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#20844 - 06/14/02 06:01 PM Advancing Money
PAULA Offline
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Joined: Mar 2002
Posts: 5
What are the issues if a loan officer advances new money on a personal installment loan without redoing the note and terms. Did not get customer to sign anything.
Last edited by PAULA; 06/14/02 06:11 PM.
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Lending Compliance
#20845 - 06/14/02 06:30 PM Re: Advancing Money
Bartman Offline
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Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
There's an HR issue, in that you should probably start shopping for a new loan officer...

There's possibly a contract law issue - I'll wager that your installment loan contract doesn't allow for future advances. Often, that's a specialized document that isn't used in general consumer lending (apart from open end credit lines). My point is, once the customer satisfies the original note, he doesn't have to pay any more. The new money isn't covered under the typical installment loan contract. So basically, the customer just received a gift. And you've inherited an unsafe / unsound loan.

The big question in my mind is, why? Is there some connection between customer and lender? If so, then you're talking about a code of ethics breach ("arms-length transaction") and strong consideration of a SAR.

I don't know enough about the accounting issues to comment on how this transaction would be handled by your CFO. You probably also made changes to the customer's payment book that aren't supported by loan documentation. Based on the limited info you provided, I think you have a lot to sort out.
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#20846 - 06/14/02 07:08 PM Re: Advancing Money
JulieB Offline
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JulieB
Joined: Apr 2002
Posts: 38
SC
Over 10 years ago, at a previous employer, a lender was advancing funds on installment loans. He called it "adding on to the end of the loan." The primary reason was for repair to the auto held as collateral. To make a very long story short, the lender was indicted for loan fraud and the bank incurred numerous charge offs.

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#20847 - 06/14/02 07:50 PM Re: Advancing Money
William Offline
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William
Joined: Oct 2000
Posts: 470
In a location
Not good! You know, this sounds a little like some of the “bertie” loans discovered in the 70’s… Make loans to friends, “pay it back when you can, or need more? Here’s more…”

Oh, BTW that’s one of the reasons we got Reg O handed to us.
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#20848 - 06/14/02 08:18 PM Re: Advancing Money
Andy_Z Offline
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Andy_Z
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Posts: 27,762
On the Net
Key-rect. William is either a student of compliance history or has been doing this awhile.
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AndyZ CRCM
My opinions are not necessarily my employers.
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Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

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#20849 - 06/14/02 08:29 PM Re: Advancing Money
Bartman Offline
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Bartman
Joined: Oct 2000
Posts: 1,191
Springfield
I know Zavoina University (motto: "Mmmmmm...compliance") has enough material to fill the syllabus for "Compliance History", but where will you find the students??
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Opinions are Bartman's, not those of my employer. "A noble spirit embiggens the smallest man."

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#20850 - 06/14/02 09:30 PM Re: Advancing Money
Andy_Z Offline
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Andy_Z
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Oh Bart. The difficulty would be in finding a stadium large enough to house Compliance University. The postings here alone indicate a thirst for this knowledge. But instead of starting up that, which I am sure would be a success, I'll keep my day job and let the historians like Richard I. and John B. handle this. Together they cover more lending and deposit reg material than I ever thought about. Wasn't it Richard that brought Reg. Z in on stone tablets. And John was compounding interest with Roman numerals and an Abacus.
_________________________
AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

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#20851 - 06/17/02 04:01 PM Re: Advancing Money
PAULA Offline
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Joined: Mar 2002
Posts: 5
OK, help me out here. What section of Reg O do I need to be looking at, since I'm new to this?

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#20852 - 06/17/02 05:09 PM Re: Advancing Money
Andy_Z Offline
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The Reg. O reference is to insider abuse. It was this activity that gave us Reg. O in the first place.

The original question was "what are the issues..." and a lack of controls and accounting is a big issue in play here. How do you track the advances, accrue interest on them, properly collateralize any amounts so desired, etc. and will your loan admin system be able to handle it. Is it all done within the terms of the contract?

Also, a look at 226.20 will help you determine when disclosures are needed. It sounds as though the lender is trying to work around the requirements to disclose. One resounding question is why? Is this a customer service issue, lazy, someone possibly hiding something, or just a poor practice.
_________________________
AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

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