Bank employee writes a check over $5,000 on his account at the bank where he is employed. The checking account was closed for more than a month when he wrote the check (payable to cash). Obviously the check was returned.

Now the good part-the employer bank approves a mortgage secured loan to the employee (even though he doesn't qualify for the loan) and makes the check good with the proceeds of the loan. The loan is then earmarked for sale to another financial institution.

While the bank did not incur any loss, a SAR would be warranted because the person is an insider, and knowingly issued a check which he knew was no good.

But what happens in the end? Regulator receives a copy of the SAR before the next S&S exam, inquires about it and learns that the employee was granted a loan that a non-employee would not have received. Does this stink of Reg B/Fair Lending violations, not to mention the loan being pawned-off to another institution?

You have got a problem. This should never have happened, as you know. You must file the SAR. How can the bank defend this loan? On the SAR you have to state whether or not the employee is still employed. In the situations where we did not terminate, we have always been able to say that the employee has been counseled and if any reportable activity reoccurs they will be terminated.

It could present fair lending issues if no protected class employee received the same consideration in the same situation.

I think the bank is just going to have to be prepared to answer questions when SARs are reviewed at the next BSA exam. Why was the employee not terminated? (I hope they are not an exec. officer.) Were they at least counseled? That at least gives you something to talk about that might make some sense.