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#90363 - 06/20/03 05:12 PM Reg O Demand Clause
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We have our executive officers sign a seperate demand clause when given a loan by our bank. In the case of an executive officer co-signing a loan with his spouse, should the spouse also sign the demand clause?

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#90364 - 06/20/03 05:22 PM Re: Reg O Demand Clause
Deena Offline
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Definitely. The demand clause should be part of, or an addendum to, the loan agreement; therefore, all borrowers should sign it.
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#90365 - 06/20/03 05:58 PM Re: Reg O Demand Clause
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But I believe the document should be clear as to what could trigger the clause, i.e. the EO's borrowing, not the spouses. The spouse or other party on the loan would be effected if the bank demanded payment in full, so they need to be aware.
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#90366 - 06/20/03 06:19 PM Re: Reg O Demand Clause
rlcarey Offline
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Under what conditions would you require an executive officer to "co-sign" for his/her spouse or did you mean as a co-borrower? It just smells of Reg B problems the way it is worded.
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#90367 - 06/20/03 06:25 PM Re: Reg O Demand Clause
Andy_Z Offline
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They may have requested a co-signer and she said my husband works here, is that good enough.

Don't get everyone reading into it.
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#90368 - 06/20/03 06:37 PM Re: Reg O Demand Clause
rlcarey Offline
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Andy - You are probably right that all is well and good, but I have been involved in to many of these situations where it has gone the other way - a little gun shy I guess. I just can't help but ask the questions because you would be surprised how some people still interpret the spousal signature rules.
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#90369 - 06/20/03 06:50 PM Re: Reg O Demand Clause
1111 Offline
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1111
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Quote:

We have our executive officers sign a seperate demand clause when given a loan by our bank. In the case of an executive officer co-signing a loan with his spouse, should the spouse also sign the demand clause?




Why is this done? The loan terms must be aligned with similar loans that are made to the general public, so why have a demand clause?

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#90370 - 06/20/03 06:52 PM Re: Reg O Demand Clause
rlcarey Offline
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Ipso - Reg O requires all loans to executive officers be subject to a demand clause.
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#90371 - 06/20/03 06:56 PM Re: Reg O Demand Clause
Andy_Z Offline
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215.5 Additional restrictions on loans to executive officers of member banks.
(d) Any extension of credit by a member bank to any of its executive officers shall be:
(4) Made subject to the condition in writing that the extension of credit will, at the option of the member bank, become due and payable at any time that the officer is indebted to any other bank or banks in an aggregate amount greater than the amount specified for a category of credit in paragraph (c) of this section.
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#90372 - 06/20/03 06:58 PM Re: Reg O Demand Clause
Dan Persfull Offline
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Randy you beat me again, so I won't post the cite.

One could argue that the loan is not to the EO, as he/she is a co-signer therefore received no consideration of the loan. However, I would counter that claim that if the EO as the co-signer became "liable" for the debt due to non-payment by the "borrower" he/she now owes the debt and it would fall within the aggregrate totals.

I'm no Reg O expert, but I think by thinking is in line.

Geeezz Andy, you even beat my reply to Randy. I'm going to get me voice recoginition software.
Last edited by dpersfull; 06/20/03 07:00 PM.
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#90373 - 06/20/03 07:04 PM Re: Reg O Demand Clause
rlcarey Offline
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Dan,

Check out 215.3(a)(7) that defines extension of credit:


(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.
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#90374 - 06/20/03 07:09 PM Re: Reg O Demand Clause
Dan Persfull Offline
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Quote:

Dan,

Check out 215.3(a)(7) that defines extension of credit:





I repeat, I'm no Reg. O expert That's why I have to go to the Reg (and I missed that in my quick scan trying to beat you and Andy) if and when I'm asked a qustion about Reg. O.

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#90375 - 06/20/03 07:14 PM Re: Reg O Demand Clause
1111 Offline
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1111
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Thanks - I'm not in the lending area, just curious about it.

It's not really a normal Demand Clause, as the only event that triggers it relates to loan volume at other banks.

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#90376 - 06/20/03 07:35 PM Re: Reg O Demand Clause
John Burnett Offline
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And it does not trigger a Reg. Z demand loan disclosure. See Commentary to 226.18(i), which reads, in relevant part, "A creditor may, but need not, treat its contractual right to demand payment of a loan made to its executive officers as a demand feature to the extent that the contractual right is required by Regulation O (12 CFR 215.5) or other federal law."
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