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#2032133 - 08/06/15 05:11 PM Small Business or Consumer?
WreckEmTech Offline
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Joined: Feb 2008
Posts: 154
Texas
I just can't think straight anymore. Just when I get one loan situation down, another one pops up...HELP!

We have a loan that was originally done as a commercial loan for working capital to a gentleman who sold plants out of his home. He has retired due to his health and was unable to pay off the loan. The loan officer renewed the loan with the original purpose still in place, even though the borrower does not operate a business anymore. Is this still considered commercial or should it be rebooked as consumer instead?

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CRA
#2032137 - 08/06/15 05:15 PM Re: Small Business or Consumer? WreckEmTech
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,293
These are always tough decisions and I have seen it go both ways over the years. In many cases, a bank will make a new consumer loan to pay off the debt. In this case, was the old loan satisfied and replaced?

Reg Z says:

6. Business credit later refinanced. Business-purpose credit that is exempt from the regulation may later be rewritten for consumer purposes. Such a transaction is consumer credit requiring disclosures only if the existing obligation is satisfied and replaced by a new obligation made for consumer purposes undertaken by the same obligor.
_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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#2032143 - 08/06/15 05:26 PM Re: Small Business or Consumer? WreckEmTech
WreckEmTech Offline
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Joined: Feb 2008
Posts: 154
Texas
It looks like they have been satisfying and replacing the existing loans with new commercial loans thus far. So if I understand correctly, at the next renewal, the loan officer can renew it as a consumer loan as long as we comply with the Reg. Z disclosure requirements at that time?

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#2032149 - 08/06/15 05:45 PM Re: Small Business or Consumer? WreckEmTech
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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Yes, that is correct.
_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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#2032157 - 08/06/15 06:08 PM Re: Small Business or Consumer? WreckEmTech
WreckEmTech Offline
100 Club
Joined: Feb 2008
Posts: 154
Texas
Wonderful. Thank you so much for your help!

So for CRA reporting purposes, we would still report this most recent loan as a small business loan with a revenue code of 3, correct?
Last edited by WreckEmTech; 08/06/15 06:09 PM.
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#2032178 - 08/06/15 06:55 PM Re: Small Business or Consumer? WreckEmTech
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,293
If that is how the bank made the loan, then yes. Otherwise you would have to redocument to change it. It is on the books as a business purpose loan, and while not exactly correct not the end of the world either.
_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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#2032233 - 08/06/15 08:24 PM Re: Small Business or Consumer? WreckEmTech
WreckEmTech Offline
100 Club
Joined: Feb 2008
Posts: 154
Texas
Thanks again! You've been a huge help!

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