Skip to content
BOL Conferences
Thread Options
#2275668 - 09/16/22 02:12 PM Reg O - Line of credit 14 month rule
Kisha Offline
100 Club
Joined: Feb 2011
Posts: 238
I have a question regarding the 14 month rule for lines of credit. We have a Reg O audit being performed right now. In our initial report, there is a recommendation (see below):

'Regulation O does not require the prior approval of the Board of Directors for an advance from a line of credit that had been approved by the Board within 14 months of the advance. The Regulation O policy of the Bank refers to this regulatory requirement. It means that, even if a line of credit expires more than 14 months after it was approved by the Board, the Board must approve it again within 14 months from the prior approval. As a matter of practice, we recommend that this requirement be applied to HELOCs as well, which may have a maturity exceeding 14 months, to avoid potential violations related to unauthorized advances from such a line of credit.'

We have searched and searched for more details regarding the 14 month rule. We have a HELOC (2017) to a director in the amount of $250,000. The HELOC has a 20 year term, a 10-year draw period and a 10-year payback. The director has never taken an advance. If the director wants an advance, would we be required to have that advance approved prior to withdrawal since it has been more than 14 months since it was originated? Is this something that is required for HELOCs to directors? It is not very clear in the Regulation. Is this something that would also apply to a personal line of credit to a director?

Any information would be greatly appreciated. Thank you!

Return to Top
Lending Compliance
#2275671 - 09/16/22 02:38 PM Re: Reg O - Line of credit 14 month rule Kisha
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Is the director's total borrowing over the limit that requires board preapproval? If it is, then the HELOC needs re-approval at least every 14 months.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2275672 - 09/16/22 03:07 PM Re: Reg O - Line of credit 14 month rule rlcarey
Kisha Offline
100 Club
Joined: Feb 2011
Posts: 238
This is a whole new area for me. Where would that limit come from? Is that set by the bank or by the Regulation?

I am reading a segment from Title 12 Banks and Banking, Chapter II Federal Reserve System:

215.4 General prohibitions.

(b) Prior Approval
(1) that talks about exceeding higher than $25000 or 5 percent of the member bank's unimpaired capital and unimpaired surplus unless
(i) the extension of credit has been approved in advance by a majority of the entire board of directors of that bank; and
(ii) the interested party has abstained from participating directly or indirectly in the voting

(2) that states in no event may a member bank extend credit to any insider of the bank or insider of its affiliates in an amount that, when aggregated with all other extensions of credit to that person, and all related interests of that person, exceeds $500,000, except by complying with the requirements of this paragraph (b).

So, would we calculate 5% of our legal lending limit to come up with that limit that requires board pre-approval?

Return to Top
#2275673 - 09/16/22 03:17 PM Re: Reg O - Line of credit 14 month rule Kisha
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Correct, if that limit turns out to be less than $500,000, which means your total capital is less than $10 million. If you are a State bank, your State laws may have additional restrictions on insider lending.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2275676 - 09/16/22 03:27 PM Re: Reg O - Line of credit 14 month rule rlcarey
Kisha Offline
100 Club
Joined: Feb 2011
Posts: 238
Thank you so much! I am interpreting this rule applies to all lines of credit, personal, commercial, HELOC, correct?

Return to Top
#2275678 - 09/16/22 03:43 PM Re: Reg O - Line of credit 14 month rule Kisha
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Correct - individual draws on a line of credit that requires board approval is not required as long as the board has approved or re-approved the line of credit within the last 14 months.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2275682 - 09/16/22 04:24 PM Re: Reg O - Line of credit 14 month rule Kisha
Kisha Offline
100 Club
Joined: Feb 2011
Posts: 238
I hate to keep beating a dead horse, and I appreciate your continued guidance. One last clarification.

If our director with the $250,000 HELOC wanted to take an advance and our limit is $600,000 because our legal lending limit is $12 million, we would not need prior approval, correct?

I think I should be good after this. Haha!

Return to Top
#2275690 - 09/16/22 05:50 PM Re: Reg O - Line of credit 14 month rule Kisha
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
Anything over $500,000 automatically require prior approval.

(2) In no event may a member bank extend credit to any insider of the bank or insider of its affiliates in an amount that, when aggregated with all other extensions of credit to that person, and all related interests of that person, exceeds $500,000, except by complying with the requirements of this paragraph (b).
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2275691 - 09/16/22 06:08 PM Re: Reg O - Line of credit 14 month rule rlcarey
Kisha Offline
100 Club
Joined: Feb 2011
Posts: 238
Thank you again! I understand.

Return to Top
#2275711 - 09/16/22 10:26 PM Re: Reg O - Line of credit 14 month rule Kisha
fmissle Online
Diamond Poster
Joined: Jul 2007
Posts: 1,016
Pac NW
I had no idea about this part of the rules in Reg O.

Great discussion, thanks for the information.

Return to Top
#2282593 - 03/23/23 08:44 PM Re: Reg O - Line of credit 14 month rule rlcarey
lucyc Offline
Diamond Poster
lucyc
Joined: Jul 2007
Posts: 1,074
"Is the director's total borrowing over the limit that requires board preapproval? If it is, then the HELOC needs re-approval at least every 14 months."

What if the director's total borrowing is not over the limit that requires board approval? Are lines of credit to an insider still required to be re-approved?

Return to Top
#2282595 - 03/23/23 08:54 PM Re: Reg O - Line of credit 14 month rule Kisha
rlcarey Online
10K Club
rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
No.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2282598 - 03/23/23 09:02 PM Re: Reg O - Line of credit 14 month rule rlcarey
lucyc Offline
Diamond Poster
lucyc
Joined: Jul 2007
Posts: 1,074
Thank you

Return to Top

Moderator:  Andy_Z