Bank of America gives credit to illegals

I awoke this morning (I am presently in the US) to an interesting story on Fox News: apparently Bank of America have a programme that enables an illegal resident in the US to get a credit card, albeit with higher fees and rates than an ordinary citizen.

The reaction of the stock market was that Bank of America shares rose 1%.

Fox put together a team of "business experts" to discuss this strategy live on the Cavuto show (he's on video on this topic here). And, as was probably inevitable, the discussion rapidly degenerated into two basic camps: the rational thinkers who argued that serving niche markets is a sensible business move, and the right-wing mob who suggested that a credit card programme for people without a social security number devalues citizenship and is a "slippery path to amnesty".

I wouldn't for a moment dream of deconstructing the social forces behind such a debate. I am not a US citizen, and the question of illegal immigrants from Latin America isn't something I'd feel all that qualified to discuss.

I think, however, that the market reaction is a rational one. Expanding the customer base and selling more cards is good business. If you take away the citizenship question - and lets face it, this is a credit card not a green card - what is the difference between this and any other kind of sub-prime lending? Doesn't sub-prime have a good economic rationale?

Bank of America are offering a legal product that serves a niche segment of the market. They are pricing the product in such a way that any segment specific risks are covered. And by so doing, they facilitate the economic activity of what is presently a largely invisible part of the economy. It is this last point which I think is most key. Offering a regulated product to illegal immigrants is one way to make things more, not less, visible to agencies.

I suppose that Fox and other media may stir up a consumer backlash which might hurt Bank of America, and that this programme will be swiftly canceled if US citizens burn their Visa cards.

I have to wonder, however, since these illegal immigrants are in the country anyway, if facilitating their economic activity in this visible and auditable way, might not be more positive than negative.

Update: Ken, prolific commenter on this post has posted his own views on the matter at MeAndMyDrum.

Comments

[Colin Henderson]

I have to agree with you James, (and as a non-American).
The reality is that the immigrant populations in all countries now represent significant numbers, with financial needs. Either the country kick them out, which is clearly not going to happen, or keep them, and provide services to them that are not black market. Black market helps no-one, and is a missed opportunity in so many ways.

[James Gardner]

Thanks for commmenting Colin. I recently read somewhere that if America kicked out all its illegals, the economy would collapse, or at least dip sharply into recession. It makes the nay-sayers' position even more tennuous.

[Ozrisk]

I would tend to agree as well. The US government seems to be sitting in a half-way house with the illegals - not wanting to formalise their status but also realising the damage that would be created if they kicked them out (or at least made their employment even more difficult).
IMHO, BoA is making a good move here as this will prove popular not only with the illegals but also the hispanic community, who will see this as a move in their support.
I would think that only a few really radical ones on the right will move to burn their credit cards. The good customers will already have Hispanic nannies looking after their kids.

[James Gardner]

Hi there Ozrisk,

If the vindictive I saw on network television here is any guide, formalising the status of illegals is unlikely to be popular any time soon. Although, to your point, the networks in the US do seem to like to get the radicals on air to make a story more exciting than it really is. Today, this is not even news, so perhaps it is all a storm in a tea-cup, and BofA, as you say, will now be able to make hay...

[Eric Renz]

The bankers here all seem pretty smart. Still, I bet many of them thought investing all that money in gas-fired electricity plants in the 1990's was a fantastic idea except that gas prices trippled (as a result of all those new users) and electricity prices stayed flat. So bankers are not right about everything, and may even be very wrong about things that can be of great importance to their business. About immigration, there are plenty of out of work people in Michigan right now who don't see the value in giving more of their jobs away to Mexicans, either picking fruit domestically or by making PT Cruisers south of the border. To make matters worse it sounds like the non-citizens in LA have an easier time getting credit because they don't even have have to have a an existing credit report. They are plenty of democrats who feel this way. You can find them on the unemployment line.

[James Gardner]

Hi Eric,

I can certainly understand why the immigration issue is a hot one. Here in Europe, we have similar issues as a result of the EU, where the workers of economically less advanced countries are able to move about more or less at will.

I guess my feeling is that the immigration issue is not the one that ought to be associated with the BofA move. Democrats or not, I have the feeling that trying to couple immigration to a particular credit product is inflamatory in the worst possibly way. Whether people from Latin America are able to get credit is immaterial to whatever policy decision the present administration makes on these matters.

On the other hand, you raise the issue of the ease of citizens getting credit compared to illegal immigrants. I'd agree with you, excepting that the bank seems to price its card product more highly than for those who *can* demonstrate a credit history. So, in other words, it is just another class of sub-prime lending.

