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How to CIP Your Loan Customer - Lucy Griffin

How to CIP Your Loan Customer
by Lucy Griffin, BOL Guru

Between the old KYC proposal, the examiners dogged emphasis on due diligence, and now the Customer Identification Program, many lenders are struggling with what they need to know about their loan applicants and borrowers.

The application and underwriting process is a natural fit for CIP requirements. Evaluating loan applications should involve determining the identity of the applicant as well as the qualifications of the applicant. However, the application and underwriting process has become casual - too casual. The information needed for CIP should be re-emphasized in the underwriting process. This means taking steps not only to underwrite the application, but also to verify that the applicants are who they say they are and that their purposes are legal.

Regulators have raised concerns about the identification of customers being too lax in the lending department. Lenders may have an inappropriate sense of knowing who the customer is simply because they spend time with documents relating to the loan. The critical question is whether those documents actually identify the customer.

The loan officer may not have actually identified the customer. When was the last time a loan officer asked to see a driver's license or passport? CIP is the time and opportunity to strengthen underwriting procedures by ensuring that the lender collects better information on the customer.

Loan application and underwriting procedures should include steps to identify the customer and determine that the customer and the customer's purpose are legal. In addition to the credit report, the loan underwriting process has several other key resources.

The appraisal provides the lender with information about the property including its location and value. This should be compared to the applicant's request, not only to determine that the property supports the loan, but also to determine that the property is appropriate for the intended use.

One practice that should not be written into your procedures is copying identity documents. When it comes to lending, Regulation B makes such copying illegal. The only exception is loans that are subject to monitoring data collection requirements of Regulations B and C. Any other loans should not have information about customer race, ethnicity or gender in the file.

Action Steps:

  • Use the credit reports to check the background and identity of the applicant. Review the report for any red flags. Look for inconsistencies in the report and between the report and statements of the applicant.
  • Ask for and review identification documents. Compare pictures, information, and addresses. If the document is a passport, check the travel record in addition to the identification.
  • Avoid violations of Regulation B. Do not make copies of identification documents - unless a federal or state lending program requires it.
  • For secured loans, use the appraisal to confirm the customer's information - or to raise questions.

First published on BankersOnline.com 9/8/03

First published on 09/08/2003

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