Credit Extension Exclusions

C

The term "extension of credit" refers to the granting of credit to a borrower, which can take various forms.

Option A states that an advance made by means of an overdraft or cash item is not included in the extension of credit. An overdraft occurs when a borrower withdraws more money from a bank account than is available, resulting in a negative balance. In this situation, the bank may choose to cover the overdraft and charge the borrower interest on the amount borrowed. Similarly, a cash item refers to a check or other instrument that has been deposited but has not yet cleared, allowing the bank to temporarily credit the deposited amount to the borrower's account. Both of these transactions involve the bank providing funds to the borrower, which constitutes an extension of credit, and therefore Option A is incorrect.

Option B suggests that making or renewing a loan or granting a line of credit is included in the extension of credit. This statement is correct, as loans and lines of credit involve the bank providing funds to the borrower, which constitutes an extension of credit.

Option C states that an advance against accrued salary is included in the extension of credit. This statement is also incorrect. While such an advance involves the borrower receiving funds from their employer, it is not considered an extension of credit because the borrower is not taking on debt or paying interest. Instead, the advance is a form of prepayment or early access to earned wages.

Option D proposes that the acquisition of a note on which an insider is a maker, drawer, or guarantor is included in the extension of credit. This statement is incorrect. The acquisition of a note involves purchasing an existing debt, rather than extending new credit to a borrower. The fact that an insider is involved in the note does not affect whether the transaction constitutes an extension of credit or not.

Therefore, the correct answer to the question is Option A: an advance by means of an overdraft or cash item is not included in the extension of credit.