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What steps should be taken when a loan has been closed as commercial purpose that should have been considered consumer purpose? The loan was unsecured and for the purpose of purchasing artwork to resell. The borrower’s occupation has nothing to do with art, so I would consider this a consumer purpose loan. Should the borrower be contacted and provided with disclosures, or should we just retrain the loan officer and leave the loan as is?
You may have already done this but if you have not, I would very carefully consider whether this is a business or consumer purpose – take a close look at the exemption language in 1026.3 and the details of the transaction. If it is, indeed, a consumer purpose loan you have a violation. I would provide the disclosure, determine the cause for this error (are enhanced procedures necessary, etc.). As you mentioned, training is a must in this situation and a good reminder to lenders is, when in doubt give it out.
In looking at the five general factors listed in the commentary for 1026.3(a) – 3(I):
a) Relationship of borrower’s primary occupation to acquisition. Borrower’s occupation is unrelated, so I would consider this a consumer factor.
b) Degree to which the borrower will personally manage the acquisition. Who will manage the acquisition is unknown (likely the borrower), so I consider this a neutral factor.
c) Ratio of income from the acquisition to total income of borrower. Income from the acquisition is unknown, but most likely would be a small percentage of the borrower’s total income. I would consider this a consumer factor.
d) The size of the transaction. This is a relatively small loan, so I would consider this a consumer factor.
e) The borrower’s statement of purpose for the loan. The borrower did not state whether the credit was commercial or consumer, only that he was purchasing artwork for resale. I would consider this a neutral factor.
Based on this analysis of the factors, would you agree with the conclusion that it is consumer purpose?
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