As a condition of loan approval can a lender require a customer to make their payment by an automatic draft out of their checking or savings account?

If it's a consumer loan that is a violation of Regulation E.

I do believe, however, you can offer them a discount if they allow you to deduct the payment from their account.

And don't forget that if you do give them a discount for an auto debit payment, you should also prepare a document for signature with other loan papers, that discloses what happens to their rate if they remove the auto debit feature or close the associated account.