By Rose Oswald Poels, WBA president and CEO
I am excited to share news of the opportunity to update Regulation O through upcoming proposed rulemakings. These are changes many members and I have requested the agencies update in past years — numerous times. I am excited to see that the agencies are finally acting to bring meaningful regulatory relief to this area of lending and to better align very outdated thresholds and standards to current times.
Both the Board of Governors of the Federal Reserve System (FRB) and Federal Deposit Insurance Corporation (FDIC) will be publishing proposed rules in the Federal Register regarding changes to Regulation O, which restricts extensions of credit by banks to their executive officers, directors, principal shareholders, and their related interests (insiders).
Among other updates, the proposed rules would increase and index several limits, including:
- For the “other purpose” exception for unsecured lending to executive officers, from $100,000 to $400,000;
- For the size of an extension of credit that requires prior approval by a bank’s board of directors, from $500,000 to $2 million; and
- For the threshold for public disclosure of loans to executive officers and principal shareholders, from $500,000 to $2 million.
The FRB proposal also looks to change the amounts of (1) certain credit card debt that is exempt from the definition of “extension of credit,” from $15,000 to $60,000, and (2) indebtedness arising from certain interest-bearing overdrafts associated with preauthorized credit plans that are exempt from the definition of “extension of credit,” from $5,000 to $20,000. FRB also proposes the exception from the prohibition against paying an overdraft to an executive officer or director for certain inadvertent overdrafts be changed from $1,000 to $4,000.
WBA will be filing comments on both proposals as the regulation must be updated. The lending thresholds, in particular, have become very restrictive over time. I strongly encourage every member to also comment regarding how the proposed changes will positively impact lending to your bank insiders.
WBA will review both proposals closely once published to ensure there is standardization between each agency’s rules to ensure banks have the same opportunities for burden reduction, lending, and compliance standards. If you have any questions regarding the proposals or wish to share information or insight on the topic, please contact WBA Legal at wbalegal@wisbank.com. Comments will be due 60 days from publication in the Federal Register.
