How is everyone treating discounted lease transactions for CIP purposes? In our scenario, a leasing company (lessor) comes to us with a lease transaction they have signed with a lessee, for example, ABC Bus Company (lessee). The lessee is using the leased equipment, (i.e., buses purchased owned by the lessor) and is responsible for making the payments on the lease to the lessor. The bank loans money to the lessor, who signs a promissory note with the bank, and then assigns the lease to the bank. So now the lease payments from the lessee (ABC Bus Company) come directly to the bank. Most are done without recourse so we can't go back to the leasing company. So who is our customer? Our promissory note is with the lessor - but we rely on and analyze the financial strength of the lessee. Should we require the lessor to CIP their customer, the lessee - and hand the information over to the bank - and then we would have to retain it for 5 years after the loan closes? Most of the lessors are not federally functionally regulated - so the reliance provision of CIP will not apply. The bank would be ultimately responsible. Or can we just CIP the lessor - since they are our customer - as evidenced by the promissory note and our direct dealings with them?

Not much interest in this question! I'd like to revisit the topic, because we want to know if the leasing company (not regulated by a Federal regulator)must provide us with CIP on their customer.

OK - one point of clarification - are leases being purchased by the bank or are they just collateral for loans to the lessor?

The statement was made:

" The bank loans money to the lessor , who signs a promissory note with the bank, and then assigns the lease to the bank. So now the lease payments from the lessee (ABC Bus Company) come directly to the bank. Most are done without recourse so we can't go back to the leasing company. "

How can this be??

If you are purchasing the leases, I would suggest that you treat this situation similar to buying indirect paper. The preamble to the final rule talked about requirements when dealing with indrect paper.

Final Rule