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#1789632 - 02/27/13 04:08 PM Indirect Lending - Implement Dealer?
Beagles22 Offline
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None of my banks have ever done indirect lending. I heard through the grapevine that one of them is planning to start, very soon, in way of purchasing loans from an implement dealer, or offering financing directly through the dealer. I know there are specific auto indirect lending rules that I need to look at most likely, will those be the same rules for this? Or if they are commercial are there different rules?

I appreciate any guidance you can give me. I am really behind the 8 ball on this one as I was completely unaware of this, and now find out it is coming quickly, and I have absolutely NO background in it in my 12 years in compliance. THANKS!
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Lending Compliance
#1789646 - 02/27/13 04:20 PM Re: Indirect Lending - Implement Dealer? Beagles22
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#1789665 - 02/27/13 04:56 PM Re: Indirect Lending - Implement Dealer? Beagles22
Richard Insley Online
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Toano, VA
What kind of "implements" does this dealer sell? ("Mass destruction" and "farm" come to mind.) Will your bank finance the sale of the entire product line, or just certain types of "implements"?
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#1790322 - 02/28/13 08:41 PM Re: Indirect Lending - Implement Dealer? Beagles22
Beagles22 Offline
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Thanks Southern! I will take a look, FDIC should be on the same page (or at least on the same book)

Looks like they will finance the purchase of the tractors and attachments? Does that help?
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#1790334 - 02/28/13 09:04 PM Re: Indirect Lending - Implement Dealer? Beagles22
Dan Persfull Online
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Looks like they will finance the purchase of the tractors and attachments? Does that help?

You will have to establish a way to document the purpose of the loan. I know several people with several acres around their homes and they buy small to medium sized tractors from our farm equipment dealers with mowing, hauling, snow plow, and other attachments for the tractor they use for the maintenance of their property. These purchases are consumer purpose loans and do not qualify for the agricultural exemption from Reg. Z. So, again you will have to ensure all loans from this dealer are not automatically treated as an agricultural purpose loans and make sure where necessary the proper Reg. Z disclosures are provided.
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#1790436 - 03/01/13 12:50 AM Re: Indirect Lending - Implement Dealer? Beagles22
Richard Insley Online
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The OTS exam manual excerpt is limited to the safety & soundness considerations. On the regulatory side, your main concerns will include fair lending and TIL.

There could also be state-law concerns. Hopefully, your counsel will address these issues as part of the document review. You don't want to make a move until each and every document and contract is reviewed by counsel. Don't take anything for granted.

You'll also need to review the documents for Reg. B purposes. Then you want to see what's going to be printed on the documents. If the terms of the dealer's retail lending are plain vanilla, Reg. Z shouldn't be a problem--but you won't know that until you do some validation testing of the dealer's document generation software and some sample deals. If the dealer mainly lends to farmers and others with seasonal cash flows, you may find that the retail loan repayment terms look a lot like business loans and create TIL headaches.

If the dealer's going to take the credit applications, order CBRs, and make credit decisions, add FCRA to the list. You may not be liable for adverse action notices and the liability for errors, but think through that process to be sure you know where you stand. Nobody needs a new source of Reg. B problems.

Don't allow the dealer to price loans any way it wants. Set a buy rate and a range of acceptable rates that will be charged the borrower. As the paper starts to flow, begin monitoring for pricing disparities (especially gender and age) and watch for evidence of spousal cosignature requirements.

I've probably forgotten a few regulatory risks (and don't know anything about recently implemented regs), but no list is complete without money laundering and BSA. Large super-expensive field tractors have been used in the placement of dirty dinero. Equipment was purchased for cash (or possibly financed and payments were cash) and then shipped out of the country where it was resold in apparently legitimate transactions which resulted in clean balances in foreign banks.

Keep track of the time and cost of supporting this new business venture. Ideally, these costs should hit the expense column for the lender or business unit that came up with the idea. If lenders are allowed to bury some of their costs in central office expense accounts or elsewhere outside their profit centers, they look like heros when the truth is somewhat less rosy.
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#1790770 - 03/01/13 08:43 PM Re: Indirect Lending - Implement Dealer? Beagles22
Beagles22 Offline
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Thanks all!! I appreciate your help. Let the digging begin!!
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