Auto Debit Loan Pay - Signature Required?

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Question:

We use an automatic transfer authorization form to have payments auto debited from a DDA to pay a loan payment. Do you need the customer's signature on the form or will a loan officer's signature suffice?

Answer:

Such transfers aren't subject to the requirements of Regulation E (as an automatic transfer between a customer's account and an account of the financial institution, under Regulation E section 205.3(c)(5)(iii)). However, a best practice would call for the borrower/depositor to sign the authorization in order to provide evidence of the authorization. If the authorization in the loan agreement or on a separate form includes an acknowledgment that the borrower understands that the transfer acknowledgement is not a condition of the loan, so much the better.

Finally, if your loan contract provides for a discount on the interest rate conditioned on the automatic transfer, the written acknowledgment and authorization by your customer helps memorialize that agreement.

First published on BankersOnline.com 8/04/08