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Glossary
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Provide their customers with notices describing their privacy policies and practices, including their policies with respect to the disclosure of nonpublic personal information to their affiliates and to nonaffiliated third parties. The notices must be provided at the time the customer relationship is established and annually thereafter.
Not disclose nonpublic personal information about consumers to any nonaffiliated third party (except under specified exceptions) unless consumers are given a reasonable opportunity to direct that such information not be shared (to “opt out”).
Generally not disclose customer account numbers to any nonaffiliated third party for marketing purposes.
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The underlying method behind the structure is to allow a primary loan to continue accruals at an established rate while at the same time a second structure, a shadow of the primary loan, will accrue at a different rate. This action creates a differential interest balance between the primary loan and the shadow. Accruals of the primary loan affect general ledger, while shadow accruals are generally memo posted; however, the shadow accruals can be directed to separate general ledger controls and can affect general ledger if necessary. Normally, the interest rate on the primary loan is greater than the interest rate on the shadow. However, the interest rate on the shadow can exceed the interest rate on the primary loan. Additionally, the shadow can also have a zero interest rate. Regardless of the interest rate on the shadow, the interest differential continues until a decision is made to reconcile the differential interest between the loan and the shadow. This reconciliation normally occurs periodically and at loan maturity; however, reconciliation may not occur at all and the differential may continue to be tracked as needed.
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This glossary is a compilation of terms that our web visitors frequently search. It is not intended to be a comprehensive list. For additional information, try these resources:
ABA Number
Numeric transit code used in check clearing between banks. Each bank and savings institution has a unique ABA number, assigned by the American Bankers Association.Accounts Receivable Loans
Also called asset-based loans, which are revolving lines of credit secured by a company’s assets. If the loan is not repaid, the asset is taken. The receivables remain with the borrower, but are pledged as security for the loan. Assets can include receivables, inventory, trademark value, intellectual property, equipment, etc.Annual Percentage Rate (APR)
The APR is the cost of credit in consumer loans, expressed as a percentage rate per year. The APR takes into consideration the amortizing of loan balances through periodic payments and the fees and costs paid to acquire the loan.ARMS Loan Processing
ARMS loans are adjustable (variable) rate mortgages typically used to finance the purchase of a new primary dwelling. The loan is collateralized by the dwelling (house or condominium). ARMS loans can be used for other lending purposes, too. An ARMS loan can be established for handling a non-mortgage loan, for example, in order to take advantage of the ARMS rate notification options.Asset-Backed Securities (ABS)
A form of pool investor processing. A conversion of loans or leases into marketable securities for sale to investor(s). Virtually any debt obligation with regularly scheduled payments can be grouped into an asset-backed security. Asset-backed securities can have on-balance sheet and off-balance sheet accounting practices. In the industry, ABS is sometimes referred to as securitization.Asset Basis Accounting
Asset-basis accounting involves shadow notes to track interest accruals during the nonaccrual period. This technique should be used only with large dollar amount loans.Asset Quality Rating (AQR)
An evaluation that assesses the credit risks associated with assets such as loans or investment portfolios.Automated Clearing House (ACH)
A collection of interbank networks used by financial institutions to initiate and receive electronic transfers of funds authorized by customers.Return to top
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Basel Accord
Banking supervision recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. The purpose of the accords is to ensure financial institutions have enough capital to meet obligations and absorb unexpected losses.Business Process Management (BPM)
The services and tools that support process management (for example, process analysis, definition, processing, monitoring and administration), including support for human and application-level interaction. BPM tools can eliminate manual processes and automate the routing of requests between departments and applications.Return to top
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Charge-Off
Loan written off as uncollectible bad debt. When full repayment is considered unlikely, loans are removed from the lender’s balance sheet and charged against the loan loss reserves account for bad debt. Loans removed from the lender’s books may be partially or fully recovered by the lender’s collection department or an outside agency if the loan is secured by collateral or the borrower has additional assets that are not secured by the debt.Claw-back (Advance) Fees
Claw-back fees, or advance fees, are defined as an additional commitment fee assessed when the borrowing under a given commitment exceeds a user-defined, whole-dollar amount.Commercial Loan
Loan to a corporation, commercial enterprise, or joint venture, as opposed to a consumer. These loans are often referred to in the industry as commercial and industrial (C&I) loans.Consumer Line of Credit
An open-ended Line of Credit with daily accruals based on the line balance and tier information. Also known as HELOC or HECL.Consumer Loan
Loan to individual(s), the Proceeds of which are used for consumer purposes, as contrasted with business or investment purposes.Credit Bureau Reporting
A report provided to the four national credit reporting agencies containing the credit data of accounts. Reporting is processed for regular loans, bankrupt loans, paid-off loans, charge-off accounts, and accounts in repossession.Credit CARD Act
The Credit Card Accountability Responsibility and Disclosure Act of 2009 amends the Truth in Lending Act to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes.Curtailment Payment
