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We are considering implementing a new condition when applying for a consumer loan. We would like to require the individual to open a deposit account (checking or savings) with us in order to be eligible for a consumer loan. Is this prohibited by regulation? We would appreciate any insight or advice anyone may have on this topic.
It is okay to require the customer to open an account as a condition of the loan; however, what is prohibited is conditioning the extension of credit on the customer repaying the loan by automatic payment from that account. See 1005.10(e) below:
(e)Compulsory use. (1) Credit. No financial institution or other person may condition an extension of credit to a consumer on the consumer’s repayment by preauthorized electronic fund transfers, except for credit extended under an overdraft credit plan or extended to maintain a specified minimum balance in the consumer’s account.
Another concern to consider if requiring the customer to open an account as a condition of the loan is consistency. If this will be a stipulation of the loan, how will it be monitored? Will it be allowed to be “waived” by the loan officer? This may considered an unfair practice under UDAAP so you will want to establish very specific procedures for this product.
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