I have a loan officer and relationship manager working with a client that extended an offer of a loan to the client on the condition that they open a $100K deposit account. The only source of funds that this client has to fulfill the condition is an IRA. This seems to be cutting very close to a prohibited transaction, however the loan officer and relationship manager are stating they didn’t specify the account had to be an IRA in order to avoid a prohibited transaction (although they were aware when they made the condition that the only source of funds was the client’s IRA), they are also stating that they aren’t asking for the account to officially be collateral for the loan, only that they client maintain the deposit as a condition of the loan (which sounds like it makes it collateral to me).

I’m scrambling to point to references that clearly show this scenario is not allowed. Any help would be appreciated.