[Ken]

You don't feel qualified to discuss the illegal immigration of Latin Americans, but you support them breaking the law to get into the U.S? How is that possible?

This isn't about defending the rights of illegals or even providing them with the means to support themselves financially. It has everything to do with law breakers, people who are cutting line in front of other law-abiding people who want to do the right thing.

I'm not saying that U.S. government officials aren't to blame. They made this mess and left it unattended for far too long, making it difficult, but not impossible to correct though.

No, there is nothing good about this program and only serves to erode the American way of life. I'm the first one to admit our culture could stand improvement, but no country deserves people abusing their system.

[James Gardner]

Hi Ken,

On no account do I support illegal immigration, and breaking the law is never acceptable.

But I think the point I was making is that the question of offering illegals credit *is not* the same question as whether illegals are allowed to enter the US.

The real question is what is the standard of credit wothiness that should be applied to individuals, *regardless* of immigration status. If you can't show a good credit history and otherwise make the grade, then you pay more. BofA *are* charging more under this programme.

I've gone over a lot of the published materal on this move by the bank since I wrote this post, and I'm realy challenged to see the connection between the BofA move and an erroding of the American way. Presumably, such errosion comes from a dilution of the cultural values held dear by Americans, and that happens as the demographics shifts.

So, for this argument to hold up, in my view, it would be necessary to show that offering illegals credit *encourages* more illegals to come. That may be the case, I suppose, but I'd be surprised to hear of people crossing the boarder just to get a (very expensive) credit card.

[Ron Shevlin]

James --

I'm staying out of this debate/discussion, put thought I'd point you to this Reuters article about (supposedly) how BofA is defending its program.

http://www.kpmginsiders.com/display_reuters.asp?cs_id=181579

A couple of things caught my attention:

1) The coalition calling for a boycott has hundreds of emails and 11k signatures from people who would "cancel accounts or move mortgages". Move mortgages? You mean, the ones that BofA has already sold off to someone else for collection?

2) The director of the coalition was quoted as saying "what BofA is doing is illegal, or should be". So hold on -- he's not sure if it's illegal? But instead of lobbying law makers to change the law, he'll organize a boycott.

[James Gardner]

Hi Ron,

Those points are good ones, and I especially liked the article you pointed to. There, at least, there are rational arguments both for, and against.

[Ken]

Hi James,

Thanks for clarifying. I'm glad we agree that breaking the law is never acceptable. But that's where the debate should end because if it weren't for people breaking the law to get into America, we wouldn't be having this discussion in the first place.

Regarding reports on eroding the American culture: again, we agree on that because I surmise none exist. However, I believe that one of the reasons they don't exist is because of the distractions the media is generating. "Look at the poor illegal immigrants who don't have a good life back home," some may say. Others, "we must have compassion for them." Combine all that with the politically correct moniker "undocumented residents" and you end up with a show of smoke and mirrors designed to keep you from figuring out that the real issue is they're here wrongfully.

Regarding the concept of BoA's program being used to attract other illegals: I should have clarified. True, that's not enough for people to cross the border illegally, but it does provide those who are here hope and incentive to stick around. If they can get credit cards, why stop there? Why not other special privileges? The problem with that line of thinking is it soon transforms to people thinking they're *entitled* to things that don't belong to them.

And lastly, you say, "...and that happens as the demographics shifts." Yes, it does, but consider the makeup of those demographics -- illegal immigrants and their sympathizers. Again, if they were here legally, then no problem because they have a right to have their voice heard. But because the demographics are made up of those who don't respect our laws, who enjoy the benefits my tax dollars pay for (like healthcare), who expect America to bend to their will, then I'm sorry, what you have there is a house of cards. When the winds of truth finally come along and blow it to the ground, people will realize that it was all because it didn't have a good foundation to begin with.

Last summer the illegals and their sympathizers gathered across the nation to have the Great American Boycott. It was a huge media circus which you might have gotten wind of across the pond. :) They left their homeland to come here in search of a better life (illegally, mind you) and they wish to do it harm by boycotting American businesses just to show their strength? Not only is that telling of their state of mind, but it does nothing to win their case.

Didn't mean to get off on a tangent, but I was just trying to demonstrate the real focus here. It has less to do with a bank giving a bunch of criminals (because they crossed the border illegally) credit cards, and more to do with the fact that the criminals shouldn't be here in the first place. No matter what the argument, it always comes back to that.

Thanks for your endurance in reading this! :)

[James Gardner]

Hi again Ken,

Thanks for taking the time to write such a long comment. For others reading here, I've updated my post to point to Ken's blog where he also puts his views on this subject.

