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#534976 - 04/22/06 03:27 AM Reg O Issue
Jan94 Offline
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Joined: Mar 2001
Posts: 828
USA
Just wanted to bounce this off someone. Several years ago the bank extended a personal revolving LOC (unsecured) to the bank's president. The president wanted the bank to set this up for a 12 month maturity with the rate of prime -1. The bank made this a variable rate loan providing for an annual statement because the president did not want to receive "bills". The PLOC agreement only provides for monthly or quarterly statements, but the bank xxx through that and types in "Annual" and has the president initial. He pays the loan off when he receives his annual bonus and it is "renewed". However, a problem is that since there is an annual statement when the loan matures the rate would not actually change until the day AFTER the loan matures. The CLO manager believes that this should be set up as a fixed rate loan for this reason vs. a variable rate loan. That is one issue. However my question is if we continue to renew this loan in this manner could it possibly be viewed as providing preferrential treatment to the president for purposes of Reg O or am I making more of this than is there? Appreciate thoughts.

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Lending Compliance
#534977 - 04/22/06 03:34 AM Re: Reg O Issue
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,293
Does the bank have any other loans set up like this/priced like this? Only you can tell us that and that is how you determine if there is preferrential treatment.

Is he only paying interest annually? That is unusual. Interest is normally no less than quarterly.But, again, you would have to advise if there are other loans like this in the portfolio.
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Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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#534978 - 04/23/06 03:27 PM Re: Reg O Issue
Jan94 Offline
Platinum Poster
Joined: Mar 2001
Posts: 828
USA
I am not sure if there are other similar loans. In talking with the CLO manager, she indicated that this is really a "work around" type of situation that they would only do when the lender makes a special request. In this instance, the president didn't want to receive any type of bills or statments and yes, he is only making a one time payment at the end of the 12 month maturity.

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#534979 - 04/25/06 04:26 AM Re: Reg O Issue
Kathleen O. Blanchard Offline

10K Club
Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,293
You might have a preferential situation. If/when the regulators notice it, they will ask to see proof that it is not. When a special request like this is made for an insider, there needs to be a comparison to find similar deals for non-insiders.
_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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