An additional amount collected from the borrower to reduce the principal balance of a loan.Return to top
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Dealer Financing
financing arrangement where a bank purchases, at a discount, loans originated by a car dealer. In dealer financing, also called indirect lending, the dealer’s customer becomes a customer of the bank.Dealer Reserve
reserve account maintained by a bank arranging dealer financing. The reserve is the dealer’s portion of the finance charge. The dealer reserve is collateral for the installment notes and is a deposit account in the dealer’s name. As loans are paid, a portion of the reserve is disbursed to the dealer.Deferred Cost
An expense incurred by an institution that is not paid out to an outside source (cost of doing business). Deferred Cost is FASB 91-compliant and is earned as an adjustment to yield over the remaining period of an account.Deferred Fee
A fee that is taken upfront when an Account is booked but is amortized over the life of the account.Return to top
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Equal Credit Opportunity Act
A federal law that prohibits creditors from discriminating against applicants on the basis of sex or marital status in any aspect of a credit transaction.Equipment Floor Plan
Equipment Floor Plan processing involves the introduction of a manufacturer and a parent manufacturer into the current wholesale Floor Plan hierarchy of dealer, commitment, and unit.Escrow
A written agreement authorizing the holding of funds by a custodian, such as a bank. Banks typically hold escrow accounts for real estate taxes and property insurance due on mortgaged property.Return to top
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Fair Credit Billing Act (FCBA)
A federal law stipulating procedures to help consumers resolve credit billing disputes with the credit grantor promptly and fairly. Disputes must be reported.Fair Credit Reporting Act (FCRA)
The FCRA states that companies that furnish data to the consumer reporting agencies have a responsibility to provide accurate information, to update and correct information, and to respond to notices of dispute. It also states that consumers have the right to know what is in their credit records; to challenge the accuracy of that information; and to have it reverified, updated, or removed. It also limits the time derogatory information can be retained on a credit record and assures that a consumer’s privacy is protected at all times.Fleet Lease
A credit arrangement where over a period of time a lessor leases a large group of assets (vehicles) to a lessee (customer) called a fleet. This type of credit arrangement is supported by a Master Lease Agreement. The leases are direct leases. The lessor prepares the lease documents. The customers leasing the vehicles are businesses, not dealerships. Dealers are used for delivery of the vehicles to the customers. Fees are imposed on top of rent payments. When all payments have been made, the lessor can sell the vehicle at a nominal price to the lessee or at auction. Lessors also include a variety of value-added service options such as fuel cards and service maintenance in the lease agreement.Return to top
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Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) is a type of second mortgage that gives the borrower a revolving credit line similar to that of a credit card. Instead of distributing the loan in one lump sum, the lender allows the borrower to draw from the funds whenever he chooses.Return to top
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Gramm-Leach-Bliley Act (GLBA)
Regulation requiring financial institutions to:Provide their customers with notices describing their privacy policies and practices, including their policies with respect to the disclosure of nonpublic personal information to their affiliates and to nonaffiliated third parties. The notices must be provided at the time the customer relationship is established and annually thereafter.
Not disclose nonpublic personal information about consumers to any nonaffiliated third party (except under specified exceptions) unless consumers are given a reasonable opportunity to direct that such information not be shared (to “opt out”).
Generally not disclose customer account numbers to any nonaffiliated third party for marketing purposes.
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Index Rate
A percentage rate that is used to set interest rates on loans and credit cards. Index rates are based on the averages of several financial instruments such as treasury bills, Cost of Fund Index (COFI), and the London Interbank Offered Rate (LIBOR). Index rates are usually computed monthly or quarterly.Interest Forecasting
The process used in Floor Plan billing whereby the system projects interest due to a future date. Interest is typically forecasted when the due date is a number of days in the future from when the interest amount owed is calculated.Investor Processing
The process of creating and servicing and investor’s portfolio. Investor processing includes everything from the selection process, sale of accounts, servicing, and remittance to the investor. Investor processing can be either pooled (e.g., asset-backed securities (ABS) or non-pooled (one or more accounts to a single investor).Return to top
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Letter of Credit
An instrument used to track the amount of funds committed to a borrower that can be used as a guarantee of payment to the borrower’s suppliers. No outstanding balances or commitment availability data are carried on the letter of credit. Fees can be calculated on the letter of credit and billed to the borrower. When a draw occurs against a letter of credit, the amount of the letter of credit is reduced and a loan or minor commitment is created for the amount of the draw. Letters of credit can be tied to a major commitment.Line of Credit
Agreement by a financial institution to lend funds to a borrower up to a specified amount over a specified future period. A line of credit can be revolving or non-revolving.Return to top
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Metro 2 Format
A standard electronic data reporting format created to comply with the 1996 amendments to the Fair Credit Reporting Act and designed to allow reporting of accurate and complete consumer credit history. The Credit Data Industry Association (CDIA) is the trade group representing the credit reporting industry and is responsible for this standard reporting format.Minor Commitment
