4000 - Advisory Opinions
Bank Award of Bonus Points and/or Gift Certificates for Use of a Credit Card Does Not Violate § 329 as Long as Credit Card Is Not Linked to a Demand Deposit Account
October 17, 1995
Jeffrey M. Kopchik, Counsel
This is in response to your August 28th letter to Mr. Claude Rollin. It is my understanding from your letter that "Bank ABC" ("Bank") is designing a promotional program which will encourage customers to use their ATM, debit and credit cards and encourage noncustomers to open checking accounts and purchase certificates of deposit by offering "bonus points." A bonus point would be worth $.01. Your letter does not describe the formula according to which bonus points would be awarded, except that 2,500 bonus points will be awarded for opening an account. Bonus points would only be able to be redeemed for cash after 10,000 points have been accumulated.
The Bank also has in place a debit card program in which the Bank awards customers gift certificates which are redeemable through area merchants. The gift certificates accumulate at the rate of $.25 per debit card transaction, up to a maximum of $8.00 per calendar quarter. You have inquired whether either of these promotional programs violates § 329 of the FDIC's regulations.
First, the payment of bonus points or gift certificates to promote the use of a credit card does not violate § 329 of the FDIC's regulations because such a promotion does not constitute the payment of interest on a demand deposit. Presumably, a credit card customer need not have a demand deposit account with the Bank. According to your letter, bonus points and gift certificates are awarded based solely on how often a customer uses his/her credit card.
Second, the payment of bonus points or gift certificates to promote the use of an ATM or debit card would most likely violate § 329.2 of the FDIC's regulations if the account to which the ATM or debit card is linked is a demand deposit account. Such a payment would constitute the indirect payment of interest on a demand deposit in violation of § 329.2 and would not satisfy the exception delineated in § 329.103. Obviously, if the ATM or debit card is linked to an account which is not a demand deposit account (e.g., a NOW account), the payment of bonus points or gift certificates would not be prohibited by § 329.
Third, the offering of bonus points which are redeemable for cash in return for opening a checking account does fall within the purview of § 329 of the FDIC's regulations, provided that the "checking account'' to which your letter refers is a demand deposit account as defined in § 329.1(b) of the FDIC's regulations. Section 329.1(c) defines "interest'' as any payment to a depositor as compensation for the use of funds constituting a deposit, but does not include the absorption of expenses incident to providing a normal banking function or the forbearance from charging a fee in connection with a service. Section 329.2 provides that no bank may pay interest on any demand deposit. Section 329.103 of the FDIC's regulations describes certain "premiums" that are not deemed to be "interest" as defined in § 329.1(c). Section 329.103 provides that the maximum premium that can be paid to a customer for opening a demand deposit account and not be considered to be the impermissible payment of interest is $20 for a deposit of $5,000 or more or $10 for a deposit of less than $5,000.
Your letter indicates that the Bank is considering paying $25 to any depositor who opens a new account. In the case of a demand deposit account, the payment of this premium would violate § 329.103. I suggest that the Bank reformulate the bonus points to be awarded to customers who open demand deposit accounts to adhere to the § 329.103 limitations. In the case of a customer who opens, for example, a savings account or purchases a certificate of deposit, the Bank's proposed premium would be permissible since the payment of interest on such accounts is permissible.
I trust that this letter answers your questions.