I am with a NY bank, FRB regulator, the loan area is starting up an Indirect Loan program, they are being told that the dealers only give their banks a copy of a driver's license, no CIP Form/Notice. Is anyone "turning their head" to the notice requirement and just taking the copy? Thank you

We require our brokers/dealers to provide notice to the customers. With some it is on the application, with others, it is a tent card for the desk, etc.

I agree that it is your responsibility to ensure that dealers are providing the notice. In fact, on page 177 of the BSA Exam Manual - footnote #157 states:

As part of this element, determine whether the bank conducts adequate training for any agents who are responsible for conducting CIP or other BSA-related functions on behalf of the bank.

David, this is a question to a Regulatory agency, and their response:

Are loan participations purchased from third parties and loans purchased from a car dealer or mortgage broker within the exclusion from the definition of “account” for loans acquired through an acquisition, merger, purchase of assets, or assumption of liabilities?

Yes, this exclusion is intended to cover loan participations purchased from third parties and loans purchased from a car dealer or mortgage broker


Based on that, does CIP apply to Indirect Loans ???

If you search this forum using "indirect," you will see many prior discussions. Here's one where David participated.

In essence, if the decision to lend or not to lend was made by your bank, you are responsible for CIP and the dealer acts as your agent.

I want to pass on what just occured at our institution. During an exam, the EIC mentioned that another bank in our state had pressed the issue of whether indirect dealer paper falls within the definition of an "account" under Section 326 of USA PATRIOT Act. The bank argued that these loans do not. To make a long story short. The bank's agrument was upheld. As long as the dealer is not acting in an "agent" relationship with the bank, these loans are excluded from the definition of "account" in 326.

Now, because we have a very large volume of dealer paper, I began to research this for our bank. Our dealer relationship is clearly not of an agent nature. All documentation refers to the loans as being purchased by the bank under the assignment process. In fact, our forms vendor has specific loan documents for dealers that do act in an agent capacity, and hence would be subject to Section 326.
In my opinion, all indirect deals should require some heightened ID verification, as we are not face to face with the customer. Nonetheless, I have with certainty determined that depending upon the legal nature of the relationship with the dealer, indirect loans may not be subject to CIP.

I would caution anyone who decides to pursue this to be very careful that they understand their dealer agreements and contracts. And, the contractual issues may vary from state to state.

There really isn't a lot of ambiguity here. If a bank purchases a loan where it did not participate in the initial credit decision, the CIP requirements do not apply. If a bank actually made the credit decision with the understanding that it would fund the loan, CIP does apply and documentation that indicates the bank is "purchasing" the loan isn't going to change that.

Whether CIP is performed by the bank or the dealer, it still has a positive effect on underwriting; avoiding the process is not going to yield a favorable return.

Ken, interestingly enough, the fact that the bank makes the credit decision was not a factor. The emphasis was on the legal and contractual relationship between the bank and the dealer. In our case, we do make the credit decision. But the dealer is not our "agent" and we do purchase the contract.

Believe me, we are not eliminating CIP efforts on indirect deals.

If you can point to anything that specifically addresses "who" makes the credit decision, please do so. Thanks

Quote:

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...the fact that the bank makes the credit decision was not a factor.

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In what, an anecdote related by a field examiner?

Clearly, banks can contractually agree who is to perform the mechanics of CIP. However, if you can offer something that says the wording of their contracts can be such that neither the dealer nor the bank that agreed in advance to fund the deal must perform CIP, please share it with us.

It's odd that you would choose that language to support the idea that contractual terms can eliminate CIP responsibilities for both parties. It doesn't say that:

2. Are loan participations purchased from third parties and loans purchased from a car dealer or mortgage broker within the exclusion from the definition of “account” for loans acquired through an acquisition, merger, purchase of assets, or assumption of liabilities?

Yes, this exclusion is intended to cover loan participations purchased from third parties and loans purchased from a car dealer or mortgage broker. If, however, the bank is extending credit to the borrower using a car dealer or mortgage broker as its agent, then it must ensure that the dealer or broker is performing the bank’s CIP. (January 2004)

A conclusion that a car dealer who closes a pre-approved loan for a bank, but is not the bank's agent simply because the documents say so isn't supportable.