LoanPro Glossary

Anti-Money Laundering (AML) encompasses regulations and processes to combat financial crimes and prevent illegally obtained funds from entering the financial system. Key components include automated transaction monitoring, compliance reporting, suspicious activity detection, and identity verification (KYC/KYB). Modern lending platforms support configurable AML workflows and integrations with compliance partners, helping financial institutions reduce regulatory risk while maintaining operational integrity and sustainable growth.

Automated Loan Workflows (also called loan workflow automation or lending automation) are configurable processes that eliminate manual tasks throughout the loan lifecycle—from origination and underwriting to servicing and collections. These workflows use rules engines and API integrations to automatically execute actions like adjusting payment schedules, triggering compliant borrower communications, calculating fees, or updating loan status. Benefits include improved operational efficiency, reduced costs, minimized human error, and better scalability for high-volume lending portfolios. Essential for modern loan management systems.

A charge-off (or charged-off account) is a delinquent loan or debt that a lender has deemed uncollectible and written off as a loss on their balance sheet (bad debt expense). Lenders typically charge off accounts after 120-180 days of non-payment, though policies vary by loan type and jurisdiction. Important: Charge-offs severely impact borrower credit scores and remain on credit reports for seven years. Lenders may still attempt collections on charged-off debt. Effective delinquency management, automated collections workflows, and hardship programs help reduce charge-off rates and protect portfolio profitability.

Closed-end credit is a loan with a fixed term where borrowers receive a lump sum and repay it through scheduled payments until fully paid off. Unlike open-end (revolving) credit, closed-end loans cannot be re-borrowed and close after final payment. Common types: mortgages, auto loans, personal loans, student loans. Features include fixed loan amounts, set repayment terms, predictable monthly payments, and defined payoff dates. Lenders must maintain TILA compliance and accurate amortization schedules. Also called installment credit, term loans, or non-revolving credit.

The Consumer Financial Protection Bureau (CFPB) is the primary federal regulator for consumer financial services, created in 2011 by the Dodd-Frank Act. The CFPB writes regulations, conducts examinations, enforces compliance, and investigates violations across banks, credit unions, lenders, loan servicers, and debt collectors. Major regulations include Truth in Lending Act (TILA/Reg Z), Fair Credit Reporting Act (FCRA), Fair Debt Collection Practices Act (FDCPA), Equal Credit Opportunity Act (ECOA/Reg B), and UDAAP rules. Enforcement tools include consent orders, civil money penalties, and corrective actions. Lenders must maintain compliance programs and adapt operations to evolving CFPB guidance and enforcement priorities.

The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 is federal legislation that reformed credit card industry practices to protect consumers from unfair and deceptive practices. Key consumer protections include: 21-day minimum payment periods, 45-day advance notice for rate increases, prohibition on retroactive rate increases on existing balances, restrictions on over-limit fees, payment allocation to highest-interest balances first, and ability-to-pay requirements for applicants under 21. For card issuers, the CARD Act mandates specific disclosure requirements, fee limitations, and operational rules. Enforced by the CFPB and federal banking regulators.

Credit risk assessment evaluates the likelihood that a borrower will default on debt obligations by analyzing financial history, current circumstances, and repayment ability. Lenders use credit scores (FICO, VantageScore), alternative data (utility payments, banking behavior), and machine learning models to assess individual borrower risk, concentration risk, and systemic risk. Key metrics include probability of default, loss given default, and exposure at default. Modern technology enables automated underwriting, real-time assessment, and predictive analytics for early default warning signs. Effective risk assessment supports appropriate pricing, portfolio optimization, regulatory compliance, and profitable lending operations.

Debt rescheduling modifies existing loan terms to help struggling borrowers manage repayment, typically by lowering payment amounts or extending payment periods. Different from refinancing (new account) or debt consolidation (combining accounts), rescheduling changes the original account structure. Used with forbearance and hardship programs as part of delinquency management to prevent defaults and bankruptcy. Credit providers must determine rescheduling options, qualification criteria, automation workflows, and analytics tracking. Benefits both parties: borrowers gain payment flexibility, lenders improve retention and reduce charge-offs. Modern loan servicing platforms enable configurable rescheduling options, streamlined approval processes, and performance analytics.

