Why would you not mark the Due on Demand but if no Demand is made box on a consumer loan? We have always marked it on our consumer loans and I can't find a Georgia law that explains why or why not mark it.

Any help is appreciated.

Why would you mark the loan payable on demand if it's not a demand note? Generally, a demand loan IS payable on demand and that is noted as the maturity date with disclosures based on a one-year term.

There would be no other reason to mark this feature as it has no bearings on default clauses.

There is no rational reason that I can see, Joker, however it does seem to make our loan officers feel good - so they do it.

You most likely are in violation of Regulation Z.

226.17(c) Basis of disclosures and use of estimates. (1) The disclosures shall reflect the terms of the legal obligation between the parties.

If the demand provision is not part of the legal obligation, it makes your TIL disclosure wrong.

I could also see where marking that box when it wasn't really true being deemed an unfair and deceptive practice.

You are correct, Randy.

There are demand clauses in the legal obligation of the note - it simply doesn't fit the profile Joker laid out of no maturity date.

There are several types of demand notes. One is due on demand with no maturity, as Joker eluded too - and in that case, you assume a one year maturity for TIL disclosure requirements. The other is with a payment schedule, but also allows for the bank to demand payment at any time. The demand clause that requires the demand disclosure is also not related to any demand clause that may exist due to default by the borrower.

Thanks, Randy....you said that so much better than I did. I couldn't remember where to find the cite about the "one-year disclosure assumption" on the "due on demand"..I just have it in my head!...do you know where it's actually cited? It's driving me crazy now.

Commentary:

Paragraph 17(c)(5).

1. Demand disclosures. Disclosures for demand obligations are based on an assumed 1-year term, unless an alternate maturity date is stated in the legal obligation. Whether an alternate maturity date is stated in the legal obligation is determined by applicable law. An alternate maturity date is not inferred from an informal principal reduction agreement or a similar understanding between the parties. However, when the note itself specifies a principal reduction schedule (for example, “payable on demand or $2,000 plus interest quarterly”), an alternate maturity is stated and the disclosures must reflect that date.

Many thanks!

I know our Laserpro software allowed the "demand, with alternate maturity" language: "payable on demand, but if no demand is made, then payments shall be made ..." (or something to that effect).

Our lawyer called these "false demand notes" vs. "true demand notes" and didn't act like there was any real issue with them. He preferred we not use the option for clarity sake, but our lender's also preferred the language. It gave them warm fuzzies.

Events of default can and usually do include an acceleration clause when the lender "deems itself insecure"or "at will." [UCC, Section 1-309] It is safe and easy to use as long as you do it in good faith. It is a better and less complicated warm fuzzy.