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#90363 - 06/20/03 05:12 PM
Reg O Demand Clause
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Anonymous
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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
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Power Poster
Joined: Nov 2000
Posts: 2,701
PA
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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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AndyZ CRCM My opinions are not necessarily my employers. R+R-R=R+R Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell
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#90366 - 06/20/03 06:19 PM
Re: Reg O Demand Clause
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Joined: Jul 2001
Posts: 83,227
Galveston, TX
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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
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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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AndyZ CRCM My opinions are not necessarily my employers. R+R-R=R+R Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell
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#90368 - 06/20/03 06:37 PM
Re: Reg O Demand Clause
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Posts: 83,227
Galveston, TX
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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
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Platinum Poster
Joined: Jan 2003
Posts: 580
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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
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10K Club
Joined: Jul 2001
Posts: 83,227
Galveston, TX
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Ipso - Reg O requires all loans to executive officers be subject to a demand clause.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#90371 - 06/20/03 06:56 PM
Re: Reg O Demand Clause
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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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AndyZ CRCM My opinions are not necessarily my employers. R+R-R=R+R Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell
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#90372 - 06/20/03 06:58 PM
Re: Reg O Demand Clause
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10K Club
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
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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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The opinions expressed are mine and they are not to be taken as legal advice.
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#90373 - 06/20/03 07:04 PM
Re: Reg O Demand Clause
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10K Club
Joined: Jul 2001
Posts: 83,227
Galveston, TX
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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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The opinions expressed here should not be construed to be those of my employer: PPDocs.com
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#90376 - 06/20/03 07:35 PM
Re: Reg O Demand Clause
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10K Club
Joined: Oct 2000
Posts: 40,086
Cape Cod
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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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