to stay in the country would be inviting trouble if he or she filed bankruptcy.   A debtor now must present a picture ID and proof of social security number at the creditors meeting.  Interim Bankruptcy Rule 4002(b)(1).   The debtor must also provide the most recent Federal income tax return, or explain why there is none.  Interim Rule 4002(b)(3).  This should be enough to deter most undocumented borrowers from filing bankruptcy.  If one does file despite this risk, whether out of ignorance or recklessness, the lender has a powerful threat -- withdraw the bankruptcy or else the trustee will be told the truth.   At a minimum the debtor risks denial of discharge for presenting fraudulent documents.   Deportation is much more likely; even prison is a possibility.

Does this actually enter into the decision making of potential lenders?  We know that some lenders consider the fact that someone has just received a bankruptcy discharge as a positive factor, because they can't file again for eight years (up from six years before BAPcpA).  In lending to someone who is undocumented the lender must weigh the positive factor that bankruptcy is unavailable to the borrower against the possibility of deportation or voluntary departure.  But are those risks so different than the risks that a citizen or permanent resident would go "underground" in the United States, or voluntarily emigrate to another country (perhaps for better health care)?

If the Bank of America program, or others like it, does go forward, lenders will soon have actual data to test this hypothesis.

Comments

I think that Bank of America has certainly considered the issues you raise regarding the choice that illegal aliens will be faced with when they reach the stage in their finances where bankruptcy would be considered. Even if some kind of restructuring of the credit card debt needs to happen, the bank will prefer that over the card-holder filing bankruptcy. Although the outcry now is that B of A is aiding illegal immigration, I think that this will turn out to be a way to exploit illegal immigrants because of the fear of deportation.

Chicago Tribune story - November 15, 2007. Illegal residents pass up mortgages.
http://www.chicagotribune.com/business/chi-mortgages_13nov13,0,5846596.story

Lenders noted that "ITIN" mortgages had lower delinquency rates than other mortgages, but volume is down

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