“We will approve your new loan only if you move all your investments, mortgage and credit card business to us first.”

You have just had your arm twisted by someone applying a lender’s technique known as “tied selling”. This is illegal in most westernized countries, States and Provinces. There are some States where this law is “bent” by some banks, but it is at the very least a banking taboo.

All this means is that the bank is applying pressure on you to bring other business to their lending institution as a condition of your approval. They are trying to put the screws to you and scare you into thinking you won’t be approved for the loan (you’re asking for) unless you transfer all of your financial affairs over to their financial institution. If you suspect this type of behavior is happening, report it to your local authorities as soon as possible.

Tied selling amongst banking sales staff is not tolerated by most financial institutions or the law, and appropriate action will be taken if in fact tied selling is being perpetrated. This practice of coercive tied selling is a very nasty business indeed.

In almost any Western civilization the banking laws specifically rule against a bank that is imposing undue pressure on, or coercing a person to obtain a product or service from a particular person, including the bank in any of its affiliates, as a condition for obtaining another product or service from the bank. Don’t confuse tied selling with necessary security required to secure a loan, and the comfort levels a bank may not have around putting a collateral mortgage on your property which is financed through another bank.

Ask for clarity if this issue comes up to ensure tied selling is not what’s happening. Ask the question, “is this tied selling?”, and listen closely to their response. The loan officer’s face will immediately turn red and you will see an expression of fear come over them – because if they were indeed perpetrating the legal act of tied selling they would be fired and possibly charged by the local police department and DA’s office. If this happens, ask to speak with the manager of the bank, and advise that you would like to contact the authorities immediately if it appears to be a genuine tied selling approach.

As a side note, I should mention that even though it is illegal for a bank to tied sell a loan approval, it isn’t illegal for you to offer to move all your business to that financial institution to entice them to approve your loan. This type of leverage could be a strategy in your advantage, as you hold out a carrot for them to nibble on. This is perfectly legal for you to do.

If a bank manager or loan officer ever suggests that you will have an easier time getting approved for your loan if you consider moving your 401(k) into their financial institution, or the mortgage on your house, or the loan on your car, you are experiencing the ancient and illegal art of tied selling. You have a choice at that point whether or not you want to get them in the a lot of trouble with the law. You can just shrug it off, and the client interview, and walk out of the bank. You can also decide to put their feet to the fire and bring in the bank manager and the authorities. We would suggest that you report this activity as soon as possible to the bank manager and the local legal authorities because if they are trying to do this to you they are trying to do this to other customers as well. This is a very unwholesome activity and bad for the whole community.