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Management wants to charge an additional .50% on the origination fee for our consumer interim construction loans if a borrower has not opened an demand deposit account prior to loan documents being requested. Prelims would be prepared based on intent as discussed with officer and our prelim cover letter would include that the pricing is based (in part) on:
• A Deposit Account [□shall / □shall not] be established and maintained with The Bank & Trust of Bryan/College Station.Two questions:
1. If prelims are prepared as if the applicant is going to open an account and they don’t or vice versa – is that a legitimate changed circumstance under “New information particular to the borrower or transaction that was not relied on in providing the GFE”?
2. Management’s intent is that the borrower open & maintain their main account here. Currently, not intending to write into our loan documents; thus, understand they can close the account as soon as the loan is closed. We’ve reviewed Reg E & Y and do not see where we are prohibited from requiring they have a demand deposit account – vs just an account. Is there any other Reg that might prohibit ‘tying”?
Your situation seems to be:
• A “changed circumstance under Section 1024.2(b)(ii), which states, “Changed circumstances means information particular to the borrower or transaction that was relied on in providing the GFE and that changes or is found to be inaccurate after the GFE has been provided. This may include information about the credit quality of the borrower, the amount of the loan, the estimated value of the property, or any other information that was used in providing the GFE.”
• Covered by Section 1024.7(f)(2) – Changed circumstances affecting loan. If changed circumstances result in a change in the borrower’s eligibility for the specific loan terms identified in the GFE, the loan originator may provide a revised GFE to the borrower. If a revised GFE is to be provided, the loan originator must do so within 3 business days of receiving information sufficient to establish changed circumstances. The revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances affecting the loan actually resulted in higher charges.You mentioned that you have already reviewed Regulation E so we assume there is no problem under 15 U.S. Code § 1693k – Compulsory use of electronic fund transfers.
Also make sure the consumer is aware that the failure to open an account by a specific date will result in a change in product to one with a higher fee for those do not maintain an account with the bank. If the arrangement is not clearly explained to the consumer you are at risk of a UDAAP violation.
You should check state law for any possible prohibition against requiring an account in connection with the loan.
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