§ 14301. Loan authority
(a) General loan authority. Unless otherwise prohibited by State law, a Vermont financial institution may make, sell, purchase, arrange, participate in, invest in, or otherwise deal in loans, derivative transactions, or extensions of credit for any lawful purpose.
(b) Written loan policy.
(1) A financial institution's governing body shall establish a written loan, credit, and derivative transaction policy, as applicable to the activities of the financial institution, which shall be reviewed and ratified at least annually, that addresses at a minimum, the following:
(A) Loan portfolio mix and diversification standards, and, if applicable, derivative transaction portfolio mix and diversification standards;
(B) Prudent underwriting standards, including loan-to-value limits that are clear and measurable;
(C) Loan administration procedures, including delegation and individual lending officer authority; and
(D) Documentation and approval requirements to monitor compliance with lending policies.
(2) The policies adopted pursuant to this section shall be consistent with safe and sound banking practices and appropriate to the size of the institution and nature and scope of its operations.
(c) Interest on loans. Financial institutions may demand and receive interest and charges on their loans in accordance with 9 V.S.A. chapter 4 or as otherwise provided by law.
(d) Limitations. A Vermont financial institution may not make loans, derivative transactions, or extensions of credit outstanding at one time to a borrower in excess of 20 percent of its capital. Total loans, derivative transactions, or other extensions of credit in excess of 10 percent of capital shall be approved by a majority of the governing body or the executive committee of that institution or organization.
(1) Loans, derivative transactions, or extensions of credit to one person will be attributed to another person and each person shall be deemed a borrower as follows:
(A) In the case of obligations of one person, the proceeds will be deemed to be used for the direct benefit of another person and will be attributed to the other person when the proceeds, or assets purchased with the proceeds, are transferred to another person, other than a bona fide arm's length transaction where the proceeds are used to acquire property, goods, or services.
(B) In the case of obligations of a partnership or association, the obligations of each general partner and of each member of the association.
(C) In the case of obligations of a general partner or a member of an association, the obligations of the partnership or association.
(D) In the case of obligations of a corporation, the obligations of any subsidiaries in which it holds, directly or indirectly, a controlling equity interest.
(E) In the case of obligations of a limited liability company, the obligations of any subsidiaries in which it holds, directly or indirectly, a controlling equity interest.
(F) In the case of obligations of a corporation or limited liability company, the amount of a loan made to any other person to the extent that the proceeds of the loan directly or indirectly are to be:
(i) loaned to the corporation or limited liability company;
(ii) used for the acquisition from the corporation or limited liability company of any equity interest therein; and
(iii) transferred to the corporation or limited liability company without fair and adequate consideration; provided, however, that the discharge of an equivalent amount of debt previously incurred in good faith for value shall be deemed fair and adequate consideration.
(2) The following shall not be counted as indebtedness subject to the limitation of this subsection:
(A) Indebtedness evidenced by bills of exchange or drafts drawn against existing values and secured by a lien upon goods in transit with shipper's order, bills of lading, or comparable instruments attached.
(B) Indebtedness evidenced by notes or other paper secured by readily marketable corporate stock having a fair market value of not less than 125 percent of the indebtedness.
(C) Indebtedness evidenced by notes or other paper secured by an assignment of accounts receivable or of amounts due to become due on open account or on a contract to the extent of not less than 125 percent of the indebtedness.
(D) Indebtedness evidenced by notes or other paper secured by liens upon agricultural products, manufactured goods, or other chattels in storage in warehouses or elevators with warehouse or elevator receipts attached, or goods released on trust receipts, when the value of the security is not less than 125 percent of the indebtedness and the financial institution's interest therein is insured against loss by insurance policies or certificates of insurance attached.
(E) Indebtedness arising out of the daily transaction of the business of any clearing house association.
(F) Indebtedness secured to the extent thereof by the cash surrender value of life insurance evidenced by policies of insurance validity issued and assigned.
(G) Indebtedness secured to the extent thereof by savings deposits or certificates of deposit of solvent financial institutions up to the amount insured by the Federal Deposit Insurance Corporation, and duly assigned.
(H) Any portion of any indebtedness which the United States government, or an agency or instrumentality of the United States unconditionally agreed to purchase or has unconditionally guaranteed as to payment of both principal and interest, including loans insured or guaranteed under the National Housing Act or the Servicemen's Readjustment Act of 1944, as amended.
(I) Additional funds advanced for the benefit of a borrower by a financial institution for payment of taxes, insurance, utilities, security, and maintenance and operating expenses necessary to preserve the value of real property securing the loan.
(J) Amounts paid against uncollected funds in the normal process of collection.
(K) That portion of a loan or extension of credit sold as a participation by a financial institution on a nonrecourse basis, provided that the participation results in a pro rata sharing of credit risk proportionate to the respective interests of the originating and participating lenders. (Added 1999, No. 153 (Adj. Sess.), § 2, eff. Jan. 1, 2001; amended 2011, No. 78 (Adj. Sess.), § 26, eff. April 2, 2012.)