Letter to the Agencies re: Premium Finance & Customer Identification Program Requirements

Dear Sirs and Madams:

The American Bankers Association (ABA) greatly appreciates the Order issued by theagencies on September 27, 2018, in concurrence with the Financial CrimesEnforcement Network (FinCEN), that grants exemptive relief from CustomerIdentification Program (CIP) requirements for loans extended by banks and theirsubsidiaries to facilitate purchases of property and casualty insurance policies (premiumfinance loans). The exemption reflects an extensive process and correctly concludesthat the exemption is consistent with the purpose of Bank Secrecy Act (BSA)requirements, particularly since FinCEN has determined that premium finance loanspresent a low risk of money laundering or terrorist financing. In fact, FinCEN hasgranted a separate exemption for these arrangements from the beneficial ownershiprequirements of the Customer Due Diligence Regulation.

ABA believes that this Order provides two important benefits: a reduction ofunnecessary regulatory burden and a step that ensures these arrangements arecovered by BSA monitoring and reporting. Moreover, as the agencies acknowledge,“this exemption is consistent with safe and sound banking.” As the Order points out, theexemption also is not contrary to generally accepted standards of prudent banking anddoes not give rise to abnormal risk.

In several letters from both the ABA as well as from the group of interested banks thatmade the initial request in September 2016, the request for an exemption from CIPrequirements for premium finance loans always discussed the product. While there wasdiscussion of the negative impact that applying these requirements would have on smallbusinesses, the request also discussed the difficulty in obtaining Social SecurityNumbers and other Personally Identifiable Information (PII) from individuals. Therefore,the request was always that the product itself, which presents minimal or no risk ofmoney laundering or terrorist financing risk, be exempt. The request was never qualifiedto be limited only to commercial arrangements. Unfortunately, the Order does limit theexemptive relief to commercial customers when the intent was for a broader exemptionthat would apply to all premium finance loans without restriction or qualification. Forthose banks that provide premium finance loans to individuals, not having theexemption apply to individuals creates a significant burden as these banks will nowneed to build out a CIP program for the premium finance business.

ABA believes that some of the confusion may have originated because this requestwent hand-in-hand with a similar request for an exemption from the beneficial ownershiprequirements for premium finance loans involving refunds. While FinCEN did grant suchan exemption, since those arrangements apply to legal entity customers or businessaccounts, it appears that the expectation for an exemption from CIP was also presumedto be one that would apply to commercial customers. However, the intention underlyingthe request was for an exemption for premium finance loans, not one based on thecustomer.

The foundation for an unconditional exemption has already been laid, and the samerationale for the exemption for commercial customers is equally valid for individualcustomers. In fact, it is clear that the lack of risk for individuals as borrowers wasconsidered, with the explicit inclusion of individuals acting as sole proprietors in thedefinition of commercial customers. ABA recognizes that it took extensive time andeffort for the agencies to grant the CIP exemption for commercial customers. However,we believe a simple correction to this misunderstanding should be much simpler toachieve. Therefore, we request an amendment to the September 27, 2018, Order thatclarifies that the exemption is one that applies to all premium finance loans withoutlimitation to any one type of customer.

If you have any questions or need additional information, please let us know.

Sincerely,

Robert G. Rowe, III
Vice President & Associate Chief Counsel, Regulatory Compliance

Cc: Lisa Arquette, FDIC
Debra Novak, FDIC
Spencer Doak, OCC
Donna Murphy, OCC
Koko Ives, FRB
Jeremy Kuester, FinCEN
Suzanne Williams, FRB