Keeping Photo IDs in a Loan File
In this Compliance Clip (video), Adam discusses concerns relating to keeping photo IDs in a loan file.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about keeping photo IDs in your loan files and whether or not that is permitted. The question we received is, “Now that we have to get verification for beneficial owners, is it permissible to keep copies of photo IDs in a loan file?” This is a question we've actually received many times over the years and really the beneficial ownership part of this question is irrelevant. The question is whether or not it's okay to keep photo ID copies in a loan file, whether or not beneficial ownership is involved, because this really goes back to the early 2000’s when we had to implement the CIP rules and get verification, and a lot of organizations make copies of photo IDs. So can we keep those in the file?
Now, why would this be a concern? Well, the concern would come from a fair lending concern because over the years some examiners have accused financial institutions of having copies of photo IDs in the file and saying that those copies will unduly influence an underwriter in making a credit decision. Basically, if an underwriter can see the picture of a person, they can judge the file based on ethnicity, race, or gender. Over the years there's been some arguments to this because some of your underwriters are also your loan officers who see your customers face to face. That's an argument there that it doesn't really matter because you're seeing the customer anyway. But there's been a lot of debate over the years whether or not you can keep a copy of a photo ID in a loan file and not have a fair lending violation.
The answer to this comes not from the fair lending laws, but comes from the BSA Exam Annual and really, the 2004 Frequently Asked Questions that were released after the initial CIP rules. And what the FFIEC BSA Exam Manual says is that you are permitted to make copies of photo IDs. They're saying it is permissible. However, they give a word of caution. They say that you, as a financial institution, should be mindful that you do not improperly use documents containing a picture of an individual, such as a driver's license, in connection with any aspect of a credit transaction. What they're saying here is you can keep a copy of it, but you can't use that copy to discriminate.
The catch-22 is that if you get accused of discriminating, it's impossible to prove that that photo ID was not used to discriminate. The best practice is to keep your photo ID copies separate from your loan files, just so that you never have to have that conversation with an examiner and you can avoid your fair lending risk.
That's all I have for you today in this Compliance Clip.