Purchased Loans and CIP Requirements

Purchased Loans and CIP Requirements
by Mary Beth Guard, BOL Guru

Question: How does CIP affect loans purchased from other banks?

Answer: The CIP requirements relating to obtaining and verifying information only come into play when a customer is opening a new account. If another bank has made a loan and you are subsequently purchasing that loan, you do not have a situation where a "customer" is "opening a new account" and therefore the CIP rules would not require you to take action. Your own internal program, however, might require you to take some steps to ensure that the original financial institution properly identified the customer. That would be a prudent precaution for risk management purposes.

The prefatory material published with the CIP rules says:
"[T]he final rule codifies and clarifies the 'transfer exception.' Under the final rule, the definition of "account" excludes accounts that a bank acquires through an acquisition, merger, purchase of assets, or assumption of liabilities from any third party. Treasury and the Agencies note that the Act provides that the regulations shall require reasonable procedures for "verifying the identity of any person seeking to open an account." Because these transfers are not initiated by customers, these accounts do not fall within the scope of section 326."

The original version appeared in the July/August 2003 edition of the Oklahoma Bankers Association Compliance Informer.

First published on BankersOnline.com 4/12/04