Sample Unsecured Loan Application Letter

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Sample Unsecured Loan Application Letter Powered By Docstoc
					                                               Disclaimer
This sample policy provides a guide or a place to begin. Credit union policies should always be structured
to meet the specific needs of the credit union and its membership. Efforts are made to update the material
to reflect applicable changes in the law. This sample should not be considered legal advice nor relied upon
as a substitute for professional services. Credit unions are encouraged to contact legal counsel for legal
advice. The Kansas Credit Union Association will not be liable for any direct, indirect or consequential
damages resulting from the use of this policy.


                                     SAMPLE FORMAT
                                  CONSUMER LOAN POLICY



I.      General Policy

        A.    State that the purpose of this policy is to set general guidelines pertaining
              to the types of loans offered, underwriting guidelines, responsibility and
              reporting requirements, and any other items included in the policy.

        B.    Federal and State Laws
              State that it is the policy of this credit union to comply with the letter and
              intent of all applicable laws of the United States and of the State of Kansas
              and regulations promulgated there under.

        C. Equal Credit Opportunity and Credit Protection Acts
           State that you will not deny credit, limit its amount, use different application
           procedures, require greater security values or increase the finance charge
           because of a loan applicant’s (member or potential member) race, color,
           religion, national origin, age, sex, marital status, physical handicap, the fact
           that all or part of the applicant's income derives from any public assistance
           program, of the fact that the applicant has in good faith exercised any right
           under the Consumer Credit Protection Act. State that you will not
           discourage an applicant or prospective applicant from making or pursuing
           an application on the basis of the foregoing factors.

II.     Borrowing Eligibility

        A.    State that as required by law, membership in this credit union is open only to
              individuals who are included in the field of membership as it is defined in the
              Credit Union charter.

        B.    Indicate that no officer or staff member of this Credit Union will, in any
              manner, discourage a member from submitting an application for credit.
              State that the credit union will accept and consider an application from any
              member who wishes to submit a request for credit.

III.    Responsibility

        A.    State how often the Loan policy of the Credit Union will be reviewed by the
              Board of Directors



3b1abb6f-4feb-4192-a3db-80e14d3db4ac.doc                                                                 1
        B.    Indicate that all rates and terms for loans will be set by the Board of
              Directors and posted in a visible area for disclosure to the membership.



IV.     Approval Authority

        A.    State who has the authority to approve credit.

        B.    If applicable, state that the Board of Directors will appoint:
               _______________________________________ as loan officer(s) and will
              delegate to them the authority to approve the following loan applications:

              (Indicate limits of loan officers’ authority)

        C.    Indicate how review of loan denials will be handled. How can a member
              appeal the decision to deny a loan application.

V.       Reporting

        A.    If applicable, state how often a loan officer’s report will be submitted to the
              Credit Committee or Board of Directors. List the information to be included
              in the report.

        B.    If applicable, indicate how often a report will be given by the Credit
              Committee to the Board of Directors. List the information to be included in
              the report.

        C.    Indicate that an annual report will be prepared and presented to the
              members at the annual meeting.


VI.     Credit Processing

        A.    List the items required by the Credit Union for processing a credit request.
              These items will be documented and become part of the member’s loan file
              and may include, but are not limited to the following:

             1. State that a separate loan application must be completely filled out by the
                applicant for each loan. An up-dated, complete loan application will be
                obtained when the previous application is over 12 months old or when the
                member’s personal information such as name, job, etc., has changed.

             2. State that a checklist will be used during the loan granting process to
                avoid errors in record keeping. The checklist will remain attached to the
                loan papers in the member’s file.

              3. Indicate that the loan officer will obtain income verification on members
                 prior to the loan being approved. If company stock or share deposits
                 secure the loan, verification and debt ratio may be waived. Acceptable
                 proof will be a copy of the pay stub, tax return or other proof of income.


3b1abb6f-4feb-4192-a3db-80e14d3db4ac.doc                                                        2
              4. State that a Credit Bureau Report will be obtained with each new loan
                 application. The current (12 months or less) credit report will be
                 maintained in the member’s file for use in determining the
                 creditworthiness of advances to the member. If the credit report is older
                 than 12 months, a new report will be obtained. State that the debt ratio
                 calculation will be noted for each loan application.

              5. State that collateral valuations will be documented in the file. Used
                 car/truck values will be determined by the current N.A.D.A. book. Boats,
                 campers, trailers, motor homes and mobile homes will also be valued by
                 the current N.A.D.A. book. On new or used vehicles purchased from a
                 dealer, the dealer’s sheet must accompany the loan application. High
                 and low mileage is to be considered when using the N.A.D.A. Book.

              6. State that titles must be obtained on any titled security. The credit union
                 is to be shown as the first lienholder. All title fees will be the
                 responsibility of the member.

              7. Indicate that the loan screen is to be printed out and attached to the loan
                 papers before the check for loan proceeds is issued.

              8. If required, state that approval must be obtained prior to the
                 disbursement of funds. Prior to approval, loans are to be reviewed for
                 collateral, rate, payment and credit report. All documentation should be
                 obtained and all figures reviewed and verified. Loans requiring Credit
                 Committee approval will be forwarded with all documentation and a
                 written summary of the reasons for denial by the loan officer.

VII.     Evaluation

        A.    State that it is the general policy of this Credit Union that all loan applications
              will be judged on individual merit under the guidelines of the Equal Credit
              Opportunity Act. List the evaluation criteria, which might include the
              following examples:

              1. The granting of a loan or extension of a loan is based on the member’s
              ability to repay, salary, and how past and present obligations are met.

