This is "upstateny". I still can't seem to log in, but have a CIP question. I've skimmed over the threads looking for anything that covers Guaranteed Student Loans and Section 326. We typically never see the student, unless they come into one of our one horse towns for an application. We are the lender until the loan is sold to Sallie Mae. How would we address Section 326 requirements?

Probably with a non-documentary verification system.

Being a recent grad., aren't there requirements that you verify that the student is registered at the School they intend to pay/attend. I think this would be a good place to start with your KYC/CIP requirements. enjoy.

I have been puzzled about this as well. The student obtains a blank application, sends it to their school for completion, and the school sends it on to Sallie Mae who grants the loan. We just loan the money. We never see the student, and the only information we recieve comes from Sallie Mae. It seems to me that Sallie Mae should ID the student, not the bank. I'm really not sure how to handle this. Even non-documentary verification seems unlikely to meet any "reasonable belief that we know the customer" standards.
BC

(Upstate here - still working on my password)I agree with you. Lending through the NYS Guaranteed program, and subsequent servicing and sale to Sallie Mae, involves only paper, electronic transations and accounting. These are faceless transactions. We are awaiting an answer from Sallie Mae. If we get any info, I'll post it.

I've been questioning this situation as well. Since these government backed loans are simply accounting transactions, would they be excludable from the definition of an "account." Could these student loans be viewed as a one-time transaction, rather than a "formal banking relationship" as mentioned in the reg.?

If so, then they could fall outside the requirements by not fitting the definition of an account. Oh, how I dream!

I'm very interested in any response you receive from Sallie Mae.

kmg

We have taken the view that the student is not opening a banking relationship with us, and this is further bolstered by the fact that in no way do we consider them customers for other purposes, such as aggregating accounts for special offers and the like. We make no decision on the loan itself, as we are told by the government who gets the loan and in the event of default, the loan is purchased by the government. We see ourselves as merely a conduit for the federal government to loan money to students interested in attending a college or university. Now, we have also documented this because as we all know, you can guess and guess and guess what those regulations mean, but without guidance, who the heck knows. At least our documented argument passes the straight face test and we're willing to live with the consequences.

I like your train of thought, but for arguments sake you send these (non)customers Privacy notices, don't you?

Don't get me wrong, I want to get there with you as we have GSLs too.

Following up on Andy's comment, we have a considerable number of student loans as well and we went to the trouble of seeing that these "customers" got our privacy notice for the last 2 years. So from one point of view we did treat them as customers (gulp

Yes, we all sent them privacy notices, but I view it in this manner:

We are a financial institution holding some very personal information about these people. They should know what we're doing with it. I don't necessarily think we should be penalized for trying to provide those students with information. We'll just have to see what happens when the Q and A's come out, and if this is even addressed.

The definition of "customer" in one reg will not necessarily be the same in another. I just don't know that your interpretation will agree with your regulator. Have you considered asking them?

I encourage you to treat the student loans just as you would any other loan in assessing "coverage" of the CIP regulation and the information you are required to obtain. However, for the purposes of identity verification, a risk based approach would certainly allow you to "consider the source." As student loans pass through a fairly stringent approval process of which a quasi-governmental entity is an essential element, it seems very reasonable to assume they are highly unlikely to be used for laundering money or terrorist financing. Your verification procedures can be minimal or, if you see no risk at all, nonexistent.

One training client, a military bank, opens thousands of accounts per year based only on information from tapes provided by the U.S. Army. They are in no position to verify identity by documentary means until the new soldier shows up at a teller window for the first time. If their system is going to work, they have to assume that the U.S. Army is taking precautions against recruiting terrorists and money launderers. Their assumption is essential and totally reasonable; I would be glad to provide them with free technical support if an examiner would say otherwise.

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Your verification procedures can be minimal or, if you see no risk at all, nonexistent.

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They can be minimal, but I don't believe they can be nonexistent. The preamble to the regulation says: "a bank need not establish the accuracy of every element of identifying information obtained but must do so for enough information to form a reasonable belief it knows the true identity of the customer." In your military bank example, rather than say that no verification is required, it would be much better for the institution to say that the Army is acting as an agent for opening the accounts (which appears to be true) and for these extremely low-risk accounts that the bank is using the verification of identity done by the agent.

Then perhaps we disagree. I said the bank, if it perceived no risk, would not have to do any verification procedures of its own. That would be based on the assumption that the government, in both cases, had already done them. If you can't trust the government, who can you trust?

I do not see that wording things a certain way is the same as the bank conducting a verification procedure. Moreover, if the bank claims the government was acting as its agent, it makes itself subject to the record retention requirements describing that verification process which its agent conducted. I'll stick with the approach that the risk is minimal or nonexistent.

I haven't received any info yet from Sallie Mae with regards to this. And, we may be operating under different guaranteed loan programs. We don't have any information on individual customers. This is strictly handled as an accounting program between Sallie Mae and the bank. We don't see applications or produce or see any loan documents. I'm not involved with the recon part, so it's possible that at some point a list of names/amounts crosses someones desk as part of the accounting process. But that would be it. There is no information available to verify. I feel confident that Sallie Mae will produce a solution.

Upstate,
I am not totally familiar with the mechanics of the student loan program, but can you make the argument that Sallie Mae is actually opening the account, not the individual students? Your indication that you do not even have the student information would seem to make that entirely likely.

In other words, if the students are not seeking to open an account with you, Sallie Mae is, you are dealing with someone (a government entity) who is specifically excluded from the definition of a customer and CIP does not apply.

We spoke to the Fed about this today. They seem to think that student loans, even the ones through Sallie Mae, would be accounts for CIP purposes, and suggested we address them in our CIP policy, even if it is only to state that Student Loans will be made as an exception to our CIP. Sallie Mae is only the servicer - we actually have the account on our books. My student loan officer faxed me some information from the GSL program today, and they do state that they will comply with CIP. I did find out that they verify SSNs, check with Selective Service, check with DOJ (for possible drug arrests) and verify foreign status through the INS. That sounds like pleanty of due diligence to me!
Now - who is supposed to give the student the CIP Notice?
BC