I think this one would depend on contract, state law, and disclosure issues.
- Contract. Does your contract specify a demand feature. Many contracts contain demand features as part of remedies for default, but this is not the same thing. If your contract does not stipulate a demand feature allowing you to call the loan at your option, then you can't do it unless the borrower is in default and your default remedies include calling the loan.
- State law. Does state law allow for demand provisions in this type of contract. Many states have protective consumer rules. Typically, demand features would be more common in a commercial transaction. Even if your contract stipulates a demand clause, state law may make that provision inoperable.
- Disclosures. Reg Z requires the disclosure in TIS disclosures of any demand feature of any consumer purpose loan subject to Reg Z. If you don't disclose it, I wouldn't recommend exercising it.
First published on BankersOnline.com 6/4/01