Regulation B and CIP Identification Documentation
Is it a violation of Regulation B or any other regulation if personal identification is maintained in a loan file? Specifically, is it “best practice” not to maintain the personal identification of a borrower or potential borrower in the loan file?
Generally, Regulation B prohibits a bank from inquiring about the race, color, religion, national origin, or sex of any applicant. 12 CFR 1002.5(b). There are limited exceptions, as when the information is obtained for a self-testing program of the bank’s compliance with the requirements of Regulation B, or for monitoring purposes, when an application is received for credit primarily for the purchase or refinancing of a dwelling to be occupied by the applicant as a principal residence. 12 CFR 1002.5(b)(1), 13(a).
Similarly, Regulation C requires creditors covered by the Home Mortgage Disclosure Act to collect and report information about the race, ethnicity, and sex of applicants for home improvement and home improvement loans, and loans for the refinance of loans secured by residential property. 12 CFR 1003.4(b); Official Interpretations, 1002.5(a)(2)-2.
On the other hand, the USA PATRIOT Act requires banks to verify the identity of its customers through a Customer Information Program (“CIP”). 31 CFR 103.121. One of the documentary methods by which a bank does so involves the review of such government-issued identification as a driver’s license or a passport, which bears a photograph of the individual customer. 31 CFR 103.121(b)(2)(ii)(A)(1). The bank is required to keep a description of the document used to verify a customer’s identity, including such information as the type of document, any identification number contained in the document, the place and date of issuance, and the expiration date. 31 CFR 103.121(b)(3)(i)(B). The bank may also keep copies of the documents it uses to verify a customer’s identity. However, a photograph necessarily discloses certain demographic data about the customer. The guidelines issued by the Federal regulatory agencies emphasize that “a bank should be mindful that it must not improperly use any document containing a picture of an individual, such as a driver’s license, in connection with any aspect of a credit transaction.” FAQs: Final CIP Rule, 31 CFR 103.121(b)(3)(i)-2.
For Regulation B purposes, the bank should avoid even the appearance of discrimination on a prohibited basis. One way of doing this while satisfying the USA PATRIOT Act’s CIP requirements is not to retain a copy of a customer’s photo identification at all, but simply the description of it required for CIP record keeping. If the bank determines that keeping copies of photo identification is nevertheless warranted from a risk analysis standpoint, it must ensure that copies of this identification remain separate from any information or documents used in the credit underwriting process. If a copy of a driver’s license is kept for CIP purposes, rather than simply a description of it, it may be kept in a separate CIP file, but not in the credit file.