Contractual Commitment to Advance Funds Law and Legal Definition

According to 12 CFR 32.2 [Title 12 -- Banks and Banking; Chapter I -- Comptroller of the Currency, Department of the Treasury; Part 32 -- Lending Limits] contractual commitment to advance funds means “a bank's obligation to –

1. Make payment (directly or indirectly) to a third person contingent upon default by a customer of the bank in performing an obligation and to make such payment in keeping with the agreed upon terms of the customer's contract with the third person, or to make payments upon some other stated condition;

2. Guarantee or act as surety for the benefit of a person;

3. Advance funds under a qualifying commitment to lend, as defined in paragraph (m) of this section, and

4. Advance funds under a standby letter of credit as defined in paragraph (s) of this section, a put, or other similar arrangement.

The term does not include commercial letters of credit and similar instruments where the issuing bank expects the beneficiary to draw on the issuer, that do not guarantee payment, and that do not provide for payment in the event of a default by a third party.