Auto Transfer Agreement & Access to a LOC

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Question:

Currently we are in the process of updating various agreement forms. One of the forms regarding "Automatic Transfer Authorization" that we are using has a statement concerning making a payment for a loan from the customer's account with an overdraft protection LOC attached to it. We indicate that the bank will not take into account any LOC when considering if there are adequate funds to complete the transfer or make the payment as agreed to. My question is: Do we have to include such a statement? Is there any regulation, law, or UCC article that would govern this?

Answer:

I think it's plain good business sense to avoid tapping an OD LOC to satisfy an automatic loan payment to another credit account. Using this explanatory language merely sets the standard for the customer and eliminates confusion.

If the customer wants to tap his OD line to pay the other loan account, let him/her do it the "old fashioned" way, and write a check.

First published on BankersOnline.com 9/6/04