I'm sure this won't be my last question about the final CIP. With regards to the "transfer exception", are indirect loans included or excluded in the final rule? I can't make heads or tails of what it actually says.

My take on this is the definition of "Customer". I would say that an indirect loan is your customer, as you funded the loan and payments are being made to you. So I would say that indirect loans do fall under the CIP rules. We are looking at how to implement procedures for those customers, and it may be tricky. If anyone has any ideas on how their bank is handling indirect loans, please share your thoughts.

Yes they'll be included. You will need to perform your CIP procedures or ensure that the dealer does this. I haven't gone into the whole thing yet as we don't do indirects any more, but when the dealer does this, i.e. someone who is not a regulated FI, you lose certain safe harbors.

This is upstateNY. I can't figure out how to keep responding under my name. Still also confused. In the section by section analysis, 103.121(a)(1), paragraph three includes indirect loans in the definition of "transfer exception". Three paragraphs later the final ruel "codifies and clarifies" the transfer exception. Does everyone still feel that indirect loans are included in the definition of customer?

If they were not, this would be a huge hole in the CIP.

Car dealers are specifically mentioned as is this section from pages 55-58 of the PDF file many of us downloaded so long ago when these rules were released.

The transfer exception, as I currently understand it, will apply when agreements are in place and another FI subject to BSA rules did the CIP. A car dealer for indirect paper won't qualify and while the bank can have them do the CIP, the bank is ultimately responsible. In this case I would suggest an after the purchase CIP check and a look at the possibility of a buy-back arrangement if it doesn't pass.

Our dealers close in our name. Therefore I believe they would not be excluded by the transfer exception. Now, if they closed in the dealer name, and the loan was assigned to us, the exemption might apply.

I believe they are included too. Not wanting to depend only on the dealer performing CIP procedures, we are contemplating using the credit report we pull as a nondocumentary means of verifying customer identification. We also follow-up with a thank you sent to the customer.

Our dealers send us copies of the DL's and insurance card. when they send us the loan package. We pull the CB's prior to telling the dealer we will take the loan.

Which is hilarious since we got written up by FDIC for collecting DL's a few years back.

I'm with Upstate - I think there is definitely some inconsistent language between sections here and the waters around this issue have been left murky at best. At the bottom of page 13, they say that the definition of account excludes accounts that the bank acquires through...purchase of assets...from any third party. This would seem to exclude an indirect loan purchased from a dealer from the definition of account. If it's not an account, no ID verification required. Andy's reference to pages 55-58 seem more to deal with what you need when you rely on someone else to perform the ID verification which you yourself are required to do. In the case of indirect auto loans that may not be applicable at all.

Was anything said by any of the regulators at the ABA seminar that would help clarify?

Murky is it. The footnote to Jim's reference also says that they anticipate these purchases mostly from banks/sellers where CIP is in place.

This needs clarification if you are doing indirects. That said, having a risk based program, what do you think is the right thing to do?

I still believe most financial institutions do not purchase dealer loans. To me a purchase is where you pay another entity for a loan they have made. In our case, and I believe most cases, the dealer closes the loan for the bank after the bank approves it. It closes in the bank's name and the proceeds are made to the dealer after the dealer brings us evidence of title work ensuring our lien is placed. I do not believe this type of relationship fits the exemption. Now if it closed in the dealers name, and they assigned us the loan, then I believe it would be exempt.

To be clear complylady, you are saying the way you do them they are not purchases and you are required to complete the CIP procedures? I would agree to that.

For others benefits, with the dealer initiating the transaction, who do you see as responsible for which part of the procedures? If the dealer does this on your behalf, would you have a buy-back if a CIP check fails?