It was recently brought to my attention that there are loans being made in our indirect lending line of business that are secured by vehicles/trucks/semis etc that are being used for business purposes. They are underwritten by us, signed on our indirect consumer loan notes and we are taking the titles as collateral. My concern is that they are being signed on consumer notes with consumer disclosures and being reported on the call report as consumer loans. I have researched and cannot find anything in the call report instructions that addresses indirect lending, let alond indirect consumer lending vs indirect business lending. I have two questions: (1) How should these loans be reported on the call report? and (2) What are the consequences for under reporting these loans for CRA?

Can you explain in more detail the mechanics of the transaction? It sounds like the dealer is processing the paperwork and then discounting the notes with your bank. Do you offer the dealership a line of credit facility whereby you take the financed paper as collateral. Does the vehicle purchaser sign a note to you or to the dealer? Please provide a complete description of the arrangement. The description in your original post is confusing.

I discovered that the COMP Call Code instructions were changed effective 3-31-2011 so that automobile loans (both direct and indirect) have their own code separate from consumer loans. The new instructions indicate that if the auto loan is for business/industrial or agricultural purposes it needs to be coded under 04A0or 0300 for small business/farm. The dealer has the purchaser sign on my institution's indirect consumer loan paper. That resolves my first question, but could you give me guidance on the 2nd one. What are the consequences for under reporting loans to CRA?

If a large number of loans are not included that should have been reported, regulators will make the bank gather the required information and resubmit. You will also be expected to explain how you will avoid having such a problem from occurring again. Data integrity (inclusion of all required loans and accuracy of those reported) is an important part of reporting.

Not to mention one of the biggest consequences for under-reporting loans on your CRA-LR - You're shooting yourself in the foot for CRA performance!

You went to the trouble of actually MAKING a loan to a business but aren't taking any credit so your CRA Performance looks worse than it really is. (Unless all of those loans were made outside your Assessment Area in which case someone has some 'splaining to do.)

I used to get push back all the time from lenders when I was doing a final scrub on loans for the CRA-LR. I would call them about a certain loan - perhaps to verify purpose, or revenues, or address where proceeds were used, and the lender would respond with something like "Well that loan already paid off. Do we still HAVE to report it?"

HEAD/DESK! (In place of Loan Officer head/smack!!!)