[Ozrisk]

James,
To me, the question comes down to a few simple ones:
1. Should the BofA be an arm of the INS?
2. Is the fact that they are / are not going to be able to get a credit card going to deter a prospective illegal immigrant?
3. Will the fact that the previously unbanked now are joining the ranks of the banked have other effects?
On 1 - I think the answer is clearly no. I do not believe that the BoA should be even trying to make calls on the legal status of prospective customers.
On 2 - this is clearly a nonsense. I cannot imagine a prospective illegal waiting at the border and deciding not to cross on the basis that they will not get a credit card.
On 3 - there is a interesting series of issues. One that springs to mind is anti-money laundering. The more people we exclude from the legal banking system the more we leave in to outer - increasing the volume of transactions through the 'irregular' channels often used for money laundering or crime (and terrorism) financing. With a large amount of noise through the irregular sector, picking out the really bad transactions becomes harder.
The more we bring in from the cold, the easier the cold is to monitor.
Sorry, Ken - I cannot agree with you.
I hope you do not mind me cross-posting this comment elsewhere.

[llyons37]

I believe there was a similar uprising about banks that will open deposit accounts using the Mexico Matricula ID. That has pretty much passed and so will this. I'm happy to see this innovation coming from such a large bank. Normally this type of risk & political issue has been delegated to small neighborhood banks that are in-touch with their communities. Sure some stupid customers will bolt, but the overwhelming majority are indifferent. When this becomes more widespread, they'll see who's stupid when they can't find a bank that does not do this.

I see the drive for this for the following reasons (in no particular order):

1. More checking accounts! Think about all the deposits and new accounts they will attract! Maybe not much Net Interest Margin but naturally fee income will go up. There are customers who want this. They don't want to be illegals and want to stay, work, and assimilate to the American culture.

2. A new stream of revenue. I totally agree with Mr. Garner comparing this to sub-prime lending.

3. Establishing brand loyalty amongst immigrants. If this program sticks, you can bet that this will be the first bank that new immigrants go to.

4. Retention of current customers by expanding the number of products consumed per household. See also more revenue.

5. Fox News is sensationalism. In this example they title the article that BoA is targeting illegals and then relents to calling people with out ssn's, 'typically illegal.'

[Ken]

Hi Ozrisk,

Sitting down? :)

Perhaps I'm misunderstanding your views, but I'm not exactly certain. Are you *for* illegal immigration and all that it entails? From what I gather, your response echoes that of the mainstream media who are overlooking one very important and critical factor: people who cross borders illegally are criminals. Period. End of story. Once that simple point is embraced, all other arguments turn to dust.

To put it another way, let's say you're trying to light a candle. Each time it's lit, someone behind you keeps blowing it out. You know this and you're frustrated by it, but you choose to ignore it and are determined to keep that flame lit, doggone it.

If you had simply told that person behind you to go away, then you would have saved yourself a heap of frustration (and matches). That person represents the illegal immigrants. What we need to do is tell them to go back home, get in line like everybody else, then and only then, will they have a voice in our culture.

Your response to #1: Please clarify. You're telling us that anyone should be able to walk up to any business and apply for credit, for a job, for whatever, without providing proper documentation that says they're okay to do business with? Would *you* put your hard-earned money into that business? I'm not a business major, but I am a thinker, and I know that if a company does business with someone without doing their homework, then they're an accident waiting to happen, which will ultimately hit their pocketbooks. It's not about making the BoA a branch of the INS, but individuals as well as companies have the responsibility to do their homework and to uphold the laws of their land. You don't have to be in the INS to do that. :)

Your response to #2: I think perhaps you skipped over my earlier response. Please review.

Your repsonse to #3: I mean no offense -- really, I don't -- but are you serious? Gosh, I hope I'm misunderstanding you (and forgive me if I am) but you're actually suggesting that it would be in everyone's best interest if they all join a bank because, well, they're going to do business anyway, so it might as well be in a bank where their illegal transactions can be monitored? Please tell me I'm mistaken. Surely we can agree that organized crime is much smarter than that. But with illegal immigrants, we're not talking about organized crime -- oh, they're organized all right, and they are criminals, but not organized crime in the purest sense.

We can agree to disagree. :)

[Ken]

Hi llyons37,

This is clearly a topic we all feel passionate about and, from what I can tell, is one that is rooted in two different ways. On the one hand, we have me who is for upholding the laws and the integrity of a way of life. And on the other hand, we have those who merely focus on the revenue it generates. I find this shocking to say the least.

