South Dakota Codified Laws 51A-4-24. Factoring–Applicability of lending limit provisions
A bank may engage in the business of purchasing open accounts. Where a bank purchases open accounts but the seller agrees to repurchase such accounts upon default, the seller’s obligation to repurchase shall be taken into consideration in computing the bank’s lending limit to the seller under § 51A-12-2. Such obligation shall be measured by the total unpaid balance of the open accounts owned by the bank less the applicable seller’s reserves against defaulted open accounts, if any. Where the seller’s obligation to repurchase is limited, it shall be measured by the total amount of the open accounts which the seller may ultimately be obligated to repurchase.
Where no more than the agreed percentage of the price paid for such open accounts is retained and credited to a reserve to be held as a form of collateral security, and where the bank has no direct or indirect recourse against the seller for uncollectibility, neither the reserve nor the obligations of the parties liable on such accounts constitute obligations of the seller subject to the lending limit under § 51A-12-2.
Terms Used In South Dakota Codified Laws 51A-4-24
- Obligation: An order placed, contract awarded, service received, or similar transaction during a given period that will require payments during the same or a future period.
- Recourse: An arrangement in which a bank retains, in form or in substance, any credit risk directly or indirectly associated with an asset it has sold (in accordance with generally accepted accounting principles) that exceeds a pro rata share of the bank's claim on the asset. If a bank has no claim on an asset it has sold, then the retention of any credit risk is recourse. Source: FDIC
Source: SL 1969, ch 11, § 4.20; SL 1970, ch 265, § 33; SDCL, § 51-18-21.