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What are Loan Policy Exceptions?

By Cameron Marks posted 02-27-2023 13:26


Loan policy exceptions are exceptions that are made to a financial institution’s loan policy, which defines how and to whom the bank or credit union lends. Loan policy exceptions occur when a financial institution decides to take actions that fall outside of its standard lending practices.

Examples of Loan Policy Exceptions

One financial institution could potentially serve hundreds or thousands of individuals, businesses, nonprofits, and other entities. Creating a loan policy that perfectly anticipates and addresses the diverse needs of such a broad customer or member base is practically impossible. Making occasional exceptions to the financial institution’s loan policy gives the financial institution flexibility to support the evolving needs of its constituents. However, exceptions of any type—including loan policy exceptions—should be the “exception” rather than the norm. Too many loan policy exceptions may indicate a disconnect between the financial institution’s loan policy and its actual business practices.

Examples of loan policy exceptions can come in many forms and relate to a variety of factors, such as:

  • Financial ratios, such as debt to income or loan to value
  • Loan amount
  • Appraisals
  • Collateral
  • Geography
  • Industry

Loan policy exceptions must be carefully considered and approved (typically by the loan committee), documented, and tracked for compliance and other reasons.

Tracking Loan Policy Exceptions

Many financial institutions utilize spreadsheets to track their loan policy exceptions. Spreadsheets offer an affordable and flexible way to track policy exceptions but can quickly fall into disuse and contain outdated information.

Some banks and credit unions use a document management system like AccuAccount to streamline their tracking and reporting of policy exceptions. Centralizing all of a financial institution’s exception activity into one system can yield enhanced levels of efficiency and reduce the chances of errant data.

Regardless of technology, the financial institution needs a scalable and reliable way to track its loan policy exceptions. Failing to implement proper tracking workflows can lead to unreliable information and difficult audits and exams.

Aligning Loan Policy Changes & Exception Tracking

Modifying a financial institution’s loan policy could impact downstream workflows, particularly with regard to loan policy exception tracking. Creating alignment between loan policy and exception tracking teams is key for avoiding oversights and ensuring accurate reporting.

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