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#156514 - 02/04/04 03:19 PM Defining a commercial loan
MackenzieS Offline
Diamond Poster
MackenzieS
Joined: Jul 2002
Posts: 1,722
Oklahoma
Can someone explain to me how banks determine how they classify a loan as commercial? We have loans on the books that are classified as commercial but are consumer loans. The explanation I am receiving is because the individual may have a business lending relationship with us, when they apply for a consumer loan it is categorized as a commercial loan. Does this make any sense at all?

I am obviously missing something because we have classified loans like this for years and I have never heard anything from an external auditor or examiner, but I need to understand this reasoning.

Thanks in advance.

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Lending Compliance
#156515 - 02/04/04 03:38 PM Re: Defining a commercial loan
Little Sister Offline
100 Club
Joined: Sep 2002
Posts: 162
Iowa
The type of loan is purpose driven...what were the funds used for - business or personal. Even if you have business customer if the loan is for personal purposes it is a consumer loan. It's possible the examiners missed it if they are testing all consumer loans on your system. Since they are coded commercial they may not be selecting them. Or they are too small of commercial loans and they are coming in under their radar. Reg Z does give a pretty good definition of what is consumer.

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#156516 - 02/04/04 03:45 PM Re: Defining a commercial loan
Anonymous
Unregistered

RANT WARNING
First of all, a "commercial" loan and a "business" loan are not the same thing, no matter what those **** commercial lenders tell you, they just aren't. To get to the point, lenders like to do special loans for special customers, it might be an unusual payment schedule (which may be difficult to get an APR for) it may be that they want it fast and simple so they give the customer a commercial loan for a consumer purpose. Then they try to justify that it is a business purpose when you are having problems with your CRA reporting.

Yes, been there, done that, still fighting the good fight.
Rant Over - Sorry

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#156517 - 02/04/04 04:05 PM Re: Defining a commercial loan
MackenzieS Offline
Diamond Poster
MackenzieS
Joined: Jul 2002
Posts: 1,722
Oklahoma
Anonymous,
This is exactly what I am hearing. Of course now I am going to have to look into this to see what the truth of the matter is. But it seems that I have seen this discussion before but it was a long time ago and at the time I didn't pay it much attention. Not until it happens to you, huh?

To me it should not make any difference if John Smith owns a company that we have made loans to, if he comes in here and asks for a car loan it is a consumer loan. How could one even begin to classify this as a business purpose loan? The car is not in the company name and it was not for business purposes.

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#156518 - 02/04/04 04:48 PM Re: Defining a commercial loan
swiggles Offline
Power Poster
swiggles
Joined: Aug 2001
Posts: 7,338
I typically see loan officers wanting to classify a loan for an individual to purchase shares of stock as a business loan. No.....it's a personal investment (9 times out of 10!!). Another classic is the tendency by loan officers to think of a loan to pay income taxes as a business loan.....especially if an individual is self employed and has a business trade name.
_________________________
The more you sweat in training, the less you bleed in battle.......

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#156519 - 02/05/04 08:26 AM Re: Defining a commercial loan
Princess Romeo Offline

Power Poster
Princess Romeo
Joined: Jun 2001
Posts: 8,272
Where the heart is
Here is one of my favorite responses from a Commercial Lender:

I found a loan for $20,000 that was used to pay PERSONAL taxes, and the term of the loan was 90 days, interest only.

And of course, there was no disclosure on the thing.

When confronted with this loan, the lender replied "But this loan isn't subject to Reg Z, it's on the COMMERCIAL loan system.

**sigh** The Commercial Loan system was used for any loan that did not have equally amortizing installment payments.

I asked him if I renamed the "Commercial" loan system to the "Free Willy" loan system, would the borrower be required to send a donation to Greenpeace?

The Loan Officer didn't get the joke.
_________________________
CRCM,CAMS
Regulations are a poor substitute for ethics.
Just sayin'

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#156520 - 02/05/04 02:46 PM Re: Defining a commercial loan
swiggles Offline
Power Poster
swiggles
Joined: Aug 2001
Posts: 7,338
Quote:


I asked him if I renamed the "Commercial" loan system to the "Free Willy" loan system, would the borrower be required to send a donation to Greenpeace?

The Loan Officer didn't get the joke.




You crack me up!! Thanx. I needed that!
_________________________
The more you sweat in training, the less you bleed in battle.......

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