used car dealer is an NBFI???

Posted By: Anonymous

used car dealer is an NBFI??? - 07/08/21 09:12 PM

We have a customer that has a used car lot and it finances cars purchased on its lot. It does no other form of lending. Would you say that is a "loan company" as contemplated in the NBFI rules and monitoring requirements? Why or why not?
Posted By: ColoradoAML

Re: used car dealer is an NBFI??? - 07/08/21 10:02 PM

Regulation defines "a business engaged in vehicle sales, including automobile, airplane, and boat sales" as a financial institution. 31 USC 5312(a)(2)

I would also say that for practical purposes, if they are financing vehicles that sounds like a "loan company."
Posted By: Anonymous

Re: used car dealer is an NBFI??? - 07/09/21 11:02 PM

OP here. That doesn't sound right to me. This is what I'm looking at, and selling cars isn't one of the NBFI examples in this FFIEC doc:

NBFIs are broadly defined as institutions other than banks that offer financial services. The USA PATRIOT Act has defined a variety of entities as financial institutions. 277 Common examples of NBFIs include, but are not limited to:
Casinos and card clubs.
Securities and commodities firms (e.g., brokers/dealers, investment advisers, mutual funds, hedge funds, or commodity traders).
Money services businesses (MSB). 278
Insurance companies.
Loan or finance companies. 279
Operators of credit card systems.
Other financial institutions (e.g., dealers in precious metals, stones, or jewels; pawnbrokers).

https://bsaaml.ffiec.gov/manual/RisksAssociatedWithMoneyLaunderingAndTerroristFinancing/25
Posted By: RR Sarah

Re: used car dealer is an NBFI??? - 07/12/21 01:37 PM

You can Google the USC that ColoradoAML provided or click the link to Appendix D below. The answer is the same.

https://bsaaml.ffiec.gov/manual/Appendices/05
Posted By: Anonymous

Re: used car dealer is an NBFI??? - 07/12/21 03:50 PM

OP here. Okay but I still think the response ignores the question, which was:

Would you say that is a "loan company" as contemplated in the NBFI rules and monitoring requirements? Why or why not?

This is the FFIEC's NBFI info to which I refer:

RISKS ASSOCIATED WITH MONEY LAUNDERING AND TERRORIST FINANCING
Nonbank Financial Institutions—Overview
Objective. Assess the adequacy of the bank's systems to manage the risks associated with accounts of nonbank financial institutions (NBFI), and management's ability to implement effective monitoring and reporting systems.

NBFIs are broadly defined as institutions other than banks that offer financial services. The USA PATRIOT Act has defined a variety of entities as financial institutions. 277 Common examples of NBFIs include, but are not limited to:

Casinos and card clubs.
Securities and commodities firms (e.g., brokers/dealers, investment advisers, mutual funds, hedge funds, or commodity traders).
Money services businesses (MSB). 278
Insurance companies.
Loan or finance companies. 279
Operators of credit card systems.
Other financial institutions (e.g., dealers in precious metals, stones, or jewels; pawnbrokers).
https://bsaaml.ffiec.gov/manual/RisksAssociatedWithMoneyLaunderingAndTerroristFinancing/25

So I'm not asking if the USC might define auto seller as a "financial institution" but rather whether a car lot that finances its own cars might be a "loan or finance company" from the NBFI list above. My assumption is that if the FFIEC wanted banks focusing on car sellers, then it would be one of the examples listed above. I do see that it says "other" but it also gives several examples of "other."

For those who are just going to revert straight back to the USC definition, please advise: In your shop, do you have every used car lot customer on your list of NBFIs?
Posted By: ColoradoAML

Re: used car dealer is an NBFI??? - 07/12/21 04:23 PM

I think it's entirely appropriate if you don't consider all NBFIs to have the same amount of risk and to treat them differently. A used card dealer - especially one that finances loans - can certainly be used to launder money. It seems totally likely to me that if they had a repeat customer who frequently bought and financed cars, and paid monthly in cash, many dealership would be very happy to have that customer and not ask questions. When that money eventually finds its way into your institution, it may become your problem, especially if you haven't addressed the risk at all in your BSA program. Just like with all NBFIs, you don't necessarily know who your customers' customers are. Again, it's my opinion that the customer you described poses AML risk as a "loan or finance company."

And while you may choose not to monitor car dealerships with the same scrutiny that you monitor MSBs, by definition they are NBFIs.