Yes, we believe that your bank can require borrowers to open a deposit account at your bank — provided that the requirement is applied consistently to avoid any fair lending implications.
There is no prohibition against tying a loan product offered through a subsidiary to a deposit account product at your bank. Illinois and federal anti-tying laws generally do not apply to traditional banking products, such as deposit accounts.
We would recommend ensuring that the deposit account requirement is applied consistently to avoid any discriminatory effects on protected classes, as suggested in an FDIC advisory opinion linked to below. While the FDIC is not your bank’s primary federal regulator, we believe that your bank’s regulators likely would have the same fair lending concerns as the FDIC if this policy was applied inconsistently (for example, if it applied only to customers at a certain income level, resulting in a discriminatory effect on a protected class).
As an aside, Regulation E does prohibit banks from requiring borrowers to repay a loan by preauthorized electronic fund transfers, but that would not interfere with the arrangement described in your question.
For resources related to our guidance, please see:
- Bank Holding Company Act, 12 USC 1972 (“A bank shall not in any manner extend credit, lease or sell property of any kind, or furnish any service, or fix or vary the consideration for any of the foregoing, on the condition or requirement—
(A) that the customer shall obtain some additional credit, property, or service from such bank other than a loan, discount, deposit, or trust service
(B) that the customer shall obtain some additional credit, property, or service from a bank holding company of such bank, or from any other subsidiary of such bank holding company;
(C) that the customer provide some additional credit, property, or service to such bank, other than those related to and usually provided in connection with a loan, discount, deposit, or trust service;
(D) that the customer provide some additional credit, property, or service to a bank holding company of such bank, or to any other subsidiary of such bank holding company; or
(E) that the customer shall not obtain some other credit, property, or service from a competitor of such bank, a bank holding company of such bank, or any subsidiary of such bank holding company, other than a condition or requirement that such bank shall reasonably impose in a credit transaction to assure the soundness of the credit.
- Illinois Banking Act, 205 ILCS 5/48.2(a)(1) (“Any bank, subsidiary, affiliate, officer or employee of such bank subject to this Act shall not: (1) grant any loan on the prior condition, agreement or understanding that the borrower contract with any specific person or organization for the following: (A) insurance services of an agent or broker; (B) legal services rendered to the borrower; (C) services of a real estate agent or broker; or (D) real estate or property management services;”)
- Illinois Banking Act, 205 ILCS 5/48.2(a)(2) (“Any bank, subsidiary, affiliate, officer or employee of such bank subject to this Act shall not: . . . require that insurance services, legal services, real estate services or property management services be placed with any subsidiary, affiliate, officer or employee of any bank.”)
- FDIC Advisory Opinion, FDIC-95-32 (November 27, 1995) (A program that ties discounts to individuals with certain deposit account balances, with a requirement of personal income of $100,000 or more, does not violate the anti-tying restrictions, but “these policies could have a discriminatory effect upon members of the classes who are protected by the prohibitions of the ECOA and FHA. . . . The depository institution must be ready, if such situations should occur, to demonstrate that the qualifications for participation in the program are justified by business necessity. The justification must be manifest and may not be hypothetical or speculative.”) The FDIC has informed the IBA that it has removed all of its advisory opinions from its website due to a high risk of staleness. We have provided links to archived versions of the advisory opinions for your convenience. If you have a question about an advisory opinion, the FDIC recommends that you contact your FDIC Field Office, which you can find by clicking here.
- Regulation E, 12 CFR 1005.10(e)(1) (“No financial institution or other person may condition an extension of credit to a consumer on the consumer’s repayment by preauthorized electronic fund transfers, except for credit extended under an overdraft credit plan or extended to maintain a specified minimum balance in the consumer’s account.”)