Published in: Research | Jan. 27, 2020
Immigrants Miss Out on Banking -- And It's an Urgent Problem
By: Amy Fontinelle
Have you ever traveled to a foreign country? While you were there, how did you manage your finances?
If you're a U.S. citizen, you probably relied on your U.S.-based bank and credit card accounts. You might have incurred foreign ATM fees, currency exchange fees, and foreign transaction fees, but that's a small price to pay for the convenience of using your usual accounts while you traveled. You might have even used a travel rewards credit card to come out ahead.
You probably didn't have to safeguard large sums of cash or open a bank account in the country you visited, even if you were staying there for several months. You didn't have to learn how another country's financial system worked or worry about whether you could trust it.
You didn't have to interact with bank employees in a second language. You didn't have to sign important documents you couldn't understand because they weren't written in English. You didn't have to worry about getting taken advantage of. (If you could open an account at all, that is.)
Now, put yourself in the shoes of someone who's new to the United States; they're trying to make a legal, permanent life for themselves here. What financial challenges do they face? And, more importantly, why should you care?
Financial institution employees aren't always familiar with foreign IDs
The Equal Credit Opportunity Act prohibits financial institutions, including credit card issuers, from basing lending decisions on race or national origin. That said, they can consider immigration status if you're a resident alien; creditors don't want to lend money to people who might leave the country and never return.
Let's say the financial institution wants to work with you. You'll often need to apply in person and show them your photo ID. Financial institutions can decide which types of foreign photo IDs they'll accept, such as foreign passports and consular IDs. Some banks may be reluctant to accept foreign identification, even though they can, because of concerns about authenticity.
Banks don't want to open accounts or issue credit to people who might be using fraudulent identification. Banks also need to comply with Know Your Customer and Anti-Money Laundering laws, which require them to verify the identity of an individual wanting to open an account.
Financial institutions don't always make it easy for immigrants to figure out how to open even a basic checking account. For example, the Bank of America website says that to open an account, you'll need the following:
- Social Security number and date of birth of all account holders
- Phone number and email address
- Physical U.S. address (no post office boxes)
- Debit card or account information for funding your new account
Many immigrants don't have a Social Security number or a convenient way to fund their account. But there's nothing on the application page that says how or if you can open an account with a taxpayer identification number or a cash deposit.
The consequences of not having a bank account
If an immigrant cannot open a bank account because a bank or credit union doesn't want to accept their identification, that immigrant may also have trouble accessing other financial services that require a banking account, such as a mortgage or credit card. It can be hard to get a cell phone without a bank account or a credit card, too.
Here's a related problem: Without a bank account, and absent an employer program that deposits workers' pay to a prepaid debit card, some immigrants are forced to cash their paychecks. Carrying large amounts of cash puts them at risk of being targeted by thieves.
Unbanked immigrants not only risk losing their money but also risk being victims of physical violence.
Immigrants are often credit invisible
Someone who immigrates to the United States might have a sterling credit score in their home country. But that score means nothing here. "Even if their country of origin has a credit reporting system, these reports do not easily transcend borders," writes Dara Duguay, CEO of Credit Builders Alliance, for The Hill.
When you don't have enough information in your credit history, most lenders won't offer you credit. That's because 90% of them rely on traditional FICO® scores, which include information about your payment history on mortgages, auto loans, and credit cards, but not your utility payments, assets, or income. They also don't account for any foreign credit history.
The mainstream U.S. credit system doesn't count every category of responsible financial activity that can indicate an individual's likelihood of repaying a loan. For example, an immigrant who has no debt, fully owns their home, always pays their electricity bills on time, and has a steady job could be credit invisible due to their lack of U.S. borrowing activity.
Improving U.S. immigrants' access to credit can benefit all Americans
Immigrants' access to credit is an issue that people across the political spectrum can get behind, whether their primary concern is financial or humanitarian.
