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Reg O Increases to Existing Indebtedness-Loan Fees

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Question: 
Reg O states that increases to existing indebtedness are not considered extensions of credit so long as "the additional funds are advanced by the bank for its own protection for accrued interest or taxes, insurance, or other expenses incidental to the existing indebtedness." Is a loan fee that was included in the amount financed included in this exception? Example: Executive Officer A has a loan for $100,000.00 with a $500 loan fee and an appraisal fee of $300 for a total amount financed of $100,800.00. Would this be a Reg O violation?
Answer: 

The exception that you cited would be more applicable to, for example, paying insurance or taxes out of an escrow account that might temporarily have a negative balance.

"Amount financed" is not a consideration under Reg. O as that is a Reg. Z. term. Reg. O would be based on the legal obligation established by the credit agreement/note. If your note is for $100,800, this would be a violation.

First published on BankersOnline.com 12/12/11

First published on 12/12/2011

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