A decisioning engine is software that evaluates applicant creditworthiness and determines credit product qualification through automated risk assessment. The process includes knockout rules, third-party data enrichment, predictive risk scoring, affordability analysis, and optional manual review. Modern engines enable real-time credit decisions while ensuring ECOA compliance and fair lending practices. Key features include configurable approval rules, multiple data source integration, built-in compliance tools, and seamless platform integration with loan origination and management systems. Benefits include faster approvals, operational efficiency, reduced manual underwriting, and enhanced customer experience for retail, point-of-sale, and healthcare credit. B2B decisioning requires specialized fraud detection for synthetic identities and shell corporations.

The Fair Credit Reporting Act (FCRA) is a federal law enacted in 1970 that regulates how consumer credit information is collected, used, and shared by consumer reporting agencies and credit providers. FCRA promotes accuracy, fairness, and privacy of consumer reports including credit histories, employment verification, and rental information. Key lender obligations include obtaining reports only for permissible purposes, providing adverse action notices when denying credit or offering unfavorable terms, furnishing accurate information to credit bureaus, investigating disputes within 30 days, and following fraud alert procedures. Enforced by the CFPB and FTC. Violations result in actual damages, statutory damages ($100-$1,000 per willful violation), penalties, and potential class action lawsuits. Amended by FACTA in 2003 to add identity theft protections.

The Fair Debt Collection Practices Act (FDCPA) is a federal law enacted in 1977 that regulates debt collection practices and protects consumers from abusive, deceptive, and unfair collection tactics. FDCPA primarily applies to third-party debt collectors including collection agencies, debt buyers, and collection attorneys, covering consumer debts like credit cards, medical bills, mortgages, student loans, and auto loans. Original creditors collecting their own debts are generally exempt but remain subject to UDAAP. Key requirements include communication time restrictions (8 AM-9 PM consumer's time zone), validation notices within five days of initial contact, cease communication upon written request, and prohibitions on harassment, false representations, and unauthorized charges. Enforced by CFPB with statutory damages up to $1,000 per individual violation, class action damages up to $500,000, and attorney fees for prevailing consumers.

Fair lending practices are federal requirements that prohibit credit discrimination based on protected characteristics including race, color, religion, national origin, sex, marital status, age, or receipt of public assistance income. The Equal Credit Opportunity Act (ECOA) implemented through Regulation B and the Fair Housing Act (FHA) form the foundation of fair lending law. Three types of discrimination are prohibited: overt (explicit discriminatory policies), disparate treatment (different treatment based on prohibited characteristics), and disparate impact (facially neutral policies causing disproportionate effects without business justification). Lenders must provide risk-based pricing notices when offering less favorable credit terms. Requirements apply to all creditors including banks, credit unions, fintech companies, and automated underwriting systems. Enforced by CFPB, Department of Justice, HUD, FTC, and banking regulators. Violations result in civil penalties, restitution, corrective action plans, and potential lawsuits.

Forbearance is temporary payment relief where lenders allow borrowers experiencing financial hardship to pause or reduce loan payments for a specified period without defaulting. Unlike loan modifications or debt rescheduling which permanently alter terms, forbearance provides temporary relief. Interest typically continues accruing during forbearance, though terms vary by lender. Used alongside hardship programs and debt rescheduling as part of delinquency management to prevent defaults and maintain borrower relationships. After forbearance ends, borrowers resume regular payments plus deferred amounts through lump sum payments, extended terms, or modified repayment plans. Common in mortgages, student loans, and consumer credit.

The Gramm-Leach-Bliley Act (GLBA), enacted in 1999 and also known as the Financial Services Modernization Act, is federal legislation requiring financial institutions to protect nonpublic personal information (NPI) including customer data like Social Security numbers, account information, and transaction histories. GLBA establishes three key requirements: Privacy Rule mandating clear privacy notices and consumer opt-out rights, Safeguards Rule requiring comprehensive written information security programs with administrative, technical, and physical safeguards, and Pretexting Protection prohibiting fraudulent information access. Applies to banks, credit unions, mortgage lenders, finance companies, and loan servicers. Enforced by FTC and federal banking regulators. Violations result in civil monetary penalties, criminal fines, consent orders, and reputational harm.

Know Your Business (KYB) is a regulatory framework requiring financial institutions to verify business entity legitimacy, ownership structure, and operational integrity before establishing commercial relationships. Operating as an extension of Know Your Customer (KYC) within the Anti-Money Laundering (AML) framework, KYB prevents shell companies and fraudulent entities from concealing criminal activity. Key requirements include verifying legal business name, incorporation documents, tax identification, and identifying Ultimate Beneficial Owners (UBOs)—individuals with 25%+ ownership or significant control. Due diligence operates at three levels: Simplified, Standard, and Enhanced for high-risk businesses. Established by FinCEN's Customer Due Diligence Final Rule (2016). Enforced by FinCEN and federal banking regulators. Violations result in civil penalties, consent orders, and criminal prosecution.

