If immigration reform passes, immigrants will potentially be forced to navigate a landscape filled not only with un-scrupulous legal advisers but with predatory financial service providers as well. That’s because any final legislation will likely include requirements that undocumented immigrants pay stiff penalties and back taxes before they can get legal status. The Senate’s Gang of Eight proposal, for example, requires $2,000 in fees and penalties, plus back taxes for every previous year of employment.
Since many immigrants will be hard-pressed to come up with that kind of money themselves, they could become prey to predatory lenders who are willing to front them the cash at exorbitant interest rates. Indeed, according to the Federal Deposit Insurance Corporation, more than half of foreign-born citizens and Hispanics either have no bank account or rely on “alternative” service providers—such as check cashers and pawn shops—for financial services. The profiteering has, in fact, already begun.
Valeria Treves, executive director of NICE, a New York-based advocacy group, says some tax preparers were urging immigrants at tax time this year to file back taxes for the previous ten years—and charging up to $250 per return. Some preparers, she said, were also selling a special—and nonexistent—tax form for undocumented people, while others were charging clients $200 for an Individual Tax Identification Number—the form for which is one page long and free on the Internal Revenue Service Web site.
Andy Posner, executive director of the Capital Good Fund, a nonprofit specializing in micro-loans to immigrants, is particularly concerned about predatory lenders fronting high-interest loans to help immigrants pay the required fees. “There’s already a $100 billion-a-year industry that provides financial services to the poor,” he said. Prospective citizens, he said, are a market just waiting to happen.
Fortunately, the solution to these potential problems already exists: the Consumer Financial Protection Bureau. Created two years ago by the Dodd-Frank Wall Street Reform and Consumer Protection Act as the first stand-alone agency to regulate the soundness of consumer financial products, the CFPB has already cracked down on predatory lending generally and is ideally situated to prevent the financial services fraud and predatory practices that could be an outgrowth of immigration reform.
At a minimum, the CFPB could charge its existing “advisory groups” with the task of formulating policy around financial services scams directed at immigrants. More ambitiously, it could create a separate office dedicated to immigrants’ needs, as it has for other vulnerable consumer groups, including seniors, students, and veterans.
Unfortunately, however, conservatives have been fighting like orcs to defund and dismantle the CFPB. Acting Director Richard Cordray has been a favorite target for Republican lawmakers, who have also refused to confirm his appointment. In April 2013, Republican Senator David Vitter boycotted a hearing with Cordray on the grounds that he “should not have testified today as if he is the legitimate director of the CFPB.”
If conservatives succeed in their effort to kill the CFPB, the result could be an even harder road to legal status and citizenship than immigrants already face.