Loan and Deposit CIP Procedures

Question: Is there a difference between CIP programs for loan customers and for deposit customers? The process of applying for a loan is so different from that of opening an account, it doesn't seem to make sense to have lenders do the same thing that the CSRs do. Do the loan and deposit CIP procedures have to be the same?

Answer: You have a point. The application process for most loans involves the collection and evaluation of much more information than is the case for a deposit account. In fact, in opening deposit accounts, it is tempting to think more about the money coming into the institution than about who is bringing it in. In contrast, when we make loans, we evaluate much more information and proceed more carefully because we are letting funds out of the institution and taking on risk.

Most of the attention for CIP has been concentrated on the deposit side. It is for account opening and similar transactions that procedures have been designed. Imposing these precise procedures on the lending side does not make the best sense and it could make the lenders job more difficult. However, the lending side must be held to an equally high standard of CIP.

Lending is not excused from CIP. In fact, knowing as much as you can about the applicant is more important than ever, not simply because of concerns about terrorism and money laundering, but because mortgage fraud is on the rise - the high rise. Mortgage fraud is becoming much more frequent, more sophisticated, and more threatening to safety and soundness than ever before.

Lenders tend to resist CIP because they look at and review so much information about loan applicants. However, for purposes of knowing who the customer is, the critical issue is when and how that information is reviewed and considered. Too often, for example, a lender looks at the credit score, quickly scans the credit accounts listed, but does not carefully review the information at the top, such as address, length of residence, age, and security concerns, that contain valuable clues.

Identity concerns may be slightly different from the credit qualification concerns. That means that lenders should carefully review information not only for credit clues but also to clearly determine the applicant's identity.

Unlike account opening, the lending function does have a fair amount of leeway as to when they determine the customer's identity. An application may take several days or several months. The CIP function can occur any time during that process, however, we always recommend the sooner the better.

Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 13, 11/04