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Paying Entity Interests on Funds Against Any Regs?

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Question: 
We have a mortgage servicing company as a customer at our bank. The company collects monthly payments on the loans they service and deposits the funds at our bank. These funds represent principal, interest, tax and insurance payments. The funds are held at our bank until it is time to make an escrow payment or make a payment to the mortgage investor(s). Our question is whether or not we can pay interest on these deposits since our client is not the owner of the funds but more like a custodian. We understand we can now pay interest on business DDAs but we are uncertain if paying an entity interest on funds that don't ultimately belong to them would be a violation of any type of regulation or contract law.
Answer: 

You can pay them interest. Whether they can keep the interest or have to pass it on to the customer would be a matter of State law.

First published on BankersOnline.com 6/18/12

First published on 06/18/2012

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