To think that the almighty (insert currency here) is justification to overlook the impending doom we face as a result of these actions is downright appalling.

More checking accounts? New stream of revenue? Brand loyalty among immigrants? (By the way, I noticed the absence of "illegal" in front of that. Was that an oversight?) What about cultural identity? What about loyalty to one's country? What about making laws and enforcing them? Do those mean anything to anyone?

And about your comment of "stupid customers bolting" -- no, no...not stupid, just the ones who see this thing for what it really is. In the long run (and I do mean long because efforts like BoA's and their ilk will surely not be ending any time soon), it will be the companies and the people who do business with them who will ultimately wish they hadn't.

As I pointed out in my earlier comment, it sounds like someone's candle is being blown out. We need to not allow ourselves to be distracted, to see through the smoke and mirrors, and that means to focus on fixing a problem, not how we may profit from it if we simply look the other way. :)

[Ozrisk]

Ken,
Yes, they are committing an illegal act when they cross the border (not being a lawyer I am not sure if this is a misdemenor or a crime) and yes, this is not acceptable.
The question here, however, is not what to do with them if the INS or the police catch them. The question is what should a bank do if they present and ask to open an account. To me at least, a bank is not responsible for determining their immigration status. Simple lack of a social security number does not mean that someone is in the country illegally. Canadians, for example (some of whom may be latinos) are able to work in the US, as are we Australians - and neither of us will have Social Security numbers. We are also allowed to open bank accounts there and seek credit cards.
So, simple non-possession of a social security number, (or even unwillingness to present one, as some libertarians do) does not mean that the person in the bank is in the country illegally and should immediately be turned over to the INS. Yes, there is a higher risk that your customer may be thrown out of the country at a moment's notice - but this is just an increase in the risk of any lending, easily coverable by an increase in the interest rate, or by requiring higher security.
On your response to #1, then - yes, provided they were pricing that risk correctly.
On your point regarding #2 - they are not entitled to a credit card. They are allowed to apply and the bank is entitled to reject or accept. No entitlement to a card there.
They hang around now, with or without a card.
On your response to my #3 - I am serious. Their transactions are not illegal, even if their presence in the US is. It is still legal for an illegal immigrant to buy a loaf of bread or to send money to a relative in Mexico. If those transactions go through the formal channels they can be tracked as part of normal business. That is better than having those transactions go through "non-official" channels. I have done a fair bit of work on anti-money laundering and the position is clear on this - the more transactions that go through the banks the better.

[llyons37]

Thank you for response Ken and you are correct that it is a passionate subject for some. We can debate the illegal immigrant topic another day and another blog. But for starters, it's always about money. We're all in it for the money. The immigrants, the banks, the politicians, etc... Like it or lump it, that's the way it is.

Immigration is a huge issue in America today, no if's, and's, or but's about it. Small community banks have been lending to non-documented people in our country for a while now. What is new is the national bank moving in on the action, which might start spelling even more trouble for the small banks. Our government needs to make a decision on where they stand. And while they wait to do that, BoA cast their vote. I interpret it as saying this, 'Hey Congress, this is a touchy subject and all but here's how we see it. They're here, they're probably staying, so we're going to operate as if they're staying. And our Political Action Committee dollars will be asking you to find a solution for them to stay too. Let us know if we run afoul of any laws and check out our earnings report along the way too.'

And our laws are not written in stone. Remember the ones that didn't allow women to vote? How about the Prohibition and not counting black people as citizens? They all seem silly in retrospect but at the time people were against changing them too. Hard to imagine denying people civil rights.

[Ron Shevlin]

I thought y'all might appreciate seeing another opinion on this:

http://www.bankstocks.com/article.asp?type=1&id=9881303

[Joe Schneider]

To those who supported BOA's decision to extend credit to illegals, who are terrible credit risks for oh so many reasons, all I can say is "I told you so." Unless you consider the subprime meltdown good for the economy.

[BankOfAmerica]

"To those who supported BOA's decision to extend credit to illegals, who are terrible credit risks for oh so many reasons, all I can say is 'I told you so.'"

Sure, they can lend money to whomever they want, but I'll stand here an laugh when it comes back to bite them in the ass ;)

[i]

Whoever alleged this also thinks that illegal immigration is good for socilal security, the economy, and the nation as a whole. I think it is blatently obvius that these folks think only in the near term. No nation can stand, as a coherent nation without control of it's borders. Please if anybody can name one , that is ONE IN ALL OF HISTORY!!!!!!!Ultimately this sort of policy results in destruction of infrasrtucture as a country is limited , and always will be by it's natural resources and the "more people the more sorrows on the land".