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Transfers Between Trust Accts and Operating Accts
by Ken Golliher, BOL Guru
BIO AND CONTACT INFO
Question: We have a customer who would like to close his accounts at another institution and open them with us. He owns a collection agency and he told us that the state requires him to hold a trust account and an operating account. He stated that his previous institution would not allow him to transfer funds between the two accounts and that is why he is closing his accounts with them. He asked us if we would permit transfers between the two accounts if he opened them at our institution. It is our understanding that as long as both accounts have the same owner and TIN then transfers should be allowed. I don't understand why an institution would not permit transfers, unless the TINs did not match or the customer had a history of questionable transactions, but this customer is the owner of a reputable, long-standing area business. Are we correct in assuming that transfers are permissible, or is there a trust regulation that we are unaware of?
Answer: Ask the potential customer for a citation to the law or regulation that requires him to have a trust account and determine what the purpose of the account is. If there is a trade organization or regulator for collection agencies in your state, contact them to verify your interpretation of what the law requires/prohibits.
Generally, a "trust" or "escrow" account held by a business means the funds belong to someone else. The other bank may be relying on that generality to say payments from that account should be made to third parties, not transferred to the account of the owner. You need to make a separate determination rather than relying on the customer for an even-handed interpretation.
First published on BankersOnline.com 08/11/03
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