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Legal Lending Limit Change

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Question: 
We are a national bank and our legal lending limit (LLL) went down. If a borrower who was previously under our LLL and now is over has a line of credit (LOC), can we advance funds over our LLL to the max LOC amount we had originally set on the note? When the LOC was made, the borrower was under our LLL.
Answer: 

You should review 12 CFR 32.2 (m) regarding a Qualifying Commitment to Lend:

(m) Qualifying commitment to lend means a legally binding written commitment to lend that, when combined with all other outstanding loans and qualifying commitments to a borrower, was within the bank's lending limit when entered into, and has not been disqualified.

(1) In determining whether a commitment is within the bank's lending limit when made, the bank may deduct from the amount of the commitment the amount of any legally binding loan participation commitments that are issued concurrent with the bank's commitment and that would be excluded from the definition of "loan or extension of credit" under paragraph (k)(2)(vi) of this section.

(2) If the bank subsequently chooses to make an additional loan and that subsequent loan, together with all outstanding loans and qualifying commitments to a borrower, exceeds the bank's applicable lending limit at that time, the bank's qualifying commitments to the borrower that exceed the bank's lending limit at that time are deemed to be permanently disqualified, beginning with the most recent qualifying commitment and proceeding in reverse chronological order. When a commitment is disqualified, the entire commitment is disqualified and the disqualified commitment is no longer considered a "loan or extension of credit." Advances of funds under a disqualified or non-qualifying commitment may only be made to the extent that the advance, together with all other outstanding loans to the borrower, do not exceed the bank's lending limit at the time of the advance, calculated pursuant to Section 32.4.


First published on BankersOnline.com 1/25/10

First published on 01/25/2010

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