Today's Q&A included:
Q Does a lender have to complete the CIP verification process for loan applicants if the loan is not approved?

A No. Since no account is opened, CIP verification requirements don't apply.

While technically correct, lenders should still complete CIP up front. At least one bank I know of was sued because they processed an application (very large and took months to process) only to discover down the road that they could not make the loan due to OFAC problems. Borrower claimed, amoung other things, that they lost other opportunities to get the financing they needed elsewhere and the bank was negligent in not doing CIP sooner. Not sure how the case ended (if it even has) but I recommend always do your lending CIP up fron.

I agree.

Additionally, identifing your customer up front will help banks identify any red flags in terms of fraud or identity theft.

While I don't disagree that CIPing up front is a good procedure, the fact is that if you don't make the loan, CIP is not required.

How could a bank get sued for not "doing CIP sooner" when someone is on the OFAC list. OFAC is not a requirement of CIP. There must be more to this story. I know there are some strange court cases out there, but this seems very odd.

Not only that, but if the OFAC party were to win in court, they couldn't collect a judgement because it would be blocked.