Borrower wants his LLC to borrow money for home improvement. The purpose of the $ is a consumer purpose. I'm sure the borrower's idea came from our LO. Comment 9 to 1026.3(a)(2) seems to read that this loan is exempt from Reg. Z's disclosure and rescission requirements. Am I reading this correctly?

A consumer loan to a business entity is subject to RESPA and a GFE and HUD-1. If this was the LO officer's idea, he should be fired for attempting to give legal advice to a borrower. Under what circumstances would a business entity improve a consumer's house? How are they ever going to account for such a transaction in the business records? Nothing like piecing the veil of the legal entity and thus destroying any protections afforded to the consumer, as the legal entity is no longer separate from themselves.

I don't care for the tactics of the LO either.

Let's assume it's a small 1 person LLC and says "well it's just me anyway so what's the difference?"

A. The borrower gets into financial trouble. Talks to his attorney and says the mortgage is really hurting him. Had he known the terms from a consumer perspective he'd never have done this, but the LO recommended it. UDA(A)P!
B. The LLC prospers and he can sell it and get out, except for the mortgage debt. So he go's back to his attorney and we repeat A.

He is essentially taking away the consumer's rights.

Related to this topic, we are finding commercial customers that have a consumer HELOC using it for business purposes, such as advancing to cover overdrafts in a business account.

From a compliance perspective, the HELOC originated as a consumer loan and therefore disclosed properly. What are the risks in allowing consumer purpose funds to be used for business transactions? Having trouble coming up with a reg citing.

Once a consumer HELOC is made, what the consumer actually uses the funds for is really not in the lender's control. You are limited to any actions that you might think about taking under 1026.40(f). So probably, unless you think there is some fraud involved, your hands are pretty tied.

rlcarey - That was my initial thought, since we don't monitor how the funds are used after origination.

Can you elaborate on being limited to any actions under 1026.40(f)?

Well, I think that section is pretty clear on what you can and cannot do once you make a HELOC to a consumer.

https://www.bankersonline.com/regulations/12-1026-040#f