I need help in understanding the Compulsory Use requirements, Reg E states that a creditor may not require repayment of loans by electronic means on a preauthorized, recurring basis. If we offer a specialty mortgage loan for "professionals" i.e. attorneys and doctors that require auto draft of the mortgage payment as well as the opening of a checking account, are we violating Reg E?

By the fact that we have alternative mortgage products that a "professional" could apply for, does that get us out of a Reg E compulsory use violation since it is not the only loan program?

No. If the deposit account in question is covered by Regulation E, requiring that the professional pay the loan electronically and automatically on a recurring basis from that account as a condition of the loan would be a violation.

If the deposit account is a business account, not covered by the regulation, the prohibition doesn't apply.

gadawg - what John said -

(Just curious - or if a business account - what would have been the bank's position if the borrower closed the account during the loan, or customer made an electronic deposit the day before the payment hits, leaving a residual balance of $0.01?)

Some institutions make loans and offer a discount if the account is drafted (benefit similar to an employee loan). The loan is made as an adjustable rate loan with the increase triggered by the account closing. E.g., have an active account with the bank rate =4%. Close the account and the rate goes to 6%.