              2. Any member who has adverse credit such as garnishments,
                 repossessions, suits for collection of debts, or a collection account
                 may be denied loan privileges or restrictions may be placed on the
                 amount to be borrowed.

              3. A member whose personal checks have been repeatedly returned for
                 insufficient funds, account closure or payment stopped may also be
                 denied loan privileges.




3b1abb6f-4feb-4192-a3db-80e14d3db4ac.doc                                                       3
              4. A member who is three months delinquent on any loan with the Credit
                 Union must bring the loan to a current status and then must wait for six
                 months before an application for new credit will be considered.

              5. Debt to income ratio - total monthly payments on all obligations
                 (including Credit Union and house payments) cannot exceed ____% of
                 gross monthly income figures calculated on a 40-hour week.
        B.    State the general requirements for collateral.

              1. Suggested acceptable collateral may include, but is not limited to:
                 a. New and used automobiles, trucks, boats, trailers, campers,
                    motorcycles;
                 d. Other titled collateral will be considered based on age, condition
                    and acceptable loan to value ratio.
                 b. Shares with the Credit Union;
                 c. Company stock (if applicable

              2. State the conditions under which the release of collateral will be
                 considered:
                 a. Collateral will normally be released upon payment in full of the loan.
                 b. If a release will be considered under special conditions, indicate what
                    those conditions might be.
                 c. Company stock certificates pledged as collateral will be held by the
                    credit union. The member(s) in whose name the stock is held must
                    sign the stock assignment form. State what action must be taken if
                    stock value changes and how value is to be monitored.

        C. Insurance

              1. Indicate the insurance requirements for collateral coverage.

              2. State that the Credit Union must be shown as the loss payee on
                 insurance policies.

              3. Explain the action that will be taken if the policy is cancelled or expires.

        D. Co-signers

              1. Indicate the circumstances under which a co-signer will be considered.

              2. State that the cosigner will be evaluated by the same standards as the
                 applicant.




3b1abb6f-4feb-4192-a3db-80e14d3db4ac.doc                                                        4
VIII.   Types of Loans

        A. List the types of loans the Credit Union will offer to its members (suggested
           examples):

              1.   Unsecured/Signature Loans
              2.   Share secured loans
              3.   Auto loans - new and used
              4.   Boats, campers, trailers - new and used
              5.   Motorcycles - new and used
              6.   Company stock secured loans
              7.   Other secured loans

        B.    Define an unsecured or signature loan
        C. State the maximum acceptable loan value on new model autos, trucks,
           motorcycles, boats and RVs. Example: the finance value is a maximum of
           85% of reasonable sticker price. State the maximum acceptable loan value
           on older models. Example: the finance value is a maximum of the loan
           value as listed in the N.A.D.A. Book. If a loan value is not available, indicate
           how a value will be determined. Example: a written appraisal given by a
           qualified dealer on letterhead stationary.

        D. State that stock-secured loans may only be collateralized by company stock.
           The finance value will be ___% of the closing price quoted on the New York
           Stock Exchange as printed in the Wall Street Journal.
        E.    The shares or certificates used to secure a loan must be invested with this
              Credit Union. The finance value will be ____% of the cash value of the
              shares or certificate.

              See Addendum A for current loan rates and terms.

IX.     Loans to Officials and Staff

        A.    State that an official is a member of the Board of Directors or a member of
              the Supervisory or Credit Committee of the Credit Union. Any credit request
              made by an official as direct obligor, endorser, cosigner or guarantor must
              be approved by the Credit Committee or Board of Directors, as applicable.
              State that the rates, terms, and conditions on any loan that is made to,
              endorsed or guaranteed by an official or an official’s immediate family
              member shall not be more favorable than those for other members.

        B     State that any credit request made by an employee as direct obligor,
              endorser, cosigner or guarantor must be approved by
              ________________________. The rates, terms, and conditions on any loan
              that is made to, endorsed or guaranteed by an employee or an
              employee’s immediate family member shall not be more favorable than
              those for other members.

X.      Repayment


3b1abb6f-4feb-4192-a3db-80e14d3db4ac.doc                                                    5
        A.    State that payment responsibilities and payment methods will be clearly
              established during loan closings.

XI.     Notification to Applicants of Action Taken

        A. The Credit Union must take action on a completed application, either
           favorable or adverse, and notify the applicant within 30 days after the
           completed application is received. Notice of incompleteness must be sent
           within 30 days of receipt of an incomplete application if it is not treated as an
           adverse action.
        B. If adverse action is taken on any application for credit, the Credit Union must
           give the applicant a written statement of the action taken within 30 days. If
           the applicant requests the specific reasons for the adverse action within 60
           days of notification of the adverse action, the credit union must provide the
           applicant with a written response stating those reasons within 30 days of the
           request. If a counteroffer is made and not accepted an adverse action
           notification must be made within 90 days after notifying the applicant of the
           counteroffer.
        C. If more than one applicant is involved, only one notice needs to be sent.
           The notice should be given or sent to the primary applicant.

XII.    Bankruptcy

        A.    State the policy of the Credit Union regarding the eligibility of members for
              credit who have filed for bankruptcy. Indicate what the member’s borrowing
              rights will be. Note: Legal counsel should be consulted before writing a
              policy on bankruptcy.




Policy Revised:______________________(Date)


Reviewed by the Board of Directors:_____________________(Date)




3b1abb6f-4feb-4192-a3db-80e14d3db4ac.doc                                                  6

				
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