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Commercial Lender, Consumer Purpose Loan
by John Burnett, BOL Guru
Guru BIOS
Question: We have a customer who wants to build a second home. The customer doesn't want to go through all the hassles of a construction loan. They do quality for a revolving line of credit. The collateral to be used will be multiple investment properties. The loan officer is wanting to do a business loan. "Consumer purpose" keeps sticking in my mind and disclosures should be required, right?
Answer: God bless the lender, for the lender knows not what the lender is doing.
That sort of telegraphs my response to your question, doesn't it? The purpose of the loan, not the nature of the collateral, governs whether this is a consumer loan. The construction of one's own second home is clearly NOT a business purpose.
I presume that the "multiple investment properties" you've described as the collateral are real property (land and perhaps buildings). If so, the loan will not be exempt from Regulation Z regardless of the size of the loan.
You can structure the loan as a revolving line of credit if you wish, but it will be a consumer loan subject to Regulation Z and other consumer protection rules.
First published on BankersOnline.com 5/2/05
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