We are contemplating changing the way we handle disbursements on construction loans. We are thinking of requiring the borrower to have a deposit account with our bank, and that the bank will deposit all disbursements directly into this account. We want to get away from issuing checks, etc.

Any prohibition on this? I am not aware of any, but would like to hear from other bankers. Thank you.

A very common practice that provides good controls; it allows you to centralize funding.

There are no prohibitions against this. You are allowed to require a deposit account for loan customers under the traditional bank product tying exemption.

Kaybee, thanks for the response.

Should any of the documents (disclosures, loan note, etc.) that the borrower receives indicate this requirement to have a deposit account? I think it makes sense to reference the need to have a deposit account somewhere (such as the commitment letter), but I am just curious if there is some sort of compliance-related requirement.

Sorry for delayed response..busy day. You can put this requirement in the commitment letter. As long as you don't require a deposit or direct charge of payments (must be revocable) you shouldn't trigger any disclosures.