Conflicting Rules
Question: When one office of a regulator says one thing and another office in the same regulator says something that conflicts, what do we do? The example in hand is keeping copies of identification documents such as a driver's license in the loan file. The CIP rules say this is ok and Regulation B prohibits it. Which rule prevails?
Answer: Conflicts in rules occur more often than we'd like and the conflicts can make compliance very difficult. In the particular example you cite, there are some important differences between the rules. On the one hand, you have the drafters of the CIP rule thinking of ways to identify customers. In that context, looking at picture IDs seems to be a good idea. Making a copy to prove you looked at it also seems like a good idea. So the designers of the CIP rule said "sounds ok to us."
Enter Regulation B and concerns about discrimination. One of the primary controls for preventing discrimination is to prohibit the creditor from learning about and having access to information that could be used to discriminate. This includes information about race, ethnicity, and gender. Regulation B prohibits creditors from collecting this information in most credit applications so that it cannot be used to treat the applicant unfairly. Only for loans that require heavy documentation - mortgage loans - is the information required so that examiners can monitor the loan decisions.
On the one hand, there is the CIP rule which says that collecting a copy is reasonable. On the other, is Regulation B which says that in the lending context other than mortgages, collecting the information is illegal. Regulation B's clear prohibition prevails over the CIP "seems reasonable" standard. The answer is don't collect copies of picture IDs and place them in loan files. Use another method to verify the CIP procedure.
Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 8, 8/04
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