Question: Hi Heather. I would like your opinion on Regulation U. The way I read it Reg U states any loan secured by stocks would have additional reporting requirements. But some others at my credit union think it means that the reporting is only required if stock is purchased and then used as collateral, but does not apply to existing stock. Could you please give me your insights on this? 

Answer: Wow! We NEVER talk about Reg U, which is a regulation that requires certain disclosures be given whenever a loan is secured by margin stock.  Credit Unions in Utah don’t often make loans secured by stock, but it can happen. Here’s the deal with Reg U:

First off, this guidance from the NCUA will help: https://ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/regulation-u

Reg U applies when a credit union makes a loan for the purpose of buying or carrying margin stock, and is secured directly or indirectly by the stock. 

The definition of “carrying” from Reg U will help. “Carrying credit is credit that enables a customer to maintain, reduce, or retire indebtedness originally incurred to purchase a security that is currently a margin stock.”  This would include a refinance of a stock secured loan originally used to purchase stock.

If the purpose of the loan isn’t to buy or carry margin stock, it won’t be considered “purpose credit” to which the reporting and registration requirements of Reg U apply.

That said, you’ll need to get a purpose statement (form G-3)  from ANY loan secured by margin stock.

So, you’re going to have to something related to Reg U if the loan is secured by stock (even if it is only obtaining form G-3).