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#2117653 - 02/09/17 04:29 PM Loan appl on CD secured loan
4newt Offline
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Joined: Nov 2003
Posts: 277
East Texas
I'm wondering what other banks are doing on CD secured (non-RE) loans. I've had a request for a policy change to waive a loan application requirement on CD secured loans. On the surface, I can see their point. We are loaning borrowers their own money back at a very small rate. But as the water ripples, I see issues. What about pulling a credit report? How do you prove date of application for that (other than new loan date). What about fair lending and disparate treatment? Borrower with CD doesn't have to take time to fill out Appl., but borrower with out funds to be able to even have a CD has to fill out appl. for any money they borrow. That doesn't even cover the many audits that obtain info from applications as I might need them. I can't readily find anything that requires a written application on non-RE loans, but they do cover a lot of information that is often needed. Thank you for sharing your procedures and reasoning.

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#2117691 - 02/09/17 06:18 PM Re: Loan appl on CD secured loan 4newt
Cornfed Turtle Offline
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Posts: 1,323
"...Somewhere in Middle Americ...
Are your CD secured loans underwritten?

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#2117693 - 02/09/17 06:29 PM Re: Loan appl on CD secured loan 4newt
Skittles Offline
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Skittles
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TN
Yes, they are borrowing their own money but there is still risk. I've known banks to lose the CDs due to Civil Asset Forfeiture. What if a CD is pledge that is owned by someone other than the borrower?

Also, don't forget that any loan in excess of $10,000 not secured by real estate is required to have a specific purpose per the BSA regulations.

Those are my initial thoughts on the subject.
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#2117711 - 02/09/17 07:05 PM Re: Loan appl on CD secured loan 4newt
HRH Okie Banker Offline
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Posts: 3,070
Oklahoma
Our policy is no application or credit report required. We do require the loan purpose documented on the worksheet/coversheet. The only time I've seen a loss on this was from a customer that actually cashed in the C.D. (same day) before the hold was put on the CD.
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#2117722 - 02/09/17 07:24 PM Re: Loan appl on CD secured loan 4newt
4newt Offline
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Joined: Nov 2003
Posts: 277
East Texas
Thank you all, and good points. We had discussed the BSA aspect and making sure the purpose is on at least the officer worksheet. I hadn't thought about the Civil Asset forfeiture. We do have all owners sign a pledged asset form. Maybe that will help some.

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#2117730 - 02/09/17 07:38 PM Re: Loan appl on CD secured loan 4newt
swiggles Offline
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swiggles
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Same here.....no application because there is no information on the application that would be relevant to the loan request....no credit report for the same reason. This is ONLY if the applicant is borrowing his/her own money....not if the CD is not owned by the borrower.
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#2117788 - 02/09/17 10:33 PM Re: Loan appl on CD secured loan 4newt
rlcarey Online
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rlcarey
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Galveston, TX
If you aren't pull credit reports on these individuals and they have an outstanding IRS lien, you just made them an unsecured loan, because getting the CD released from the grips of the IRS is going to cost you more time and money than it probably is worth.
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#2117790 - 02/09/17 10:39 PM Re: Loan appl on CD secured loan rlcarey
Peach Offline
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Peach
Joined: Sep 2006
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Out West
Our policy is application required, no credit report, and we still require a write up.

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#2117822 - 02/10/17 02:36 PM Re: Loan appl on CD secured loan Peach
swiggles Offline
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swiggles
Joined: Aug 2001
Posts: 7,351
Quote:
If you aren't pull credit reports on these individuals and they have an outstanding IRS lien, you just made them an unsecured loan, because getting the CD released from the grips of the IRS is going to cost you more time and money than it probably is worth.


Assuming management considers the risk low...small bank, loyal customers. And these loans are small, short term, few and far between, because who ties up large amounts of money at a bank where the return is practically nil.
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