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THE COMPLIANCE GUY

Compliance for

Commercial Lenders

Lessons from BLI

KELLY GOULART, CRCM CAMS CIA

recently had the pleasure to once again ers: appraisal disclosures, adverse action the individual applicant does not meet
speak at IBAT’s Bank Lending Institute, requirements and spousal signature rules. the bank’s lending standards, the bank
I a two-year banking program that pro- • If a loan is secured by a first lien on a may ask for a guarantor to provide cred-
vides practical bank management and dwelling, an appraisal disclosure must it support but cannot specify that it be
leadership strategies necessary for suc- be provided and the borrower must be the applicant’s spouse. To implement
cessful community bank lending. Most given a copy of the appraisal or evalua- these requirements, the regulation
of the attendees are commercial lenders, tion that was relied upon. requires that when a husband and wife
so I tailored my presentation to regulato- apply jointly for credit, their intent to
ry compliance concerns for commercial • Commercial applicants are entitled to do so must be evident at application.
lenders. Below are the major compliance adverse action notices. For commercial
“touch points” for commercial lenders to credit applicants who had $1 million or Servicemembers’ Civil Relief Act
keep in mind. less in gross revenues during the prior (SCRA)
fiscal year, the timing requirements While the Military Lending Act applies
Flood Insurance and the contents of the notices are only to consumer credit, not so the SCRA.
The Flood Disaster Protection Act the same as for consumer applicants, The SCRA covers all active duty service
(FDPA) applies to any loan secured by although banks may notify the ap- members, reservists and members of the
improved real estate—that includes plicants of the adverse action either National Guard while on active duty. The
commercial real estate. In a nutshell, the orally or in writing. For commercial protection begins on the date of enter-
requirements are to a) obtain a Special credit applicants who had more than ing active duty and generally terminates
Flood Hazard Determination; b) provide $1 million in gross revenues during the within 30 to 90 days after discharge.
notice to the applicant; and c) for prop- prior fiscal year, the bank must notify
erties in a flood zone, obtain from the applicants of adverse actions orally or Home Mortgage Disclosure Act
applicant flood insurance that meets the in writing within a reasonable time, as (HMDA)
minimum required amounts. Those min- opposed to the 30-day requirement If your bank is a HMDA reporter, com-
imum required amounts are $250,000 for consumer credit applicants and mercial loans may be subject to reporting
for residential property and $500,000 commercial credit applicants with $1 as well. Effective January 1, 2018, if the
for nonresidential property. It can take million or less in gross revenues. The commercial credit is secured by a dwell-
a long time to redraw flood maps, but if bank must provide a written statement ing it may be HMDA reportable, depend-
you’re lending money on property that is of the reasons for the adverse action ing upon the loan purpose. Remember
not in a flood zone but has flooded three and the ECOA notice if the applicant that “dwelling” includes multi-family
times in recent years, you can require makes a written request within 60 structures.
flood insurance. That is a credit risk issue days of the bank’s notification.
and not a compliance risk issue. Fair Credit Reporting Act (FCRA)
• As for signatures, when an applicant While ostensibly a consumer protec-
Equal Credit Opportunity Act applies for individual credit and meets tion law, commercial lenders can get
The law and the enacting regula- the bank’s lending standards for the caught up in FCRA when they obtain a
tion (Regulation B) are the Equal Credit amount and credit terms requested, consumer’s credit report (e.g. on a guar-
Opportunity Act and not the Equal the bank cannot require an applicant’s antor or principal) and/or use that report
Consumer Credit Opportunity Act. Three spouse (or anyone else), other than a in taking adverse action on an applica-
issues here concern commercial lend- joint applicant, to sign the credit docu- tion for credit.
ments, subject to certain exceptions. If

12 The Texas Independent Banker