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#2223245 - 10/08/19 12:50 PM Requiring Deposit Account on Consumer Loan
compliance75 Offline
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Joined: Oct 2016
Posts: 102
Can a financial institution require a consumer to open a deposit account in order to deduct monthly loan payments? As a condition, the financial institution is also requiring the consumer to replenish the deposit account every year to continue making payments thereafter. This is a unsecured loan above the Reg Z threshold.
Thanks.

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#2223247 - 10/08/19 12:56 PM Re: Requiring Deposit Account on Consumer Loan compliance75
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 77,277
Galveston, TX
Require then to open a checking account - yes. Unless this is an open-end line of credit that serves as an overdraft plan - no you can't require auto payments.

1005.10(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. This exception does not apply to a covered separate credit feature accessible by a hybrid prepaid-credit card as defined in Regulation Z, 12 CFR 1026.61.
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#2223249 - 10/08/19 01:02 PM Re: Requiring Deposit Account on Consumer Loan compliance75
compliance75 Offline
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Posts: 102
Thank you,

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#2223268 - 10/08/19 02:00 PM Re: Requiring Deposit Account on Consumer Loan compliance75
Richard Insley Offline
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Richard Insley
Joined: Oct 2000
Posts: 9,999
Toano, VA
Two thoughts:
- Prohibitions of business practices are more likely to be found in state law than federal regulations.
- As a safety & soundness issue, I'm uneasy with consumer loans with lengthy repayment intervals. You might style this as a "monthly payment" loan, but it's really an annual payment loan. Will the borrower be willing and able to make the next cash infusion? If s/he has a financial meltdown in month #2, I'd rather know about it in month #3 than month #12. By then, other creditors have claimed all the borrower's assets and your loan is an unrecoverable loss.
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#2223271 - 10/08/19 02:13 PM Re: Requiring Deposit Account on Consumer Loan compliance75
compliance75 Offline
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Joined: Oct 2016
Posts: 102
As it refers to the second point, I totally agree and it was my first question.

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