First, let me say I have read most of the posts on CIP treatment of purchased loans and I have read a lot of Q&As on the subject, but I respectfully disagree with most of them.

Maybe I’m dense, but I’m still hung up on this so-called “purchase of assets” exemption in CIP. The rule says (ii) Account does not include: (B) An account that the bank acquires through an acquisition, merger, purchase of assets, or assumption of liabilities.

Every one of those terms is normally associated with mergers, acquisitions, and purchase and assumption transactions. In other words, those terms are used in the context of one bank taking over another bank or a bank making block purchases of assets and assuming liabilities (usually purchase of assets or deposit accounts of a branch), not purchasing individual accounts like loan participations or individual mortgage loans.

My next question is “Why would we not want to follow CIP rules on purchased loans?” If we are putting the loans on our books, wouldn’t we want to know the identity of the customer? If the originating institution verified the identity of the customer, why can’t they share that information with us? If the originating institution did not properly identify the customer and we buy the loan, aren’t we responsible for the failure to obtain the identification?

If I knew anybody at FinCEN, I would call and ask, but I do not have a contact. Can anybody clear this up for me?

No responses!!! This is not good. Can somebody at least point me to a contact at FinCEN so I can find out the answer?

OK, I'll bite. The verification of customer ID is targeted to transactions initiated by the customer. So, if someone enters the bank and asks for, say, a loan or deposit, the bank is required to verify the identity, on a risk basis, of that customer.

Loans purchased by the bank are not transactions initiated by the customer, so it is not the PURCHASING bank's responsibility to verify the identity of the borrowers. But you raise a good question by asking why wouldn't you want to follow CIP procedures on purchased loans. The answer to that is that under safe and sound banking practices, you would want to do some due diligence before buying the loans. It only seems logical to me that you would, therefore, want to ensure that the originating bank knew to whom it was lending, and at least obtained the name, address, SSN and DOB of the borrower and somehow verified that.

So, from a safety and soundness, or prudent banking standpoint, you are correct. It's just that doing that isn't required under CIP. AR.

You do not need to call FinCEN. The CIP regulations were issued on an interagency basis and your primary federal regulatory agency is empowered to evaluate your compliance with its "program" regulations. Call them.

Transferred loans are not considered "accounts" like guarantors are not considered "customers." In both cases, common sense and decent underwriting standards would dictate that you identify them adequately. However, CIP does not. That exclusion doesn't mean you forget common sense, only that you do not have to document your efforts and keep the records for five years.

I'm not always right, but I'm not always wrong either. I did contact my regulator and here is the response I got.


The purpose of the exclusion was really for FDIC-driven "purchase and assumptions", but now the exclusion is being used for other types of purchased assets where the customer is not initiating the transaction. This can be very confusing, but generally the exclusion does not apply to transactions where the third party is really acting as agent for the bank. So in the case of the car dealer or mortgage broker, if the bank is really making the credit decision and funding the loan, then the third party is really not a third party but an agent. The exclusion could also apply to loan participations, but not in the case where the bank is really a co-lender/participant. I would say the better example is when you have seasoned loans that are package up and sold in the secondary market, or where loan participations are sold on the secondary market.

So, I was at least half-right. It was originally drafted for "purchase and assumption" type transactions and not other types of purchased assets. Thanks for the replies. I think we can put this to bed now. BTW, I understand interpretive guidance may be out on this by the end of the year. I know, GOOD LUCK ON THAT ONE!!!!!

I have revived this thread in the course of my research on the subject. Can someone explain what this means, "So in the case of the car dealer or mortgage broker, if the bank is really making the credit decision and funding the loan, then the third party is really not a third party but an agent." Also from the recent FAQs (#2) this statement, "If, however, the bank is extending credit to the borrower using a car dealer or mortgage broker as its agent, then it must ensure that the dealer or broker is performing the bank's CIP."

So, if we are making a credit decision as to whether to buy the loan or not, is that the same as "extending credit to the borrower using a car dealer as an "agent"? Can someone please define "agent" in this context?

Ann:
Used in this context, "agent" means someone who acts on your behalf. You are responsible for their actions. Therefore, you need to monitor and determine that they have a CIP that is comparable to your bank and that they verified the DL or whatever they used for ID. Your bank will eventually get all the info it needs to retain for your CIP from the docs you receive from the agent. But you are relying on your agent to collect the info.