We are working on a new contract with an auto dealer regarding the "dealer paper" we buy from his lot. If he agrees to "full recourse" on a loan, may we provide him with a past due list on the loans for which he has given recourse? (So he can stay up to date on the status of loans that he is ultimately obligated on.) I think this would be okay, but I don't really want to miss anything when I give the answer to the "powers that be".

I would start with reading the agreements on your note. The notes that we purchase from dealers specifically address this issue.

Thank you for the suggestion, but that brings another question to mind: In what way does your note refer to the agreement? Does it refer to the recourse or does it refer to the recourse and the fact that the dealer will be made aware if the loan becomes more than "x" days past due?

I am at home now, but will try to get you a better answer tomorrow afternoon, Pacific time.

We use to report to dealers also, but we stopped doing it years ago on a loan by loan basis after we had one dealer start calling customers to encourage them to catch up prior to put-back. We would only tell them, for example, of the $5MM in full recourse dealer paper we have from you $100,000 is past due x days. This avoids the privacy issue. They are not aware of the individual customer until the loan is put-back, which does not create privacy issues.

Thank you for that suggestion.

However, how would you deal with it if a Senior Officer had already committed to sending the list with names, etc. Is there anything we could do in the contract to allow this or would we simply need to revert to giving the dealer general information?

Well, I think that the sharing of a list of individual customer information with the dealer on an ongoing basis is the disclosure of non-public information to a non-affiliated third party and I would review your privacy policy to make sure that you have allowed yourself this freedom. If not, you could point the Senior Officer to that and ask him if he knowingly wants to continue to violate your bank privacy policy.

Thank you very much. I'll have that conversation if/when it becomes necessary.

Just out of curiosity, why would a dealer who is offering recourse on a loan and acted as our agent at origination of the loan be considered a non-affiliated 3rd party for that transaction?

I would be very careful in calling an auto dealer your "agent". If you are allowing a dealer to act as your agent, you are opening yourself up to a whole lot of liabilities. They should be originating the loan as a creditor and you are purchasing the loan with a recourse agreement back to the original creditor. As such, after purchase of the loan, the dealer does not have any rights until the loan is put-back by the current creditor.

Thanks. I think I understand now. The dealer is not acting as a true obligor, just a contingent obligor. I would assume in this instance then that the borrower could execute an extension agreement (interest only payment) without the knowledge/consent of the dealer because the dealer is offering recourse instead of co-signing or guaranteeing the debt (in which case it is our policy to have all obligors sign the extension agreement). Unless, of course, or recourse agreement didn't allow this.