Know Your Customer (KYC) is a regulatory framework requiring financial institutions to verify customer identities and assess risks associated with maintaining business relationships, defending against fraud, money laundering, terrorist financing, and identity theft. Operating within the Anti-Money Laundering (AML) framework, KYC includes Customer Identification Program (CIP) requirements collecting name, date of birth, physical address, and identification number, plus Customer Due Diligence (CDD) at three levels: Simplified (low-risk), Standard (baseline), and Enhanced (high-risk customers, politically exposed persons). KYC obligations continue throughout customer relationships through ongoing monitoring and periodic information updates. Institutions must file Suspicious Activity Reports (SARs) with FinCEN when detecting unusual patterns. Enforced by FinCEN and federal banking regulators. Violations result in substantial penalties and consent orders.

Loan delinquency management encompasses processes lenders use to encourage repayment when borrowers miss scheduled payments, preventing defaults and charge-offs. Strategies range from payment reminders and hardship programs (forbearance, modified payment plans, debt rescheduling) to escalating measures like late fees, credit bureau reporting, wage garnishment, and repossession for secured loans. Effective management addresses delinquency causes including income loss, unexpected expenses, and fraud through proactive outreach, predictive analytics identifying at-risk accounts, and borrower engagement tools. Modern systems enable automated workflows, segmented communications, and FDCPA-compliant collections while reducing bad debt expense.

Loan lifecycle management is strategic oversight and administration of credit accounts from initial application through final resolution. Emphasizing a holistic, end-to-end approach, lifecycle management optimizes each interconnected stage: origination (application, underwriting, funding), servicing (payment processing, account maintenance, customer support), collections (delinquency management), and account resolution (payoff, refinancing, or charge-off). Effective lifecycle management creates operational efficiencies reducing costs, enhances risk assessment minimizing losses, and builds stronger borrower relationships driving retention and referrals. Modern approach provides complete visibility across the loan journey, recognizes non-linear borrower paths, and leverages technology including Loan Origination Systems (LOS) and Loan Management Systems (LMS) for automation and compliance.

Loan management encompasses all processes involved in extending credit to borrowers, from loan origination through servicing, collections, and ultimately payoff or account closure. Key components include origination (attracting applicants, credit underwriting), servicing (disbursing funds, payment processing, account maintenance, regulatory compliance), collections (recovering delinquent accounts), and account resolution. Loan management objectives include increasing margins through streamlining and automation, reducing risks from delinquencies and compliance violations, and driving customer loyalty through quality experiences. Loan Management Systems (LMS) centralize data and processes, automate tasks, manage compliance, improve customer experience, and enable scalability. LMS types include origination systems, servicing platforms, and credit ledgers.

Loan origination is the process of finding and vetting potential borrowers, verifying their identities and ability to repay debts, completed before disbursing funds to borrowers. Key steps include customer acquisition (attracting applicants), application submission, data gathering and identity verification, underwriting (evaluating creditworthiness and risk assessment), credit decisioning (approval, denial, or risk-based pricing), contract finalization with TILA-compliant disclosures, and funding. Origination varies by lending model—traditional mortgages may take weeks while online consumer loans approve in minutes. Compliance requirements include Know Your Customer (KYC), Know Your Business (KYB), Anti-Money Laundering (AML), Truth in Lending Act (TILA), and Equal Credit Opportunity Act (ECOA).

Loan servicing encompasses post-origination administrative and customer-facing activities throughout the account lifecycle, including disbursing funds, payment processing, statement generation, account maintenance, customer support, borrower communications, and compliance management. Activities include customer service tasks (loan modifications, payment reminders, due date adjustments) and legally-mandated processes (bankruptcy settlements, military lending protections). Modern servicing leverages self-service borrower portals, automated payment reminders, and digital statements to enhance customer satisfaction, reduce operational costs, and decrease payment delinquencies. Effective servicing balances automation with personalized support, typically representing the longest phase of loan lifecycle.

