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#1838322 - 07/31/13 10:56 PM
Insider loan?
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Gold Star
Joined: Nov 2007
Posts: 437
Nevada
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If an insider pledges his collateral for a non-insider, is that loan considered a REG O loan? Under REG O Extensions of credit, 215.3 A-7 says:
(7) Any other similar transaction as a result of which a person becomes obligated to pay money (or its equivalent) to a bank, whether the obligation arises directly or indirectly, or because of an endorsement on an obligation or otherwise, or by any means whatsoever.
It's the "indirectly" and "endorsement" that makes me think the above would be classified as a REG O loan.
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#1838723 - 08/01/13 10:05 PM
Re: Insider loan?
Kathleen O. Blanchard
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Gold Star
Joined: Nov 2007
Posts: 437
Nevada
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I have been told that unless the insider receives direct benefit from this loan, it would not count, even tho he is pledging the collateral. The REG leaves a lot to interpretation, I guess. Thanks for your response, Kathleen.
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#1838778 - 08/02/13 01:12 PM
Re: Insider loan?
Marnie
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10K Club
Joined: Aug 2002
Posts: 47,673
Bloomington, IN
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REG leaves a lot to interpretation, I guess.
The regulation you cite plainly states "obligated to pay money (or its equivalent)", the insider is obligated to relinquish his property to satisfy the loan if the loan defaults. I'm not sure how one could argue that is not an obligation to pay money or its equivalent.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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#1838966 - 08/02/13 04:53 PM
Re: Insider loan?
Dan Persfull
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Gold Star
Joined: Nov 2007
Posts: 437
Nevada
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The decision was made by our Legal dept who said the insider is not the applicant nor does he receive any benefit from the loan, so it doesn't count. I don't agree, but there it is.
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#1839009 - 08/02/13 05:42 PM
Re: Insider loan?
Marnie
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10K Club
Joined: Aug 2002
Posts: 47,673
Bloomington, IN
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When the insider is obligated to pay money or its equivalent benefit is not a consideration. The legal department is opening the bank up to potential penalties IMO. The following are the last CMPs that can be assessed that I am aware of.
Civil Money Penalties - FIRREA
Tier 1 - $5,500 per day Tier 2 - $27,500 per day Tier 3 - $1.1 million per day
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.
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#1839103 - 08/02/13 07:13 PM
Re: Insider loan?
Dan Persfull
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Platinum Poster
Joined: May 2003
Posts: 639
South Louisiana
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I asked the following question to the FDIC 10/2004:
Director/Executive Officer pledges personal Certificate of Deposit to the loan of an unrelated party. The Director/Executive Officer does not sign the loan as a guarantor or endorser, but only signed to pledge the CD. Does the pledging of a CD which is owned by the Director/Executive Officer constitute an “indirect obligation” to the Director/Executive Officer that would make the loan request subject to Reg. O?
Answer received: No, pledging the CD in and of itself alone, does not constitute an indirect obligation. Instead, the issue would be whether the director either signed on the note as co-maker, endorser, or guarantor of the note. Then the indirect obligation issues comes into play.
This loan remains on our books, has been reviewed many times and never questioned. (Just sayin)
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#1839275 - 08/05/13 01:24 PM
Re: Insider loan?
Ski
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Diamond Poster
Joined: Jan 2004
Posts: 1,621
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....but instead of pledging a cd, if the director had instead guaranteed the note, then it would fall under Reg O.
that has always been our thinking - guarantees are included
_________________________
My views, not my employer's views.
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