Reg O, 0% Interest Loans, and Checking Account Lines of Credit

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Question:

We have an executive officer that participated in an employee benefit computer loan (0% interst, $1,500). Do we need current financials, board approval, call provision for something this trivial? How about a line of credit for a checking account? Still needing all the red tape?

Answer:

The terms and credit worthiness requirements of Reg O do not apply to an extension of credit made under an employee benefit program that is widely available to bank employees and that does not give preference to any insider over other employees. Therefore, if this benefit was available to all employees, the loan can be on favorable terms such as you have.

However, if the employee is an executive officer the quantitative limits of Reg. O for loans to executive officers would still apply. In addition, all loans to executive officers must include the submission of a detailed financial statement.

Lines of credit for overdrafts in connection with checking accounts do need to be approved by the Board. Lines of credit can be approved in advance by the Board and each extension of credit under the line need not be separately approved, if the Board has approved the line within the prior 14 months. Inadvertent overdrafts in an amount not exceeding $1000 that is repaid within 5 business days are permitted without prior approval if the insider is charged the same fee any other customer would be charged.

First published on BankersOnline.com 8/05/02