What federal regulations control banks and loans? What duty do banks have in inspecting title to cars that they are giving out loans for? Thank you!

Your question about federal regulations is much too broad for us to provide a good response. If you provided more detail, we might be able to help.

As for the auto title. Prudent lenders will require the the certificate of title for a vehicle list the bank as lienholder. They will also want to ensure there are no other lienholders of the vehcile.

The bank would rarely, however, have a reason to question the accuracy of a vehicle title certificate.

Thank you for your response, more specifically, I was wondering if any federal regulation imposed a duty on banks to verify a title on a car or what federal regulations controlled banks duties in providing loans?

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duties in providing loans?

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Banks are businesses that offer loan products. These products are governed by the competiveness of the market place, as well as state and federal regulations which fill books several feet thick. As with any lender there is a responsibility to comply with the legal requirements and intent of the regulations. I guess you can say a lenders "duty" depending on how you define this term, is outlined in the regulations.

As far as car loans the bank relies on the department of motor vehicles to make appropreiate transfers of title. It accepts documents from individual borrowers and dealerships that attest to proper transfer of title, just as any other person or lender is required by the state DMV codes. The bank needs to perfect its lein on a vehicle in order to hold a vehicle as colatteral for a loan.

It would be better if you state a specific problem or circumstance you are having with a title in order to give you an answer as there are just to many applications of regulations to consider.

The problem is if a bank gives a loan for a car (without seeing its title, because if it had it would know the car was actually a leased vehicle and thus the person who sold this car really was not able to sell this car as it was leased to him), and this vehicle is later impounded because it was a leased vehicle and the person who sold it was wrong in selling it because he didn't own it, but it was leased...does the bank have any duty to see the car title/investigate its validity before it issues a loan for the car. Should the bank have asked to see the title before it gave a loan or looked into the validity of the title? Is there any federal regulation that covers this duty? THANK YOU!!

There is no federeal regulation that I know of that would address this issue.

The bank assumes on car deals that the buyer will be given proper title to the vehicle and the buyer will bring the title to the bank so a lien can be placed. Different banks may have different procedures regarding this, and even within the same bank, different personnel may have different practices relative to this.

In this situation, the recourse would appear to be against the seller, not the bank.

I agree with RGS, the bank was the unintended victim in this tale of woe as much as the buyer of the vehicle that it appears was not owned by the seller. The buyer's recourse is against the seller, not the bank that in good faith loaned him/her the money to buy a vehicle. There are no regulations that require banks to inspect titles prior to a transaction taking place. The buyer should have conducted due diligence to determine the vehicle's true owner before the loan was obtained.

I disagree with Don slightly in that in a private sale between individuals, the bank should inspect the vehicle it is taking as collateral. This is to get an idea that the value is not decreased by damage and that a real vehicle exists, and has current license and registration. The bank then collects all the DMV paper work which would include looking at the registration to make sure the legal owner is getting paid so title can be transfered to the bank. This is a due diligence procedure to insure the bank will own the collateral and have a loan balance that approximates the value of the collateral.

In case of buying the car through a dealership. the bank assumes the dealer will collect and handle all the DMV work which includes naming the bank as the new legal owner.It generally has recourse back to the dealer if title becomes a problem.

Is there a law that requires them to do that - no, but it is sloppy lending and the bank is out their collateral because a good business practice was not used. If they are saying OK we don't have a title but you still have a loan to pay the bank then I recommend you do two things.

First get an attorney to act in your behalf to get the loan canceled. This means a loss to the bank so they will not easily cancel the debt. If you can show negligence on the banks part you may have a chance of escaping paying for something you don't have. If you have the car and no title the leasing company can repossess the car for non payment as it legally belongs to them.

Again there are tinges of DMV fraud here and you may have a legal case against the bank and certainly against the party that sold the car to you and warranted ownership. Thats fraud and criminal prosecution can be pursued.

If they made a personal loan to you to buy the car and did not take it as collateral, then you may be out the money as its not the banks responsibility to obtain title for you. It becomes your due diligence.

I have to agree with Don #1 more than Don #2. I think it is the obligation of the party buying the car to ensure that he will have clear title. I even feel that the bank more likely has a claim against the borrower for misrepresenting the fact that he would gain title to the vehicle, thus leaving the bank's loan uncollateralized. It's probably even an event of default within the loan documentation.

What if the borrower bought the car for cash? Who would he blame then? The same party he should blame in this case, the fraudulent seller.

I don't disagree that it is a good practice to inspect a car and its paperwork before making a loan collateralized by it, but for some banks, to do so would be prohibitive to the point that they wouldn't be able to offer their customers car loans. But I disagree that the bank incurs liability by failing to perform inspections.

Things have obviously changed since my active banking days, but I never in 30 years worked at a bank, or knew of a bank that did not inspect collateral being taken for a loan. If blue book wholesale was $10,000 and we loaned 80% of blue book, we inspected the vehicle to make sure it was worth the $8,000 we were lending. We obtained a description of the vehicle as well as license plate number and expiration date. In California we have to collect license renewal fees if it is due to expire within 30 days as well as smog inspection certificates, insurance information and a host of others documents.

It is the loan officers responsibitity to insure the bank can perfect a lein against collateral. Otherwise the loan should not be made. A loan officer has a responsibility to protect the customer as well as the bank.

Not having time to inspect collateral just makes me shake my gray haired head and utter a Charlie Brown. !GOOD GRIEF!

I don't know if I disagree with my friend Don N. or not. Here in Texas it can take up to 4 weeks before we actually see the title to the car. I am not a consumer lender, but the order of activity occurs something close to this:

customer applies for a car loan, and the seller (if a dealer) drafts us for the sales price. We receive from either the seller or the dealer the infamous "White Slip". This white slip is the tax receipt from the local tax office that the title has been applied for and the taxes paid. It has all the same info on it that the title has. so we check the white slip against the info provided.

Comment #1--I suspect that whether a lender inspects the vehicle, the title, etc. has alot to do with the local market and whether or not there is an existing relationship with the borrower. For example, it would not be uncommon at all for a lender to rely on the word of a customer to whom he had made prior loans, especially in a small town where practically everyone knows everyone and the banks know all the auto dealers.

Comment #2--"In good faith" from previous post; the loan officer relied on you "in good faith", you relied on the loan officer and the seller "in good faith", the seller did not act "in good faith". Unfortunately, you and the lender were both taken advantage of, your action should be against the person that attempted to sell you the car. I recommend that you work with your bank to resolve this.

Good luck.