Loans for illegal immigrants have become a priority for activists recently. As part of that push, last year, Joe Biden’s Consumer Financial Protection Bureau (CFPB) and Department of Justice leaned on banks and other financial institutions to start making loans to illegal immigrants. The CFPB warned lenders that denying a loan due to “unnecessary” reliance on the borrower’s immigration status would be illegal discrimination, despite the Equal Credit Opportunity Act (ECOA) not prohibiting lenders from taking immigration status into account. Given the CFPB’s penchant for overreach, the threat was clear, make loans to illegal immigrants or else. The CFPB faced pushback from every Republican member of the Senate Banking Committee, but the CFPB has not backed down.
A few months later, a bill (AB 1840) was introduced in the California State Assembly to provide illegal immigrants with taxpayer-subsidized, interest-free home loans. Fast forward six months and AB 1840 has now passed the State Assembly and last week was passed by the Senate Appropriations Committee. While the bill would not create a new loan program exclusively for illegal immigrants, it opens up the California Dream for All Shared Appreciation Loan, making interest-free down payment loans of up to $150,000 available to illegal immigrants in the state.
There are numerous problems with this bill and the loan program itself. At a time when housing prices have skyrocketed because of low supply and excessive demand, one of the worst possible policies would be to further juice demand by subsidizing downpayments (cc: Katie Hobbs & Kamala Harris). Juicing housing demand with interest-free loans to illegal immigrants while the state is cash-strapped and facing a significant deficit is particularly reckless.
San Diego County Supervisor Jim Desmond noted:
California is in dire financial straits, yet lawmakers continue to prioritize programs that incentivize illegal immigration and strain local resources….Expanding this program to include illegal immigrants is not just another handout — it’s a massive overreach that shifts the financial burden onto law-abiding taxpayers.
Desmond smartly notes that this bill would further incentivize illegal immigration at a time when resources are already slim and struggling to keep up. Importantly, the bill also suffers from the same problem as the CFPB’s pressure on banks: an abandonment of fundamental principles of sound lending in favor of illegal immigration. Loans should be made, and interest rates priced, based on the risk associated with making the loan and the likelihood that it will be paid back.
For loans to illegal immigrants, there are concerns about their ability to legally work in the United States or the stability of their employment, which increases the risk of losing their income and defaulting on the loan. There is also the risk that the federal government may finally enforce our immigration laws and remove the illegal immigrant from the country, making it unlikely the loan will ever get paid back. In fact, the CFPB itself acknowledges these risks in its rules implementing the Equal Credit Opportunity Act noting that “the applicant’s immigration status and ties to the community (such as employment and continued residence in the area) could have a bearing on a creditor’s ability to obtain repayment.”
If the California Legislature does move forward with AB 1840, the state will exacerbate an existing housing crisis and abandon the principles of sound lending. To make matters worse, it will all be at the expense of California’s taxpayers and small business owners.