1. (a) A bank may purchase consumer paper without:

   1. (1) Recourse;
   2. (2) Warranty; or
   3. (3) Repurchase agreement.
2. (b) If, however, the bank purchases dealer paper under an arrangement whereby the dealer endorsed the paper or guaranteed its payment or repurchase, then under Arkansas Code § 23-47-501, the loan limit (so far as the dealer is concerned) would be exceeded if the dealer’s liability as endorser plus his or her primary liability, if any, to the bank exceeds twenty percent (20%) of the capital base.
3. (c) Effect of reserve. When consumer paper is purchased by the bank under guaranty or repurchase agreement, if the contract provides for the creation of a reserve by withholding from disbursements or otherwise out of which the bank is entitled to remedy defaults, for loan limit purposes the amount of this reserve may be deducted from the total advances to the dealer.
4. (d) Effect of default. If two (2) consecutive installments under an item of pledged consumer paper which the dealer has transferred with recourse or under a guaranty should at any time be in default, the entire amount remaining as owed under the defaulted item will be charged against the dealer’s loan limit.

Codification Notes: This section was promulgated as Section 47-401.2 of the State Bank Department Rules prior to codification into the Code of Arkansas Rules. This section as promulgated prior to codification into the Code of Arkansas Rules provided as follows: "(Reference A.C.A. § 23-47-401)"