CoMMERCIAl lENDING CoMPlIANCE
truth in lending (tIlA) and the Real Estate
Settlement Procedures Act (RESPA)
There are times when a commercial lender makes a loan to a business client that is actually a consumer loan and subject to all of the
consumer protection requirements, including TILA and RESPA. The
first challenge is recognizing the loan as a consumer transaction.
Just because the borrower is a commercial client does not mean
that every loan he or she requests is a business-purpose loan. The
mortgage could be for personal (consumer) purposes. The loan
could be to finance college for a son or daughter, activating special
and daunting rules for education loans. Commercial loan officers
must recognize these situations and either follow the consumer
compliance procedures or hand the application to someone who can.
While it is tempting to maintain total control of the client
relationship, consumer loans are simply not worth the risk. If
commercial lenders continue to resist referring their clients to a
consumer lender, try using a buddy system. Commercial lender A
and consumer lender Z work together when one of A’s clients wants
a consumer loan. This is an opportunity to maintain contact with
the client in every loan relationship. And, it is also an opportunity
for the commercial lender to see consumer compliance first hand.
Secure and Fair Enforcement for Mortgage
licensing (SAFE)
Some commercial lenders may be mortgage loan originators who
must be registered under the S.A.F.E. Act. Any loan originator
making a “residential mortgage loan” must be registered. This
is particularly necessary when crossing the line into making a
consumer-purpose loan to a client.
Managing Commercial lending Compliance Risk
Given the many and varied compliance risks in the commercial
lending department, having a commercial loan compliance program is key. Policies, procedures, training, and auditing should
address risks on the commercial side, as well as the consumer side.
The challenge is how to get commercial lenders on the bandwagon.
The first step to managing risk is to determine exactly what
sorts of lending activity is occurring. Before you even consider
looking for problems or violations, review all relevant policies and
procedures. Too often, the only way that bank policies address
commercial lenders is through the loan policy and without giving specific or clear guidance on compliance issues. You should
give commercial lending activity attention in many of your policies—from ECOA to BSA.
It can be difficult to get the attention of commercial lenders.
Before rewriting policies for commercial lenders, it is a good idea
to get some commercial lenders on the team. With their involvement, the entire group of commercial lenders will be more likely
to constructively accept new policies. Having commercial lenders
on the team also prevents other commercial lenders from claiming
that you don’t know enough about their special challenges. In effect,
you are starting with an admission that these policies can work
and those developing the program know how they should work.
It may be a challenge to get a commercial lender on the team.
You may have to start with ways to get buy-in by finding something that is measurable or quantifiable. Violations cited in the
last examination report could be a persuasive starting point.
If the last examination cited problems with commercial loan
HMDA data, this could be your entry point. It sets priorities and
costs side by side. For example, consider presenting the cost of
the data scrub that occurred because of inadequate documentation. Who should pay for this? If the problems occurred because
commercial lenders weren’t properly documenting their loans,
shouldn’t the cost of the scrub come out of their budget?
Once you are familiar with the commercial lending activities,
it can be useful to set some priorities. As a practical matter, you
cannot tackle everything at once. Focus on the greatest risks
and tackle them first. Risk sells. When there is risk involved, the
lenders will be more engaged. Choosing the first regulation on
which to focus varies from bank to bank, based on their market
and lenders. For example, flood insurance may be a very high
risk. But if your market does not have many high risk flood
hazard areas, this may not be your greatest risk—or your best
compliance selling point.
Your priority might be to reduce problems identified in the
most recent examination. If so, HMDA and CRA may top the
list. Reducing risk by collecting better data can have an impact
on more regulations as well. Or there could be a Regulation B
signature violation or two.
Once you have buy-in and a commercial team member or two,
the real work begins. Building a strong compliance program in
commercial lending takes time, effort, and tact. Set your priorities based on risk, focus on what needs work, and get going! ■
ABOUT THE AUTHOR
LuCY GRIFFIn has over thirty years of experience in the
compliance field. She began her career with regulatory agencies
including the Federal Home Loan Bank Board, the Board of
Governors of the Federal Reserve System, and the Federal Trade
Commission. Griffin then managed the compliance division of
the American Bankers Association (ABA). Since 1993, Griffin has
worked as a consultant, providing compliance support and training
for the financial services industry.
Griffin is the editor of Compliance Action and the co-author of
the Compliance Accountability Manager and the Compliance Training
Manager. Nationally recognized as a leading compliance speaker
and trainer, Griffin is on the faculty of ABA’s National Compliance
School and is a featured speaker at many national and state
compliance conferences and seminars. For more than a decade,
she developed and administered the case study at ABA’s National
Graduate School of Compliance Management.
Griffin is also a senior advisor with the Paragon Compliance
Group, a company dedicated to providing quality compliance
training. Griffin received her B.A. from the University of Michigan
and a J. D. from Cornell Law School. Reach her at lucygriffin@
earthlink.net.
