We offer cash lines which is a type of overdraft protection on a DDA account. We currently qualify the owner(s) on the account, determine MLA status and if approved, the customer signs all the necessary note documents. I am being challenged that this process is NOT necessary when a "new owner" is being ADDED to the existing DDA account that has an existing cash line.

If a DDA account owner wants to add a "new owner" to the account which has a cash line, then the new owner has access to this "loan - cash line."

Contractually and regulatory, I don't see how we can allow the cash line to continue without "both owners" now agreeing to have the loan and be able to advance the funds and both being liable for the debt incurred. Plus, what if the "added owner" is military yet has access to this cash line yet we haven't provided all the necessary MLA disclosures and met the requirements for this type of a loan to a military person?

Would right of offset in the deposit account contract have any bearing on this?

Thanks....

I checked with another source and they suggested that we show the "new owner" on the DDA account as an "authorized signer" on the cashline - similar to what credit cards will do in adding "authorized signers" They also suggested that an Agreement be signed by the parties so it is transparent on who is liable for what!

FYI

Official Interpretation

1002.7(a) Individual accounts.

3. Overdraft authority on transaction accounts. If a transaction account (such as a checking account or NOW account) includes an overdraft line of credit, the creditor may require that all persons authorized to draw on the transaction account assume liability for any overdraft.

Brenda,

Consider revising your procedures to include the same type of review that you would perform for a new customer when adding an additional owner to your cash line. Your new accounts representatives should be trained to NOT add new signers to accounts with a line of credit attached to it without first obtaining the appropriate approvals. The new signer has access to credit aside from this MLA issue. At the banks I have worked for in the past, a new agreement was signed.