Can deposits be required on Consumer Purp loans

I see a lot of Credit Approval Requests that indicate as a condition of approval that the borrower open a deposit account with our bank on consumer purpose real-estate transactions (i.e. HELOC's & HELOAN's).

Though this is typical in a commercial transaction, can this get us in trouble for consumer deals.....especially if we require it for some borrowers, but not for others?

That's the rub. If you are going to require a deposit relationship for a specific consumer transaction then it should be required for all such consumer transactions.

Why?

As far as "why"?....frankly, the lender would say "because we want their deposit accounts...why wouldn't we?"

I checked on one this morning and the borrower never opened an account with us anyway, so it's not anything that's even monitored. Funny thing is the condition was even mentioned in the OLC minutes.

I could see if it was for the purpose of receiving a better rate (as we do offer a .25% rate reduction if they have a DDA with us with auto pay), but that's not the case.

IMHO you're heading down a slippery ECOA slope, especially if it's enforced for one borrower and not another, even if the enforcement is "implied". IOWs, your request and my request were conditioned on the deposit account. My loan closes without it, yours closes with it. Why was your's, a protected class, enforced and mine wasn't?

Back to why.

There should be a solid business reason for everything you do. Normally, these reasons are outlined in policies and implemented with procedures that assure uniform application of policy. This is good business and the foundation for a manageable ECOA compliance program. Apparently, your lenders don't REALLY care about the deposit account--or they would monitor their customers' compliance with this requirement and take necessary steps to enforce it.

Why wouldn't you want token accounts without balance requirements?
Because:
a) they cost more to set up and service than they are worth, and
b) they can become an ECOA trap as Dan explains

If we decide to discontinue making this a requirement on consumer loans, can we continue to require deposit accounts on business purpose loans.....or should they be treated the same?

Keep in mind that ECOA applies equally to business loans, however generally for business loans the deposits are required for compensating balances for the negotiated rate or some other negotiated term.

Unless the deposits play a part in your pricing strategy then I would advise staying away from a "blanket policy" of requiring deposits.

Got it...thanks Dan!