President Trump has demonstrated his concern about immigrants taking advantage of U.S. social services by implementing the new public charge rule. As of October 2019, this rule prevents immigrants from receiving permanent legal resident status if they can't demonstrate that they have the financial resources to support themselves. Access to credit can improve self-sufficiency and reduce the need to rely on public assistance.
What about immigrants who face the challenge of being separated from family members or being deported to their home country where they may face dangerous conditions and poor economic opportunities? Credit access can help these individuals afford immigration fees and attorneys.
Establishing a permanent life in the U.S. can be expensive. U.S. Citizenship and Immigration Services charges immigrants hundreds of dollars in fees to apply for naturalization, permanent resident status, citizenship, bringing family members to the States, and more.
Fees increased substantially under the Trump administration in December 2016, and a proposal for additional fee increases is pending. Credit can be indispensable in paying for these fees.
Credit can give immigrants more above-board job opportunities
In a 2016 Career Builder survey, 29% of employers said they conduct credit checks on job applicants. A survey published in 2018 by the National Association of Professional Background Screeners found that 16% of employers check all applicants' credit and 31% check some applicants' credit.
Forty states let employers check the credit reports of potential hirees. These ten have prohibited it:
The District of Columbia, Chicago, New York City, and Philadelphia have also passed laws restricting the use of credit reports in hiring decisions.
Immigrants in states that allow employer credit checks may be more likely to secure employment if they have good credit. This is especially true if they're applying for jobs that involve handling or managing money.
Working on the books means paying taxes and contributing to public benefit funding. It also reduces the worker's chances of getting ripped off by an employer who doesn't pay, a widespread problem known as wage theft. The UCLA Labor Center estimates that workers in Los Angeles alone lose $26.2 million to this practice every week.
Increasing U.S. immigrants' access to credit can
- help them fund new businesses and buy homes,
- help them pay lower home and auto insurance rates and lower deposits for rental housing, and
- prevent them from relying on high-cost alternative financial service providers like check cashers and payday lenders.
In short, access to credit can help immigrants become productive members of society who contribute to the economy.
Good for everyone
Access to credit can help immigrants solidify their lives in the United States. It can increase their security, stability, and inclusion. People who feel this way are less likely to commit petty crimes or acts of violence.
They're also more likely to become our coworkers, neighbors, and friends -- and these relationships mean opportunities for us all to enrich our lives through new food, new customs, and new perspectives.
- Appleseed (n.d.). "Expanding Immigrant Access to Mainstream Financial Services."
- Bank of America (n.d.) "Before You Apply." Accessed Dec. 31, 2019.
- Brown, Jennifer (2019). Unidos US. "Unscoreable: How The Credit Reporting Agencies Exclude Latinos, Younger Consumers, Low-Income Consumers, and Immigrants."
- Brown, Thomas P. (2019). "Who's Keeping Score? Holding the Credit Bureaus Accountable for a Broken System." Statement before the Committee on Financial Services, U.S. House of Representatives.
- CareerBuilder. (2016). "More than 1 in 4 Employers Do Not Conduct Background Checks of All New Employees, According to CareerBuilder Survey."
- Consumer Financial Protection Bureau (2015). "Checklist for opening an account."
- Consumer Financial Protection Bureau (2016). "Can a card issuer consider the fact that I am not a citizen of the United States?"
- Duguay, Dara (2019). The Hill. "Another Barrier for Immigrants: Their Credit History."
- HR.com (2018). "How Professional Background Screeners View the Use and Effectiveness of Background Screening Methods."
- UCLA Labor Center (2015). "What is wage theft?"
- U.S. Citizenship and Immigration Services (2018). "Our Fees."
- U.S. Citizenship and Immigration Services, Department of Homeland Security (2019). Federal Register. "Inadmissibility on Public Charge Grounds."
- U.S. Citizenship and Immigration Services, Department of Homeland Security (2019). Federal Register. "U.S. Citizenship and Immigration Services Fee Schedule and Changes to Certain Other Immigration Benefit Request Requirements."