Question & Answer

Question: If a director's account has an overdraft and the director covers the overdraft before the 2:00 p.m. pay/no-pay deadline, is the overdraft a loan for purposes of Regulation 0? Does it make any difference if the amount is over or under $1,000?

Answer: If the director covers the loan (and we mean cover - not write a questionable check!) before your operating deadline, the transaction should not be considered a loan for purposes of Regulation 0.

There are some caveats to this. For example, if the check that created the overdraft was used to obtain credit or the deposit to pay the overdraft is related to credit, you should evaluate the situation very carefully The key to the conclusion that the covered overdraft is not a Regulation 0 problem is that the deposit account transaction is resolved without involving credit before the operating deadline.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 16, 10/96