An officer loaned a customer money to purchase stock in the bank where the customer works. To me, this is a consumer purpose loan.....a personal investment.

The loan officer is pushing back because she is saying that the gains from the stock and the purchase of the stock are shown on schedule (whatever #) on the tax return. I tried to explain that there is no relationship between IRS rules and Regulation Z rules.

Any opinions would be welcomed.

Look in the definitions and commentary of Reg Z 1026.3 - Exemptions. It will walk you through some scenarios.

especially Commentary 1026.3(a)-3
http://www.bankersonline.com/regs/12-1026/12-1026-003.html

Swiggles, the loan officer is grasping at straws. The transaction is a personal investiment and subject to Reg. Z.

Tell the loan officer nice try. It is consumer purpose.

Good...well...that's what I thought. I had already forwarded the commentary to her.

A lot of lenders seem to equate "investment" and "business." That can be a major error when it comes to Regulation Z. There are personal investments and business investments. If someone is a professional investor, you might classify this transaction as a business transaction. But what you've described is most certainly not a professional investment transaction. It's personal, 100%.

In order to bump up against a legitimate business purpose exemption, the loan would have to finance acquisition of a controlling interest in the other bank and the borrower will run the business personally.

The only other way this could be business purpose would be if such a loan were made to an individual who made the bulk of his/her income buying and selling stock. That would be less likely (but not unilaterally ruled out) in this case given that the person has a job at a bank (the bank whose stock was being purchased.)

When you walk through the Reg Z examples you can see where this request would properly fall.

Agreed.

Does the threshhold amount of $53,500 come into play here? Just want to make sure I understand as I have just been alerted that a lender pushed through a loan on the commercial side of processing rather than consumer side. So if the loan amount is greater than $53,500 (current amt) and is not secured by either real property or a dwelling or meets the defintion of an "education loan", can the loan be treated as commercial? And if so, the only exemption is for Reg Z purposes (no TILA Disclosure required), correct?

Any loan can originate in any area of the bank that you want.

If it is a consumer purpose loan, it will always be a consumer purpose loan, in this case just not subject to Truth in Lending because of the exclusion by the amount.

This was a relatively small loan....far less than the current cap.

The threshold has nothing to do with loan purpose, consumer vs business purpose. An education loan is a clear cut consumer purpose loan regardless of what area of the bank originated the loan.

Thanks K. I didn't look to see if it were a different poster w/ a different circumstance.

I just want to make sure that I understand as I will be having a conversation with the manager of our Commercial Loan Ops tomorrow to try to implement a "stop gap" if the loan is really consumer but has been sent to them to process as commercial. We are a larger community bank and have recently centralized our consumer lending. All consumer applications all suppose to flow through our consumer center, where they receive the proper coding, HMDA data is automatically captured and of course the loans are processed using consumer regulations. If an application is processed through our commercial side, there is different coding (for call reporting, investor reporting, etc.) and a different HMDA process. We don't do education loans, so that category isn't my concern. One of the loans that did go though the commercial side and should have been consumer was dwelling secured and I realize there is no exemption for that type of loan. A couple other loans have been identified which are well above the $53,500 threshhold and are not dwelling or real estate secured and are not HMDA reportable. Internal documents state that they are commercial loans, when in fact they are consumer. Coding has been corrected. So before I have this conversation tomorrow, just trying to figure out all of the possible issues that we can have with processing a consumer loan as a commercial. Am I understanding that if above the threshhold, a TILA Disclosure would not be required? Thank you all for helping me understand and to hopefully have this all straight in my mind before my meeting tomorrow.

It the loan is above the threshold and not real estate secured, no TILA disclosure is required. However, there can be clauses in commercial documents that are not allowed for consumer purpose loans under state law (and federal law).

Does the commercial area have consumer legal documents to use? Are there any state disclosures required?

Are these loans being booked for call report etc as consumer? Just booking them in the commercial area does not make them commercial.

Our documents are from Laser Pro for both consumer & commercial and I will check with our Legal Counsel about state laws and verbiage in our documents. Our footprint is in 3 different states. The coding issue has to do with the call report, in addition to investor relations, so that is definitely a point that I will address. Thank you so much for clearing this up. I felt after reading Reg Z and the commentary that as far as the TILA Disclosure we were okay, (as loan as over the threshold and not r/e or dwelling secured), but as you have noted there are other areas of concern. I appreciate all of the comments.

Check if they used LaserPro consumer or commercial. Differences between consumer and commercial documents and loans (besides how the loan is carried on the bank's books) can include late fees, default, collections, waiver of jury trial, confession of judgment, and so forth. Definitely have legal look at the documents.

You are absolutely correct. I hadn't thought about some of those things... Thanks again for all of your input!