Merchant Cash Advance (MCA) is alternative business financing where businesses receive a lump sum in exchange for a percentage of future credit and debit card receivables. Unlike traditional loans, MCAs use factor rates rather than interest and repay through daily automatic deductions (holdbacks) from card processing revenue, typically 10-20% of daily sales. Repayment amounts fluctuate with sales volume, making MCAs popular with retail, restaurants, and seasonal businesses. Servicing requires specialized systems managing variable daily payments and revenue-based reconciliation.

Regulation Z implements the Truth in Lending Act (TILA) of 1968, requiring credit providers to provide clear, standardized disclosures about credit terms so consumers can make informed borrowing decisions. Covers consumer credit including mortgages, home equity lines, credit cards, installment loans, and private student loans. Key requirements include disclosing Annual Percentage Rate (APR), finance charges, amount financed, total payments, and payment schedules. Also includes consumer protections like ability-to-repay requirements for mortgages, billing dispute procedures, and right of rescission. Enforced by CFPB, FTC, and banking regulators. Violations result in penalties, restitution, and potential class action lawsuits.

Retail credit refers to credit products offered directly to consumers at point of sale or through branded credit programs tied to specific purchases or ongoing retailer relationships. Types include store-branded credit cards (closed-loop or open-loop), Buy Now Pay Later (BNPL) installment programs, and point-of-sale financing for larger purchases. Enables businesses to complete sales customers can't pay upfront while generating revenue through interest and fees. Requires compliance with Truth in Lending Act (TILA) and fair lending practices. Used across retail, healthcare, automotive, and service industries.

Revolving credit provides borrowers with maximum credit limits they can repeatedly draw from and repay, with available credit replenishing as payments are made. Unlike installment loans with fixed end dates, revolving credit offers ongoing fund access. Common types include credit cards, lines of credit, and home equity lines of credit (HELOCs). Interest accrues only on outstanding balances rather than total limits. Requires minimum monthly payments calculated as percentage of balance plus interest. Borrowers access credit on demand through card transactions, transfers, or checks without new applications.

Secured credit is financing where borrowers pledge assets (vehicles, real estate, equipment) as collateral guaranteeing repayment, reducing lender credit risk. If borrowers default, lenders can seize and sell collateral to recover losses. Common types include auto loans, mortgages, home equity loans, and secured credit cards. Typically offers lower interest rates than unsecured credit due to reduced risk. Requires lenders to track collateral values, lien positions, and insurance. Enables lending to higher-risk borrowers or larger amounts while mitigating losses through collateral protection.

Telephone Consumer Protection Act (TCPA) enacted in 1991 restricts automated telephone dialing systems, artificial or prerecorded voices, SMS texts, and faxes to protect consumers from unwanted communications. Requires prior express written consent for automated calls or texts to mobile numbers, restricts calling to 8 AM-9 PM recipient's local time, and mandates honoring do-not-call requests. Enforced by FCC. Violations result in statutory damages $500-$1,500 per violation with potential class action lawsuits. Critical for lenders conducting collections communications and payment reminders. Requires detailed consent documentation.

Underwriting automation uses software and decisioning engines to execute credit risk assessments, identity verification, and loan approvals based on predefined business logic. Replaces manual underwriting with algorithms analyzing credit reports, income verification, debt-to-income ratios, and alternative data. Enables instant approval decisions versus days or weeks with manual review. Benefits include reduced origination time, lower operational costs, consistent decision-making, and scalability for high-volume applications. Common in online lending, credit cards, and point-of-sale financing. Configurable rules balance approval speed with appropriate risk management and regulatory compliance.

Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) is a regulatory standard enforced by Consumer Financial Protection Bureau (CFPB) prohibiting practices that harm or mislead consumers about financial products. Unfair acts cause substantial injury consumers cannot avoid; deceptive acts mislead reasonable consumers; abusive acts exploit lack of understanding. Applies across lending, servicing, collections, and marketing. Original creditors are subject to UDAAP even when exempt from specific regulations. Violations result in civil penalties, consumer restitution, consent orders, and corrective action requirements. Requires transparency and accurate disclosures.

Unsecured credit is financing not backed by collateral, relying solely on borrower creditworthiness and promise to repay. Common types include personal loans, credit cards, student loans, and unsecured lines of credit. Without collateral protection, lenders face higher default risk and typically charge higher interest rates than secured credit. Approval depends on credit scores, income verification, debt-to-income ratios, and employment history. If borrowers default, lenders must pursue collections or legal action rather than seizing assets. Requires robust underwriting, risk-based pricing, and ongoing portfolio monitoring to manage higher delinquency rates compared to secured lending.