Agencies exempt loans for property, casualty insurance policies from customer ID program rules

An exemption from the requirements of the customer identification program (CIP) rules for loans extended by banks and credit unions and their subsidiaries to all customers to facilitate purchases of property and casualty insurance policies has been granted, the federal financial institution regulators said Friday.

The exemption was extended with the concurrence of the Treasury’s top financial law enforcement agency, the Financial Crimes Enforcement Network (FinCEN), according to the Federal Deposit Insurance Corp. (FDIC), Federal Reserve, National Credit Union Administration (NCUA), and Office of the Comptroller of the Currency (OCC).

According to the order made public Friday (but adopted Oct. 5), the rules require a bank or credit union to implement a CIP that includes risk-based verification procedures. Those measures, the order states, enable the financial institution to form “a reasonable belief that it knows the true identity of its customers.” Further, the procedures must specify the identifying information that a financial institution will obtain from each customer prior to opening an account.

However, the agencies said in their order, they determined that an exemption from those requirements would be consistent with the purposes of the Bank Secrecy Act (BSA), based on FinCEN’s determination that premium finance loans present a low risk of money laundering or terrorist financing.

Additionally, the agencies asserted, the exemption is consistent with safe and sound banking. “The resulting banking practices will not be contrary to generally accepted standards of prudent banking operation and will not give rise to abnormal risk or loss or damage to an institution, its shareholders, or the agencies administering the insurance funds,” the agencies wrote.

The order does state, however, that banks and credit unions participating in premium finance lending must continue to comply with all other regulatory requirements, including the regulations implementing BSA which require the filing of suspicious activity reports (SARs).

Federal Banking Agencies and FinCEN Announce Exemption from Customer Identification Program Requirements for Premium Finance Loans