Borrowing From or Lending to Customers
Quick Answer
The FINRA borrowing/lending requirement generally prohibits a registered person from borrowing money from or lending money to a customer. Five narrow exceptions apply (immediate family, financial institution, registered persons of the same firm, outside personal relationship, outside business relationship), and each requires the firm's written supervisory procedures (WSPs) to permit the activity. The April 28, 2025 amendments modernized the immediate-family definition (replacing "husband or wife" with "spouse or domestic partner") and tightened other parts of the requirement.
The borrowing/lending prohibition captures the trust-violation core of the customer relationship. Borrowing from a customer is the kind of conduct that ends careers; even where an exception technically applies, the firm and the rep are watched closely under the misuse-of-customer-assets prohibition and the commercial-honor standard.
The General Prohibition
A registered person may not borrow money from or lend money to a customer.
The prohibition reaches:
- Cash loans in either direction
- Loan-equivalent transactions (e.g., a registered person taking funds from a customer "to invest" without a documented securities transaction)
- Both secured and unsecured loans
The prohibition is the default. The five exceptions below operate only when the firm's WSPs explicitly permit the activity AND the registered person complies with notice and approval requirements specified in those WSPs (with two narrow waivers noted below).
The Five Exception Categories
| # | Exception | Notice and Approval Requirement |
|---|---|---|
| 1 | Customer is a member of the registered person's immediate family | Firm WSPs may waive notification and approval |
| 2 | Customer is a financial institution regularly engaged in lending | Firm WSPs may waive notification and approval |
| 3 | Both parties are registered persons of the same firm | Notice and approval required per WSPs |
| 4 | A personal relationship outside the broker-customer relationship existed before the customer relationship | Notice and approval required per WSPs |
| 5 | A business relationship (not the broker-customer relationship) outside the firm | Notice and approval required per WSPs |
The exception categories do not override the firm's WSPs. If the firm's WSPs prohibit any borrowing or lending, the exceptions do not authorize the activity. The exceptions only function when the firm has chosen to permit them.
"Immediate Family" Definition (Modernized April 28, 2025)
The April 28, 2025 amendments updated the immediate-family definition for new arrangements and modifications on or after the effective date. The amendments:
- Replaced "husband or wife" with "spouse or domestic partner"
- Added explicit inclusion of step and adoptive relationships
- Tightened the catch-all "any other person" clause to require both same-household residency AND material financial support
The Updated Definition
"Immediate family" includes:
- Parents, grandparents, mother-in-law and father-in-law
- Spouse or domestic partner (replacing "husband or wife")
- Brother or sister (and step-brother, step-sister, adoptive variants)
- Brother/sister-in-law
- Son/daughter-in-law
- Children and grandchildren (including step and adoptive)
- Cousin
- Aunt or uncle, niece or nephew
- Any other person who resides in the same household as the registered person AND whom the registered person financially supports, directly or indirectly, to a material extent
Effective-Date Mechanics
The April 28, 2025 amendments apply to:
- New borrowing or lending arrangements entered into on or after April 28, 2025
- New broker-customer relationships entered into on or after April 28, 2025
- Modifications made on or after April 28, 2025 to arrangements that were entered into before that date
The amendments do not apply retroactively to pre-existing arrangements, so a 2024 borrowing arrangement under the old definition can continue under that definition until it is modified.
Exam Tip: Gotchas
- The April 28, 2025 amendments modernized the family definition but did not waive firm-approval mechanics. A rep who borrows from a sibling under the immediate-family exception still must comply with the firm's WSPs; the WSPs may waive notification and approval, but they are not automatically waived.
- The "any other person" clause now requires BOTH same-household residency AND material financial support. The pre-amendment definition required only one. A pre-2025 informal "household member" arrangement may not qualify under the new test.
Interaction with Other Requirements
The borrowing/lending requirement does not exist in isolation. A borrowing/lending-compliant loan can still violate other requirements:
| Conduct | Potential Charges |
|---|---|
| Loan from elderly customer-mother under family exception, but rep applies undue pressure | borrowing/lending (compliant) + commercial-honor breach + potentially elder financial abuse statutes |
| Loan from a non-family customer without WSP authorization | borrowing/lending + misuse of customer assets + commercial honor |
| Loan reported to firm but not in writing as WSPs require | borrowing/lending (notice/approval defect) + commercial honor |
| Loan from customer-friend with selling compensation flowing back | borrowing/lending + private-securities-transaction failure + commercial honor |
Exam Tip: Gotchas
- The immediate-family exception waives FIRM NOTIFICATION but does NOT waive the underlying prohibition on improper customer-asset use or the general supervisory obligation. A loan from a customer-mother is permitted under the family exception, but a rep who pressures a customer-mother into a loan still faces commercial-honor charges and potentially elder-financial-abuse charges.
- The exceptions are not stand-alone permissions. Each exception requires the firm's WSPs to permit the activity. A firm that bans all borrowing and lending wipes out all five exceptions for its registered persons.