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#2226408 - 11/27/19 02:20 PM Cash Secured Loans
burkemi Offline
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Joined: Nov 2013
Posts: 463
I am reviewing our portfolio of CD secured loans. We are pulling a credit report for every loan we extend. Since the loan is decisioned based on the collateral, do we even have a true "permissible purpose" for pulling a credit report? An 800 credit score receives the same rate structure as a 500 credit score (+2% of the CD rate). There is virtually no risk involved so I'm having a hard understanding the need for a credit report on these loans.

Does anyone else pull credit reports for these loans? Am I over-thinking this?
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Lending Compliance
#2226413 - 11/27/19 03:22 PM Re: Cash Secured Loans burkemi
Richard Insley Online
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Richard Insley
Joined: Oct 2000
Posts: 9,982
Toano, VA
Legitimate concern. Also, add fair lending to your list. When there is zero credit risk, there are zero reasons why there should be ANY difference in the way these borrowers are treated or priced.
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#2226417 - 11/27/19 03:50 PM Re: Cash Secured Loans burkemi
Rocky P Online
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Posts: 7,204
Florida
Many years ago, I worked for an Edge Act Bank in the Miami area (only catered to foreign customers). One loan officer made a CD secured loan for $2,000,000, secured by 20 x $100,000 CD's and 2 x $250,000 CD's, all of which were endorsed to the bank, and in our collateral vault. He was therefore over-securing the loan by a half-million dollars. After a few weeks, the LO was getting a bit nervous on the amount and asked an attorney for an opinion if the loan was iron-clad.

The attorney came back with a 7 page letter indicating those cases where the bank might not be secured. Some issues included cash not declared when entering the US, tax liens, and a whole litany of similar things, etc. While those situations are unlikely, a credit report may help. Some banks required it for all loans - others excluded loans amply and entirely secured by bank deposits. Make sure that it is in policy, documented why it is there, and like Richard mentioned, done the same in all cases.
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#2226426 - 11/27/19 04:42 PM Re: Cash Secured Loans burkemi
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 76,962
Galveston, TX
I concur with Rocky. An IRS lien (which 9 of 10 times will show on a credit report) will trump your lien even if you have possessory collateral. If you try to make the case that it doesn't trump it, it will take you years of fighting the IRS for it.
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#2226439 - 11/27/19 05:35 PM Re: Cash Secured Loans burkemi
burkemi Offline
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Joined: Nov 2013
Posts: 463
Thanks for the responses!
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#2226461 - 11/27/19 08:18 PM Re: Cash Secured Loans burkemi
HRH Okie Banker Offline
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Joined: Jan 2003
Posts: 3,070
Oklahoma
Weren't tax liens deleted from credit reports 2Q18? From all three of the majors?
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#2226485 - 11/28/19 06:14 AM Re: Cash Secured Loans burkemi
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 76,962
Galveston, TX
Well, you know, you are absolutely correct. I forgot all about that piece of wisdom the CFPB instituted. Curious as to what banks might be doing for other public record information searches other than a credit report. Maybe it helped the consumers, but it has created significant risk to the lenders.
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#2226499 - 11/29/19 02:39 PM Re: Cash Secured Loans rlcarey
Gertie Offline
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Joined: Jan 2016
Posts: 55
The provider we use for credit reports offers the option of paying for an additional service (LexisNexis) which includes judgements as part of the report. It is pretty good, although I need to add that occasionally loan officers complain about the report not updating information on judgements (paid).

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