§ 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;
(D) documentation and approval requirements to monitor compliance with lending policies; and
(E) the circumstances under which a loan shall be considered for approval by the financial institution’s governing body.
(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(interest) or as otherwise provided by law.
(d) Limitations. A Vermont financial institution shall not make loans, derivative transactions, or extensions of credit outstanding at one time to a borrower in excess of 20 percent of its capital or to a corporate group in excess of 50 percent of its capital. As used in this subsection, “corporate group” means a person and all persons in whom it owns, controls, or holds the power to vote 50 percent or more of any class of voting securities.
(1) Loans, derivative transactions, or extensions of credit to one person shall be attributed to another person and both persons shall be deemed a single borrower as follows:
(A) The proceeds of a loan, derivative transaction, or extension of credit to one person shall be deemed to be used for the direct benefit of another person and shall be attributed to the other person when the proceeds, or assets purchased with the proceeds, are transferred to another person, other than in a bona fide arm’s length transaction where the proceeds are used to acquire property, goods, or services.
(B) A common enterprise shall be deemed to exist between persons, and the obligations of one person shall be attributed to the other person in the following situations:
(i) The expected source of repayment for each obligation is the same for each borrower and neither borrower has another source of income from which the loan, together with the borrower’s other obligations, may be fully repaid. An employer shall not be treated as a source of repayment under this subdivision (i) with respect to wages and salaries paid to an employee, unless the situation in subdivision (ii) of this subdivision (d)(1)(B) exists.
(ii)(I) Loans, derivative transactions, or extensions of credit are made:
(aa) to borrowers who are related directly or indirectly through common control, including where one borrower is directly or indirectly controlled by another borrower; and
(bb) substantial financial interdependence exists between or among the borrowers.
(II) For purposes of this subdivision (d)(1)(B)(ii), control is deemed to exist when a person directly or indirectly, or acting through or together with one or more persons, owns, controls, or has the power to vote 25 percent or more of any class of voting securities of another person; controls, in any manner, the election of a majority of the directors, trustees, or other persons exercising similar functions of another person; or has the power to exercise a controlling influence over the management or policies of another person.
(III) For purposes of this subdivision (d)(1)(B)(ii), substantial financial interdependence is deemed to exist when 50 percent or more of one borrower’s gross receipts or gross expenditures are, on an annual basis, derived from transactions with the other borrower.
(IV) For the purposes of this subdivision (d)(1)(B)(ii), gross receipts and expenditures include gross revenues, gross expenses, intercompany loans, dividends, capital contributions, and similar receipts or payments.
(iii) Loans, derivative transactions, or extensions of credit are made to borrowers to acquire a business enterprise of which those borrowers will own more than 50 percent of the voting securities or voting interests.
(iv) The Commissioner determines, based upon an evaluation of the facts and circumstances of particular transactions, that a common enterprise exists.
(C) The obligations of a partnership or association shall be attributed to each general partner or each member of the association.
(D) The obligations of a general partner or a member of an association shall be attributed to the partnership or association.
(E) The obligations of a general partner or a member of an association are not attributed to other general partners or members unless the situation in subdivision (A) or (B) of this subdivision (d)(1) exists.
(F) The obligations of persons in a corporate group are not attributed to other persons in the corporate group unless the situation in subdivision (A) or (B) of this subdivision (d)(1) exists.
(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 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 that the U.S. 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, 12 U.S.C. Chapter 13, or the Servicemen’s Readjustment Act of 1944, 38 U.S.C. Chapter 37, as may be 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; and
(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; 2021, No. 105 (Adj. Sess.), § 297, eff. July 1, 2022; 2025, No. 142 (Adj. Sess.), § 37, eff. July 1, 2026.)