We have a customer who wants to borrow a loan and put the proceeds into a savings account and use that account as collateral, in which we will put a hold. Is this something we can do?

Thank you!

Banks sometimes have this sort of product to allow people to build the number of their credit lines to help their credit score. If you do not report these sorts of loans to the credit bureau though - it is a waste time. It also is potentially used to launder money.

Rlcarey sorry to bother you but is there a name for products like this? I have never heard of this type of activity prior and it is interesting.

you da MVP my friend. Thank you.

Nicole, it used to be more common and I'd guess it still happens. It isn't against a federal law or reg. I don't know of any states with restrictions but that doesn't mean there aren't any. Done in small amounts it isn't much of a laundering threat, not is it real profitable. Loan rates are typically low because of the minimal risk, but the profit margin is also low. So you need to know what it costs to make and service a loan to know what your spread needs to be and if savings rates go up, your fixed rate loan's profit margin goes down. And the first time it goes past due and you write and call, and they ask if you can debit the savings or you cut to the chase and do that anyway, again profits are dwindling.

There is no required margin of rate spread between the loan and deposit either.

Forgot to add, Reg Z does have a deposit required disclosure that would likely apply in today's rate environment.

https://www.bankersonline.com/regulations/12-1026-018#18r

There's a fair lending issue, also.

These are the only type of consumer loans where the credit risk is identical from one borrower to the next--zero. With the risk controlled, all borrowers are equally qualified. Therefore, if prices and loan terms vary from one borrower to the next, you have disparate treatment. So...if one borrower is female and the other is male, old/young, minority/non-minority (you get the picture), then you're exposed to charges of discrimination on a prohibited basis. If you do these loans, then you have to maintain unwavering compliance with your lending policy in order to guarantee uniform terms and pricing.