Reg O seems to be the popular topic lately, so I will add one to the list.

We have a Floor Plan line to a company owned by a member of our board. The line has been on the books since the mid-'90s, and I am being told that the original note is still in affect. Since the 2000s, all Floor Plan lines of credit notes contained a clause which gives the Bank the ability to charge certain fees. The Board member' original note predates this fee language. The Bank now wants to 'turn-on' this fee feature. The affect will be that all floor plan customers, EXCEPT the Board member's company, will be subject to those fees.

My thoughts are that we can't possibly justify instituting these fees on all Floor plan customers except the Board member, as that would be clear preferential treatment. The lender is obviously arguing that the Board member's note doesn't contain that option and that we are simply abiding by the original agreed terms.

I have several thoughts on this, but nothing concrete other than 'if it smells like preferential treatment, than it probably is'. I'm thinking that the Bank should have instituted the language at one of the annual renewals or at some point when a 'change in terms' was documented.

Any help or opinions would be greatly appreciated.

Are you saying that the company owned by the director is still governed by a note dated mid-90? Or are you saying that all floor plan loans, no matter when they started, are now governed by a new note that has that fee clause - the director's note just started back in the 90's? Your current note and/or loan agreement for each borrower and it's provisions would govern this requirement.

Sorry, I was referring to the note for the actual Floor Plan Line of Credit, not the individual notes under the line. The fees have to do with how the line is handled, ie. timeliness of pay-offs, sold-not-paid off vehicles, etc... When I mentioned other Floor Plan lines, I was referring to master lines with other auto dealers. The master notes for these lines now contain the option to charge various fees, that the note to our Board member (from the mid-90's) does not include, since it was originated prior to the implementation of the fees. I hope that makes sense.

I think you are walking a fine line. Plus, regardless of when a master note may have been executed, are you telling me that it never is renewed? These are evergreen credit agreements? I would not be wanting to bank on collecting on a commercial note written 20 years ago for any customer. Times have changed and I am sure that other provisions in your credit agreements have also changed considerably to take into consideration of all sorts of risks that have materialized over the last 20 years. I would not be wanting to be the one standing in front of an examiner making this sort of an argument.

Thanks, I totally agree. I am going to go with the argument that, per Reg O, an extension of credit is any granting or RENEWAL of credit. The line is technically renewed every year, even though it isn't re-documented at each renewal.

Even if the loan is renewed each year if the original note is still the legal obligation then additional fees not contracted for cannot be added without a modification to the note.

Yes, I have recommended that the line be re-documented with the standard fee clause added.