A minor commitment is an advancing note agreement whereby funds can be drawn by the customer against the committed amount.Return to top
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National Automated Clearing House Association (NACHA)
A trade group promoting uniform rules and standards for automated clearing house associations. NACHA develops the operating rules and business practices for electronic funds transfers to improve the payment systems for members and customers.Non-Performing Loans
There may be times when it is necessary to place a loan in nonaccrual status. No interest accruals will be earned while the loan is in nonaccrual status.North American Industry Classification System (NAICS)
A means of categorizing a customer’s primary classification of business or the specific classification for an account.Return to top
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Patriot Act
As it relates to lending, the Patriot Act requires institutions to house explicit information (identification used in the application process) about their lending customers.Payment Deferral
A payment deferral allows the customer to defer one or more monthly payments to the end of the contract, thus extending the maturity date by the number of months deferred but not increasing the total number of payments due on the account.Return to top
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Regulation Z
Regulation Z (Reg. Z) is a large Federal regulation covering many areas of consumer lending. The portion of Reg. Z that affects ARMS Loan processing is the production of Rate and Payment Change Notices. Only ARMS loans can qualify for special disclosure as defined by Reg. Z (closed-end transactions, loans secured by the consumer's principal dwelling, loans having a term greater than one year and loans in which the annual percentage rate can increase after consummation).Return to top
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Securitization
Loans or lines of credit are sold to a trust. The seller receives the proceeds from the sale. Asset-backed certificates representing undivided fractional interests in the assets of the Trust (including any credit enhancement) are sold to investors. The seller continues to collect payments due on the sold loans or lines of credit for a specified servicing fee. Daily payments are passed to the trust with monthly totals and past due information.Shadow Loans/Notes
When a note is to be repaid at a reduced billable rate while continuing to accrue at the loan rate, this dual-accrual requirement is accomplished by establishing a shadow note. The shadow note carries the billable interest rate and drives the billings. The loan and the shadow note are reconciled periodically and at loan maturity. At reconciliation, the differential interest between the loan and the shadow is capitalized to the loan’s Current Loan Balance.The underlying method behind the structure is to allow a primary loan to continue accruals at an established rate while at the same time a second structure, a shadow of the primary loan, will accrue at a different rate. This action creates a differential interest balance between the primary loan and the shadow. Accruals of the primary loan affect general ledger, while shadow accruals are generally memo posted; however, the shadow accruals can be directed to separate general ledger controls and can affect general ledger if necessary. Normally, the interest rate on the primary loan is greater than the interest rate on the shadow. However, the interest rate on the shadow can exceed the interest rate on the primary loan. Additionally, the shadow can also have a zero interest rate. Regardless of the interest rate on the shadow, the interest differential continues until a decision is made to reconcile the differential interest between the loan and the shadow. This reconciliation normally occurs periodically and at loan maturity; however, reconciliation may not occur at all and the differential may continue to be tracked as needed.
Small Business Administration (SBA) Lending
An SBA loan is defined as a loan that provides financing for the customer's business. This loan has been approved by the Small Business Administration for its guarantee program. The SBA may approve, and thus guarantee, 50% to 90% of the loan balance. Assets of the business and/or customer collateralize an SBA loan. All SBA loan activity is handled by the lender. The lender establishes the terms of the loan with the customer, manages the loan, and works with the customer to handle any questions or problems.Subvention
Provision of assistance or financial support; subsidy. Subvention allows third parties to contribute funds to subsidize loans or leases.Return to top
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Truth in Lending Act
The Truth in Lending Act (TILA) is designed to promote the informed use of consumer credit by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed.Return to top
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VIN
Vehicle Identification Number. All vehicles sold in the United States are required to have a standardized VIN. The VIN is a 17-character identifier placed on each vehicle by the manufacturer. The combination of letters and numbers are codes identifying the manufacturer, the vehicle type and body style, and the specific vehicle information, such as options or transmission. The last five digits must be numeric. When searching with a VIN, enter the last digits (the number of digits on which to search is determined by your Company/Ops Area setting, such as five).Return to top
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Wholesale Floor Plan
A dealer's floor plan, leasing plan, or inventory is carried on a system by establishing a line of credit for the dealer. Under this line, each unit (or car if the floor plan is for an automobile dealer) is placed on the system as a loan. A special transaction allows the user to make one payment from the dealer to satisfy payments due from each unit tied to that credit line.Return to top
This glossary is a compilation of terms that our web visitors frequently search. It is not intended to be a comprehensive list. For additional information, try these resources:
- http://www.forbes.com/tools/glossary/index.jhtml
- http://www.financialdictionary.net/
- http://www.duke.edu/~charvey/Classes/wpg/glossary.htm
- http://www.financeglossary.net/