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4000 - Advisory Opinions


Eligibility of Rural Electric Association Cooperative to Hold Funds in NOW Account

FDIC-87-43

December 1, 1987

Claude A. Rollin, Attorney

This is in response to your letter of November 4, 1987, wherein you ask whether your local Rural Electric Association Cooperative (hereinafter "REA") is legally eligible to hold funds in a "NOW account."

12 U.S.C. § 1832(a)(1) authorizes banks to permit certain depositors to make withdrawals from interest-bearing deposit accounts by negotiable or transferable instruments for the purpose of making transfers to third parties--i.e. to hold deposits in a NOW account. 12 U.S.C. § 1832(a)(2) limits the availability of NOW accounts by stating that such accounts must "consist solely of funds in which the entire beneficial interest is held by one or more individuals or by an organization which is operated primarily for religious, philanthropic, charitable, educational, or other similar purposes and which is not operated for profit. . ." or consist solely of government funds.

In your letter, you indicate that your local REA is "not a tax paying association" and "they do operate for the benefit of their users, and are neither educational nor charitable." The fact that the REA does not pay taxes does not necessarily mean that it is "not operated for profit" as is required by the above-noted test. Even assuming that the REA satisfies that part of the test (that it is a non-profit organization), it seems clear that the REA would fail the second part of the test since you have indicated it is not "operated primarily for religious, philanthropic, charitable, educational, or other similar purposes." This is a separate and independent part of the test for determining whether a depositor may establish a NOW account.

Based on the information you have provided, I must therefor conclude that your local REA would not be eligible to hold its funds in a NOW account.


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