[mcarey]

Does anyone purchase loans from a broker? We have been approached by a firm that would like for us to purchase commercial loan assignments that they originate…this is not another bank. How do you handle the CIP issues? Do we CIP the broker? Do we need something in our BSA policy that says we will accept the firm’s CIP when provided with a certification of some sort that that have met the CIP requirements? My understanding is we would book these in the borrower’s name much like you would a loan participation.

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[rcooper]

Great question. I have asked Don Blaine to respond. He will get back with you as soon as possible. Thanks for your patience.

[donblaine]

Nice, unusual question mcarey.

A bank must perform CIP when opening a new “account” for a “customer”. In my opinion there is no requirement to CIP the broker or the commercial borrower since the loan your bank purchased does not meeting the definition of an “account”.

31 C.F.R. 1020.100(a) provides a definition of an account which states in (a)(2) that “for purposes of §1020.220 (CIP rule)” that “(2) Account does NOT include: …… (ii) An account that the bank acquires through an acquisition, merger, purchase of assets, or assumption of liabilities.” Therefore the purchase of a loan would be exempt from CIP requirements. However, if you renewed the loan then CIP might apply since your bank was not the entity that performed the initial CIP.

Furthermore, the definition of a customer speaks of a “new account” which would not be applicable here as you are not originating a new loan.

The April 28 2005 CIP FAQs contain a question on page 2 which addresses purchased loans and the answer is that CIP exclusions cover loans purchased from third parties such as car dealers and mortgage brokers. Loan participations are also excluded from CIP requirements. If the commercial loan broker is serving as your agent you must make sure the broker is performing the bank’s CIP but in all likelihood the broker is not your agent.

The non-bank entity from which you are purchasing loans likely is subject to its own CIP requirements as there are 10 different types of entities that are subject to the CIP rule.

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