LLC Acct Overdrawn By Director, Reg O Violation?

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Question:

In terms of extensions of credit, specifically overdrafts and the treatment thereof, I understand Reg O excludes related interests of directors. But one of my directors is the only owner of an LLC. The checking account of the LLC recently overdrew in excess of $1500 for 8 days. Do I have a probable Reg O violation or is the account excluded as a related interest?

Answer:

Answer by Randy Carey:You have to look to the definitions in Regulation O for your answer. Section 215.3(n) indicates that a related interest is a company control by the director. A company is defined at Section 215.3(b) as any corporation, partnership, trust (business or otherwise), association, joint venture, pool syndicate, sole proprietorship, unincorporated organization, or any other form of business entity not specifically listed herein. An LLC clearly falls in the definition of a company and related interest for Reg O purposes and the overdraft should not present a regulatory problem.

Answer:

Answer by John Burnett:The $1,500 overdraft in the LLC's account could present a Reg. O problem if the insider and his/her related interests already (before the overdraft) had credit outstanding at the institution in the aggregate amount of $500,000 (or a lower level for smaller institutions). I know I'm adding "facts not in evidence," but the overdraft then would require approval -- in advance -- by the bank's board.

First published on BankersOnline.com 1/23/06