Trying to determine if a letter of credit is directly covered by Regulation B. Typically in my experience a letter of credit is tied to either a loan or a hold on a deposit account. In most instances it is tied to a line of credit and if the letter of credit was ever presented for payment a bank would be obligated to pay and would in turn draw down from the line indebting the borrower for that amount. In this scenario are both the letter of credit and line of credit covered by Regulation B? It seems as if it should just be the line of credit that is covered, but I can't find a specific exclusion in Reg B for the letter of credit (unless you say the right to defer payment is actually tied to the line and not the letter).


Official Interpretation

2(j) Credit.

1. General. Regulation B covers a wider range of credit transactions than Regulation Z (Truth in Lending). Under Regulation B, a transaction is credit if there is a right to defer payment of a debt—regardless of whether the credit is for personal or commercial purposes, the number of installments required for repayment, or whether the transaction is subject to a finance charge.

Will it be tied to an existing line of credit?

I have seen it done both ways over the years. Are you thinking tied to a new line of credit versus existing line of credit would impact the Reg B applicability to the letter of credit?

Yes, because the line is the underlying credit instrument. A letter of credit secured by an existing line, is not new credit, it is only a access feature.

That is similar to what I was thinking as well. So can we take it one step further - What about a scenario in which the letter of credit and the line of credit securing the letter are executed on the same day? I would still say the letter of credit is not necessarily credit under Reg B, but instead just an access feature to the line of credit which is ultimately what is covered by Regulation B. I just don't see how new line of credit versus existing line of credit ultimately impacts the letter of credit? I feel in both scenarios the line of credit is subject to Reg B and the letter of credit is not.

That is the way I see it.

I've had a similar question come up about a line of credit. In this scenario, there is no line of credit. I'm trying to work through some questions on the business side about the Reg B joint intent requirements. If there is no line of credit, does the "commitment" letter serve as the application for joint intent purposes? I'm told that the commitment letter is not issued until there is full approval but it seems like there would be some "application" involved but would it be an application for this purpose (Reg B joint intent)? Thank you for any feedback.