[Mary Frances]

We have a customer that may become a Board Member and he has existing loans with the Bank. We understand that the current loans are grandfathered but are we allowed to modify the loan or maintenance the existing loans? We have been doing research and the only thing we can find says it prohibits the extension of credit but does not prohibit maintenance. So is maintenance the same as modifying? We can’t find an explaination under Reg. O regarding modifing a loan vs. doing maintenance on a loan? Can anyone give me any guidance on this?

[rcooper]

What section of Regulation O are you looking at regarding “maintenance” of a loan – this will help me understand your question better? Without specifically knowing what you’re looking at I would look to how extension of credit is defined in 12 CFR 215.3. Specifically it says

[a]n extension of credit is a making or renewal of any loan, a granting of a line of credit, or an extending of credit in any manner whatsoever, and includes.. (5) An increase of an existing indebtedness…

[Mary Frances]

We are so careful when it comes to Reg O so we research every piece of information we can find….We are looking at CMG materials from Nov. 2012 which had a letter from FDIC that had a paragraph that said:

Federal Reserve Board Regulation O is prospective in nature. It prohibits extensions of credit over the statutory ceiling to persons that are subject thereto. It does not prohibit the maintenance of loans in excess of that ceiling if the loans when made were extended to an individual who was not subject to the loan ceiling, i.e., a director or other person who is not an executive officer1 or principal shareholder. In short, after-acquired status will not give rise to a Regulation O violation,2 nor does section 215.6 apply in such circumstances.

I guess this is throwing us off because we can’t find anything in the Reg that mentions maintence of loans. If we understand correctly, an extension of credit means new money or any extension/modification of an existing loan. So if a new board member requests to modify one of his existing loans then we would need to count the loan against him as Reg O becasue we are extending credit regardless of what type of modification (i.e. rate modification).

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