We are not aware of any precedent or guidance indicating whether a loan to a director’s co-purchaser for the acquisition of a shared property would be considered to be providing a tangible economic benefit to the director. We contacted the OCC with this question (without identifying the type of bank asking the question), and an OCC attorney confirmed they also were unable to find any published or unpublished OCC precedent addressing this scenario. Consequently, the OCC attorney suggested that you make a formal request to your primary regulator (which in your case is the OCC) for guidance.

Under Regulation O, an extension of credit will be attributed to an insider (such as a director) to the extent the proceeds are transferred to the insider or are used for the tangible economic benefit of the insider, or if the extension of credit is made to a “related interest” of the insider. This attribution rule was designed to prevent insiders from evading the restrictions of Regulation O by using nominee borrowers.

The OCC attorney noted that if the co-purchaser’s purchase of the property turned out to be a sham orchestrated to facilitate the director’s ownership of the property, Regulation O would be implicated (along with other fraud issues, depending on the circumstances). However, assuming the loan to the co-purchaser is bona fide, and the director and their co-purchaser will pay equal amounts for the property and will have an equal ownership interest in the property, there are arguments on both sides as to whether the director will receive a tangible economic benefit. On one hand, the director’s purchase and use of the property may not be possible without the loan to the co-purchaser, in which case arguably the director would be receiving a benefit. On the other hand, this benefit may be too remote to be considered a tangible economic benefit – for example, if they were to sell the property, the director only would receive the share of proceeds attributable to the director’s contribution for the purchase.

Additionally, we note that the co-purchaser is not a “related interest” of the director, since the co-purchaser is an individual and not a company that is owned or controlled by the director. Even if the director and the co-purchaser form an entity to take title to the property, the proceeds of the loan are being paid to the individual co-purchaser, so an analysis of the director’s ownership interest in and ability to control such an entity is not necessary to answer your question.

For resources related to our guidance, please see:

• OCC Rules, 12 CFR 31.2(a) (“National banks, Federal savings associations, and their insiders shall comply with the provisions contained in 12 CFR part 215 (Regulation O).”)

• Regulation O, 12 CFR 215.3(f) (“Tangible economic benefit rule—

(1) In general. An extension of credit is considered made to an insider to the extent that the proceeds are transferred to the insider or are used for the tangible economic benefit of the insider.

(2) Exception. An extension of credit is not considered made to an insider under paragraph (f)(1) of this section if:

• (i) The credit is extended on terms that would satisfy the standard set forth in §215.4(a) of this part for extensions of credit to insiders; and
• (ii) The proceeds of the extension of credit are used in a bona fide transaction to acquire property, goods, or services from the insider.”)

• Regulation O, 12 CFR 215.4(c) (“Individual lending limit — No member bank may extend credit to any insider of the bank or insider of its affiliates in an amount that, when aggregated with the amount of all other extensions of credit by the member bank to that person and to all related interests of that person, exceeds the lending limit of the member bank specified in § 215.2(i) of this part.”)

• Regulation O, 12 CFR 215.2(h) (“Insider means an executive officer, director, or principal shareholder, and includes any related interest of such a person.”)

• 12 CFR Appendix B to Part 31 – Comparison of Selected Provisions of Parts 32 and 215 (“General Rule . . . Under part 215, a loan will be attributed to an insider if the loan proceeds are ‘transferred to,’ or used for the ‘tangible economic benefit of,’ the insider or if the loan is made to a ‘related interest’ of the insider. Under part 32, a loan will be attributed to another person when either (i) the proceeds of the loan are to be used for the direct benefit of the other person or (ii) a common enterprise exists between the borrower and the other person. The ‘transfer’ test and ‘tangible economic benefit’ test of part 215 are substantially the same as the ‘direct benefit’ test of part 32. Under each of these tests, a loan will be attributed to another person where the proceeds are transferred to the other person, unless the proceeds are used in a bona fide arm's length transaction to acquire property, goods, or services.”)

• Final Rule, Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks; Loans to Holding Companies and Affiliates, 59 Fed. Reg. 8831, 8834 (February 24, 1994) (“Continuing to be covered by the tangible economic benefit rule are extensions of credit to an insider's nominee and transactions in which the proceeds of the credit are loaned to an insider.”)

• Regulation O, 12 CFR 215.2(n) (“Related interest of a person means: (1) A company that is controlled by that person; or (2) A political or campaign committee that is controlled by that person or the funds or services of which will benefit that person.”)

• Regulation O, 12 CFR 215.2(b) (“Company means any corporation, partnership, trust (business or otherwise), association, joint venture, pool syndicate, sole proprietorship, unincorporated organization, or any other form of business entity not specifically listed herein. . . .”)