Employee Loan Policies

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Question:

What sort of controls and consequences can a Bank implement to set policy for employees who default on loans made through the employer?

Answer:

Employee loans made by the bank should have the same prudent underwriting standards that safety and soundness dictates is necessary for a strong loan portfolio. The ramifications for nonpayment would be similar to other customers. Because of federal and state collection laws, there are usually no additional remedies available to you just because the borrower is your employee.

The bottom line is, make a good loan initially. Don't make the loan because the person works at the bank, and be ready to collect it just as you would your other borrowers with payment problems. Special treatment yields special problems.

First published on BankersOnline.com 1/26/09