Federal Court Affirms Dismissal of DACA Credit Union Indirect Car Loan Lawsuit

The U.S. Court of Appeals for the Ninth Circuit in San Francisco affirmed a lower court’s ruling that Spokane Teacher’s Credit Union was not liable under federal anti-discrimination laws for declining to purchase an indirect auto loan contract because the credit union never interacted directly with the applicant, a lawfully present immigrant.

In December 2023, the Mexican American Legal Defense and Educational Fund (MALDEF), a Latino civil rights organization in Los Angeles, filed a proposed class action lawsuit against the $4.9 billion Spokane Teachers Credit Union (STCU) in Liberty Lake on behalf of Ana Ayala, a Deferred Action for Childhood Arrivals (DACA) recipient. DACA recipients are issued Social Security numbers, authorizing them to work in the United States, but not necessarily to receive all benefits afforded to permanent residents or citizens.

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The appeals court ruling released last month marked a rare setback for MALDEF. Of the group’s 22 class action lawsuits, 16 have been against credit unions; nine have resulted in settlements.

Since January, MALDEF has filed four proposed class action lawsuits against credit unions alleging discriminatory lending policies against DACA recipients and immigrants. In two of those cases, credit unions are seeking to dismiss the lawsuits through arbitration rather than settling them.

Current DACA recipients may renew their status and work authorization under U.S. Citizenship and Immigration Services regulations. However, the agency is not processing new DACA applications because of ongoing litigation. In January, the Fifth Circuit Court of Appeals in New Orleans ruled the program is unlawful for new applicants but allowed current recipients to retain their status during litigation, according to the American Civil Liberties Union.

In Ayala’s case, she purchased a used car from a dealership in August 2023 and was approved for a $19,800 loan from STCU. Approximately two weeks later, the dealership informed her that the credit union had requested additional documentation, including her Social Security number.

According to the lawsuit, internal communications between STCU and the dealer confirmed that STCU received Ayala’s Social Security information but denied the loan, citing a requirement for proof of permanent residency or citizenship. A letter sent to Ayala by STCU stated the denial was due to “incomplete identity information.” She eventually secured a loan from another lender but at a higher interest rate.

MALDEF filed a federal lawsuit in December in U.S. District Court in Spokane, claiming STCU’s lending policy violated federal civil rights and Washington state anti-discrimination laws.

However, Ayala conceded that she never applied directly to STCU but instead applied for credit through the dealership. The district court dismissed her lawsuit in April 2024. Because Ayala only worked through the dealership — and STCU never directly reviewed or rejected her application — she could not claim she was denied a right to contract.

Ayala argued on appeal that applying directly would have been futile and that the dealer’s indirect loan application should constitute as a contract with STCU. The Ninth Circuit rejected that argument, however, ruling that Ayala failed to raise these claims in her initial complaint and that her new assertions were unpersuasive.

“Any facts Ayala adds for the first time in her briefing are not sufficient to support her claim,” the court stated in its April 11 opinion affirming the dismissal.

“We are disappointed in the decision. We think it’s a wrong decision,” Thomas A. Saenz, MALDEF president and general counsel, said. “It is unlawful to discriminate on the basis of alienage, but this decision had nothing to do with that. It had to do with the very peculiar circumstance of the plaintiff essentially applying to the credit union through a third party.”

Saenz argued that even an indirect loan creates a contract between the borrower and credit union, thereby triggering protections under federal civil rights law, including Section 1981 of the Civil Rights Act.

Since January, MALDEF has filed proposed class action lawsuits against:

Florida Credit Union in Gainesville ($2.9 billion in assets), alleging it denied DACA recipient David Alberto Fonseca of Tampa, membership and an auto loan due to his immigration status. Florida CU denied the claims and raised more than 40 defenses, asking the court to dismiss the case.

Community Choice Credit Union in Farmington Hills, Mich. ($1.8 billion), where Canadian citizen Rebecca Parejo-Yepez claimed she was denied a credit card, HELOC and loan due to her immigration status. The credit union moved to dismiss the lawsuit and to compel arbitration, citing her membership agreement requires resolution of complaints through mandatory arbitration and a class action waiver.

GECU in El Paso, Texas ($4.3 billion), where DACA recipient Carlos Barraza Trevino alleged he was denied an auto loan based on immigration status. GECU is seeking to compel arbitration, citing membership terms Trevino agreed to upon joining in 2015.

Credit Union of Georgia in Woodstock, ($672 million), where DACA recipient Carmen Belem Pimentel Alcocer alleged the credit union denied her a second auto loan in 2024 due to her immigration status. Her case, filed April 3 in federal court, is pending. The credit union has not yet answered the lawsuit and did not respond to a CU Times request for comment.

Peter Strozniak can be reached at [email protected].

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