CIP & Loan Participations

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Question:

Our bank sometimes purchases lease participations from other non-regulated lenders. These lenders do the necessary customer identification steps to comply with regulations, including obtaining the driver's license of the person who is liable for the lease payments. I have two questions: First, must we also adhere to the customer identification protocol? Also, can we simply have the entity from whom we are obtaining the participation forward copies of the documents they inspected and thereby be in compliance with the customer identification program? I cannot imagine most down stream participants in a loan participation would be expected to obtain individual documentation under the customer identification program, but after 20 years of banking and a law degree, nothing would surprise me.

Answer:

Loan participations are discussed in the Q&A on CIP from the Federal Regulators:

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.

A lease participation should not require different treatment. Remember, however, that your institution's own CIP requirements will control whether you consider the lessees in these participations your customers.

First published on BankersOnline.com 6/05/06