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#1052000 - 09/26/08 08:28 PM Loans and Deposit Accounts
Marnie Offline
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Joined: Nov 2007
Posts: 437
Nevada
Does anyone out there require a customer to have a deposit account with you in order to get a loan? If so, how do you ensure there is fair lending and consistency in evaluation? Do you state this requirement in your policy as well as marketing? Are there balance requirements? Do you have language in your note that specifics this requirement? If you deny, do you state as the reason "no deposit accounts with the bank" or "low deposit balances" if you require a balance?

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Lending Compliance
#1052285 - 09/27/08 06:35 PM Re: Loans and Deposit Accounts Marnie
homestar Offline
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Joined: Feb 2001
Posts: 2,245
US of A
Originally Posted By: Marnie
Does anyone out there require a customer to have a deposit account with you in order to get a loan?

We do not have such a restriction, but we sometimes offer a better APR if the customer has an account with us, or sets up auto-debit for payment.

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If so, how do you ensure there is fair lending and consistency in evaluation?

You better be sure you don't make exceptions, or if you do make an exception, it's for a very good legitimate business reason that you can defend from a Fair Lending standpoint.

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Do you have language in your note that specifics this requirement?

I don't think you need say anything about it in your promissory note or disclosures, unless you're going to take specific action in the event the deposit account is closed, for example declare the loan in default.

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If you deny, do you state as the reason "no deposit accounts with the bank" or "low deposit balances" if you require a balance?

You could always consider the fall back, "we do not offer credit on the terms requested" or something like that.
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#1052307 - 09/27/08 08:37 PM Re: Loans and Deposit Accounts homestar
Andy_Z Offline
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Many banks require a deposit account to qualify for a loan and that is an acceptable practice. If the account is later closed and the loan is unpaid, it isn't really something you'd call an event of default worth accelerating it for. It isn't contracted for, but is a policy of the bank. As Homestar said, when it is your policy, follow the policy. Exceptions just make you answer questions you'd rather not.

I've only seen a compensating balance requirement when the account is a commercial business. Consumers just "have an account" and the bank hopes it isn't a token account with no real deposit and no fees.
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#1055744 - 10/01/08 07:12 PM Re: Loans and Deposit Accounts Andy_Z
Marnie Offline
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Joined: Nov 2007
Posts: 437
Nevada
Thanks you both!

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#1056294 - 10/02/08 02:17 PM Re: Loans and Deposit Accounts Marnie
The OG Zaibatsu Offline
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The OG Zaibatsu
Joined: Dec 2007
Posts: 1,713
Texas
Changing the subject a bit: I have heard of depository institutions offering a product to repair credit. All loan proceeds must be placed in an account. The borrower can't touch the proceeds until the loan is paid off. This is a compensating balance loan and should result in a lower interest rate on the loan.

IMHO: When all or part of the proceeds of a loan is put into a compensating balance, which the borrower does not have access to, and the lender charges interest on the full amount of the loan, then the amount of interest charged on the compensating balance is usury per se (at least in TX). In the I = p x r x t formula (Interest = principal x rate x time), the true interest allowed would be expressed as I = (p - compensating balance) x r x t. Any interest over that amount would be usurious.
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#1056394 - 10/02/08 03:07 PM Re: Loans and Deposit Accounts The OG Zaibatsu
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
That would be a state law issue. In IN it would not be.

If the savings account is earning less than a 5% interest rate (not APY) then Reg Z specifically requires you to disclose that the APR does not take any required deposits into consideration.

As a rule we charge 2% above the savings rate as the loan rate.
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#1056457 - 10/02/08 03:37 PM Re: Loans and Deposit Accounts Dan Persfull
The OG Zaibatsu Offline
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The OG Zaibatsu
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Posts: 1,713
Texas
Originally Posted By: Dan Persfull
That would be a state law issue. In IN it would not be.


You mean there are other states besides TX?
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#1056461 - 10/02/08 03:40 PM Re: Loans and Deposit Accounts The OG Zaibatsu
M Cockrell Offline
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M Cockrell
Joined: Jan 2003
Posts: 1,046
Dallas, TX
Originally Posted By: In Memory of...
Originally Posted By: Dan Persfull
That would be a state law issue. In IN it would not be.


You mean there are other countries besides TX?


fixed
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