Offering Insiders HELOCs with No Closing Costs

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Question:

Reg O. At some point I had it noted that we should exempt insiders from any marketing of special offers. We have been offering a special on HELOCs, and they have no closing costs. Can an insider obtain the special and get their HELOC with no closing costs, or should we charge the insider the closing costs?

Answer:

Answer by Dan Persfull: Reg O
Sec. 215.4 General prohibitions.
(a) Terms and creditworthiness--(1) In general. No member bank may extend credit to any insider of the bank or insider of its affiliates unless the extension of credit:
(i) Is made on substantially the same terms (including interest rates and collateral) as, and following credit underwriting procedures that are not less stringent than, those prevailing at the time for comparable transactions by the bank with other persons that are not covered by this part and who are not employed by the bank; and
(ii) Does not involve more than the normal risk of repayment or present other unfavorable features.

I'd say you're safe as long as the "special" is still valid for non-insider applicants.

Answer:

Answer by Randy Carey: Additionally, if this is a HELOC program available as part of an employee benefit package, and it is available to all employees, your insiders can also participate without it being considered preferential.

First published on BankersOnline.com 3/27/06