Can we require that a borrower have their payroll direct deposited into an account at our bank?

You're kidding, right?

If not check your state law but I'm sure you'll find the answer is no.

You can require them to have a deposit account with you as a condition of the loan (relationship banking) but you have no authority to dictate how their pay is distributed nor can you require auto debit for the payment.

Wow! just wow...

please remember that not everyone who comes on this site is an experienced banker and well rounded in all regulations. they come here because they don't know and are trying to learn. expressing amazement that they don't know something may prevent them from asking the next time they don't know, and then possibly doing something that puts their bank at risk...of course, it could also make them stop coming to BOL for answers.

think back to when you were just starting and trying to learn, i know i sure asked a lot of questions people may have thought were stupid (some would say i still do, but that's for another day), but that is how we learn, isn't it?

Thanks, Happy. I didn't think we could, but it is happening at my new bank. I told them that was not allowed and got the old "we've never been written up for it, so it must be OK". I know sometimes questions seem "dumb" to the experts, but better to ask than be sorry later, right?

I looked under Reg E and found the cite that prohibits compulsory auto debit and that you could not require an employee of the bank to have direct deposit at your financial institution. I did not see anyting that I could use to prove that our practice is not OK. If you could help with that, it would be appreciated.

Looks like Gilmore is turning over a new leaf... Let's see how long this lasts.

Where is Happy and what have you done with him?

Sometime how the question is asked, and if asked anonymously, affects how it is reacted to and answered.

If the questioned had been asked:

The bank is currently requiring borrowers to have their payroll directly deposited to an account in our bank. When I questioned this procedure they claim they have never been called on it. Are we allow to require the payroll to be direct deposited to an account in our bank as a condition of the loan?

That wording would have better presented the purpose of the question and most likely would have solicited a different reply.

Another (closed-ended) question was asked in the RESPA forum today. My simple answer was yes. When I went back the poster said "even if ". Well if the even if had been in the original question it would have caused a more detailed response and saved all involved time.

It goes back to business writing 101 - Who is your audience, avoid closed end questions if possible and be specific in providing the information needed to solicit a response to adequately address your question.

Thanks, Dan! I will work on my questions before posting going forward. But, do you have any citation that will help me convince these folks that we need to stop this practice?

1005.10(e)(2) and its commentary.

please excuse my momentary point of lucidity...

Thanks, Dan! I will work on my questions before posting going forward. But, do you have any citation that will help me convince these folks that we need to stop this practice?

The Reg. E citation will only address the prohibition for requiring an auto debit for the payment as a condition for the loan.

I would suspect that you would have to go to your state's Department of Labor's section on distribution of payroll. Most likely you will have to call them.

I would also relate this to section 227.13(c) of Reg. AA. IMHO requiring the borrower's paycheck to be deposited into the your bank as a condition of the loan would essentially be requiring an assignment of wages.

i normally save my snarky comments for PMs and the cooler, but i may be willing to make an exception in this case

Not true Dan...the commentary states: 10(e)(2) Employment or Government Benefit

1. Payroll. An employer (including a financial institution) may not require its employees to receive their salary by direct deposit to any particular institution. An employer may require direct deposit of salary by electronic means if employees are allowed to choose the institution that will receive the direct deposit. Alternatively, an employer may give employees the choice of having their salary deposited at a particular institution (designated by the employer) or receiving their salary by another means, such as by check or cash

In this case the financial institution is the lender, not the employer.

#12. That applies to employers requiring direct deposit of their employee's payroll. The original question was can a bank require a borrower to auto deposit their paycheck to a deposti account in the lender's bank as a condition of a loan. That loan approval requirement has nothing to do with the distribution of the borrower's payroll by their employer.

Oh, whoops, I should read the question more closely! My bad. Sorry Dan!

Rules of the thread

Rule 1 - Dan is never wrong
Rule 2 - If you think Dan is wrong, re-read rule 1.

Haha! Don't I know it!

You've never talked to my ex-wife have you?

Rule 3 - Dans ex-wife is wrong