Demand clause - Executive Officer loan

Posted By: AuditorK

Demand clause - Executive Officer loan - 05/07/08 05:17 PM

I know that Reg O requires a due on demand clause for any loans to executive officers. My question is this: In the case of joint credit (an executive officer and spouse), who needs to sign the demand clause - just the EO or both the EO and spouse? If only the EO signs, how would the bank cause the loan to be due on demand if the wife didn't also sign? Also, what if the executive officer was only a co-signer on a loan - is a demand clause required? How would it be enforceable if there are other parties on the loan that didn't sign a demand clause?
Posted By: Tesla

Re: Demand clause - Executive Officer loan - 05/08/08 04:33 PM

I am really interested to see if you have received an answer on this issue. I researched everything I could think of and could only come up with the basic purpose of the rule is to protect the bank and its fiduciary responsibilities. If you are required to exercise the demand because of a shortcoming (for lack of a better word) of the insider, then unfortunately for the co-borrower the loan has to be called. (I am assuming the demand is separate from the note, but for a joint loan it could be part of the note, couldn't it?) I am not sure what to think as to the co-signer. I didn't read the co-signer rules over again so maybe I would start there and also if co-signing on a loan falls under the covered restrictions under Reg O. I'm not sure.

Good luck on finding a better answer on this and I hope if you do find an answer you share!
Posted By: AuditorK

Re: Demand clause - Executive Officer loan - 05/08/08 05:35 PM

I haven't been able to find anything so far. I was hoping that some of the knowledgeable folks that post here would be able to provide some insight. I am pretty sure that an insider co-signing on a loan would fall under Reg O. I guess this is all the more reason that insiders should go to another financial institution for loans - to avoid issues such as this.
Posted By: Tom at HOME

Re: Demand clause - Executive Officer loan - 05/08/08 06:13 PM

I may be loco in the cebeza but I've never seen the demand clause in a separate agreement. It was always a clause in our note and not signed separately.
Posted By: Tesla

Re: Demand clause - Executive Officer loan - 05/08/08 06:46 PM

Ours sign a separate blanket demand agreement, except for on HELOCs where we built in special language as required by the regulation.

Auditor - I couldn't agree with you more. Why on earth do they have to get their loans and all their related interests and buddies here? It is a real problem at my bank.
Posted By: rlcarey

Re: Demand clause - Executive Officer loan - 05/08/08 06:53 PM

A separate blanket agreement may cause problems on joint credit. The loan has to be payable on demand and that applies to the note and not just to the executive officer. If he is joint on a note and you call the loan because of some regulatory reason and you damage the joint borrower, you are going to open yourself to a lawsuit unless they also signed the demand clause.