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Question & Answer
Question: Can we renew a loan to a customer with a poor payment record or problem credit history when we wouldn't make a new loan to an applicant with the same credit problems?
Answer: Yes - probably. When you renew an existing loan - or rewrite it - you have slightly different considerations than when you make a new loan. When you make a new loan the primary risk question is how much is the bank risking by letting money out the door? When you are asked to renew a loan, the money is already out the door. The question becomes how much can the bank get back? If the bank stands to recover more by renewing the loan than by attempting to collect it, the decision to renew the loan should stand up to any fair lending analysis. The bottom line here is the bank's bottom line.
Copyright © 2000 Compliance Action. Originally appeared in Compliance Action, Vol. 5, No. 4, 5/00
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