We just booked a $525,000 loan to a Director’s law firm. Did we violate Reg O?

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Question:

We have a Director who (together with his wife) shares ownership of a law firm. I just learned that we booked a $525,000 loan for that law firm. The loan has a rate and terms comparable to other loans. Is this a problem for Reg O?

Answer:

Yes, if the loan did not receive prior majority approval from the bank board before it was made. The law firm is a related interest of the Director, so the loan is subject to Reg O requirements. It doesn’t sound like the loan has preferential terms, so that passes muster, and I assume that a $525,000 loan is within your bank’s lending limit, so that is also OK. However, the loan must receive advance approval by the majority of the board (with the interested party abstaining from the vote). This requirement applies to any credit that exceeds an aggregate total of $500,000 to the insider. Since the loan by itself exceeds that threshold, it had to be approved by the majority of the board.

Want to more about all Reg O requirements? Join my upcoming webinar “The Ins & Outs of Insider Lending and Reg O” on March 26, 2024 to learn more!

Learn more about Rebekah Leonard's
The Ins & Outs of Insider Lending and Reg O webinar.