Granting of Loan Approval Authority

September 19, 1996
Mr. John A. Klimas
American Eagle Federal Credit Union
417 Main Street
P.O. Box 280128
East Hartford, CT 06128-0128

Re: Granting of Loan Approval Authority (Your July 1, 1996, Letter)

Dear Mr. Klimas:

You have requested an opinion from this office on the permissibility of the manager of the collection department having loan approval authority when he serves on a loan committee. As noted in your letter, this is an internal control/safety and soundness issue. We advised you on July 23, 1996, that we would refer your question to our Office of Examination and Insurance (E&I) for an opinion.

E&I has opined that a loan officer or collector should not have sole authority to both approve loans and receive or post loan payments. However, when the collector serves as one of several committee members approving loan disbursal, they do not have the same concerns. The principles of safety and soundness are not violated in that instance because the check and balance of a committee decision provides sufficient internal control.