FDIC FAQs-Will “reward programs” offered by IDIs on noninterest-bearing checking accounts prevent such accounts from meeting the definition of a noninterest-bearing transaction account?

Compliance > Deposit Operations > FDIC FAQs on Insurance and Payment of Interest on Demand Deposit Accounts


Q:  Will “reward programs” offered by IDIs on noninterest-bearing checking accounts
prevent such accounts from meeting the definition of a noninterest-bearing transaction account?


A:  The answer will depend on the specifics of a particular reward program. FDIC regulation 12 C.F.R. § 330.101 describes certain payments to or for the account of a depositor that are not deemed “interest” –

    (a) Premiums, whether in the form of merchandise, credit, or cash, given by a
    bank to the holder of a deposit will not be regarded as ‘‘interest’’ as defined in
    § 330.1(k) if:
    (1) The premium is given to the depositor only at the time of the opening of a
    new account or an addition to an existing account;
    (2) No more than two premiums per deposit are given in any twelve-month
    interval; and
    (3) The value of the premium (in the case of merchandise, the total cost to the
    bank, including shipping, warehousing, packaging, and handling costs) does not
    exceed $10 for a deposit of less than $5,000 or $20 for a deposit of $5,000 or
    more.
    . . .
    (e) Notwithstanding paragraph (a) of this section, any premium that is not,
    directly or indirectly, related to or dependent on the balance in a demand deposit
    account and the duration of the account balance shall not be considered the
    payment of interest on a demand deposit account . . .

Since the above is substantively identical to provisions in the rescinded FDIC rule 12 C.F.R. § 329.103 and 12 C.F.R. § 217.101 of Regulation Q of the Board of Governors of the Federal Reserve System, the FDIC will look to past interpretations of these former
regulations to determine whether a specific reward provided in connection with transaction accounts will be considered interest paid on the account.

For instance, suppose an IDI offers depositors a one-time gift merely for opening a new noninterest-bearing DDA at the IDI. This gift is not directly or indirectly related to or dependent on the account balance or how long the account remains open. In fact, there is no minimum deposit balance and the depositor can keep the gift even if the account is closed on the same day it is opened. Based on 12 C.F.R. § 330.101 and past interpretations of former 12 C.F.R. § 329.102 and 12 C.F.R. § 217.101, such a gift would not be deemed interest and the noninterest-bearing DDA would be fully insured under the Dodd-Frank Deposit Insurance Provision through December 31, 2012.

This can be found in - FAQ#13 of FDIC’s FAQs.  FDIC’s FAQs can be found at: http://www.fdic.gov/deposit/deposits/unlimited/faq.pdf

 

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