[Federal Register: July 30, 1997 (Volume 62, Number 146)]
[Rules and Regulations]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 329
Prohibition Against Payment of Interest on Demand Deposits
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Interpretive rule.
SUMMARY: The FDIC has amended an interpretive rule to provide an
additional exception to the limitations on premiums that may be given
in connection with demand deposits. Section 18(g) of the Federal
Deposit Insurance Act (FDI Act) requires that the FDIC by regulation
prohibit the payment of interest or dividends on demand deposits. 12
CFR part 329 implements this prohibition. As an exception to the
prohibition, an interpretive rule permits premiums of up to $10 for
deposits of less than $5000 and up to $20 for deposits of $5000 or more
not more than twice per year. The interpretive rule also limits the
timing of such premiums to the opening of a new account or an addition
to an existing account.
The FDIC has amended the interpretive rule to provide an additional
exception that permits premiums which are unrelated to the balance in a
demand deposit account and the duration of the account balance.
Therefore, insured nonmember banks and insured branches of foreign
banks are now permitted to give premiums on demand deposits, without
limitation as to the amount of the premium, provided that the premiums
are not related to, or dependent upon, the balance in the account and
the duration of the account balance. This amendment maintains
substantial parity with Regulation Q, 12 CFR Part 217, as recently
amended by the Board of Governors of the Federal Reserve System (FRB).
DATES: Effective July 30, 1997.
FOR FURTHER INFORMATION CONTACT: Marc Goldstrom, Counsel, Regulation
and Legislation Section, Legal Division, (202-898-8807); Louise
Kotoshirodo, Review Examiner, Division of Compliance and Consumer
Section 18(g) of the FDI Act provides that the Board of Directors
of the FDIC shall by regulation prohibit the payment of interest or
dividends on demand deposits in insured nonmember banks and in insured
branches of foreign banks. (12 U.S.C. 1828(g)). Accordingly, the FDIC
promulgated regulations prohibiting the payment of interest or
dividends on demand deposits at 12 CFR part 329. The Board of Governors
of the Federal Reserve System (FRB) has a corresponding prohibition for
member banks at 12 CFR part 217 (Regulation Q). As an exception to the
prohibition, the FDIC issued an interpretive rule that generally
permits (1) premiums only at the time of the opening of a new account
or an addition to, or renewal of, an existing account; (2) no more than
two premiums per deposit in any twelve-month interval; and (3) that the
value of the premiums does not exceed $10 for deposits of less than
$5000 and $20 for deposits of $5000 or more. (12 CFR 329.103). The FRB
has a corresponding exception for member banks at 12 CFR 217.101.
Section 18(g) of the FDI Act also provides that the FDIC shall make
such exceptions to this prohibition as are prescribed with respect to
demand deposits in member banks by section 19 of the Federal Reserve
Act, as amended, or by regulation of the FRB. (12 U.S.C. 1828(g)). The
FRB has recently amended its interpretation to establish an additional
exception with respect to member banks. The amendment permits member
banks to give premiums on demand deposits, without regard to the amount
of the premium, provided that the premiums are not related to, or
dependent upon, the balance in an account and the duration of the
account balance. (12 CFR 217.101(b)). The FDIC is now amending its
interpretive rule to provide a similar exception for state nonmember
banks and insured branches of foreign banks.
Premium limitations were first adopted by the FDIC and the FRB in
1970. These premium limitations originally applied to all types of
deposits and were established in part to prevent evasion of interest
rate ceilings at a time when interest rates were regulated. The
Depository Institutions Deregulation and Monetary Control Act of 1980
deregulated interest rates on time and savings deposits (including NOW
accounts). In 1980, the Depository Institutions Deregulation Committee
adopted these premium limitations with respect to time and savings
deposits in an effort to preserve a relatively level playing field
during the period of deposit interest rate deregulation, which ended in
1986. Since then, banks have been permitted to offer premiums on
interest-bearing accounts, including NOW, time, and savings accounts,
without regard to the premium limitations. The premium limitations,
therefore, have only applied to demand deposit accounts.
Because the preexisting exception is restricted to the opening of,
addition to, or renewal of, a deposit account, it has constrained the
ability of depository institutions to offer incentives to use their
products, including the use of new services such as ATM or debit cards.
In the past, the exception has prevented a bank from offering
incentives to existing demand deposit customers who signed up for an
ATM card because the incentives did not coincide with the opening of,
addition to, or renewal of, an account. For the same reason the
exception has prevented another bank from offering incentives to
encourage deposit customers to use an ATM card more than three times
per month. Premiums from the use of a debit card, which reduces the
amount on deposit, would also constitute interest on the deposit under
the preexisting exception, since they are also not paid upon the
opening of, addition to, or renewal of, an account.
The FDIC believes that in cases where a premium is not related to,
or dependent on, the balance in a demand deposit account and the
duration of that balance, such a premium generally should not be viewed
as interest. From an economic point of view, such premiums do not
appear to constitute interest on the account, since interest is
generally a payment to, or for the account of, a depositor as
compensation for the use of the depositor's funds. (12 CFR 329.1(c)).
As an additional matter, since interest rates on time deposits were
deregulated, there is no longer any need to provide that premiums that
are paid at the time of renewal are permissible. This revision removes
the reference to renewal in the preexisting exception.
In light of all the foregoing, the FDIC is amending its
interpretive rule effective on date of publication in the Federal
Register to except from the prohibition of the payment of interest on
demand deposits, any premiums that are not related to the balance in an
account and the duration of the account balance.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601-612) requires an
agency to publish a regulatory flexibility analysis for any final rule
for which the agency was required to publish a general notice of
proposed rulemaking. Under 5 U.S.C. 553(b), a general notice of
proposed rulemaking is not required for interpretative rules.
Accordingly, no regulatory flexibility analysis is required in this
Under 5 U.S.C. 553(d), a 30-day period between publication date and
effective date is not required for interpretative rules. Accordingly,
this interpretive rule is effective on date of publication in the
Paperwork Reduction Act
No collections of information pursuant to the Paperwork Reduction
Act are contained in the rule.
List of Subjects in 12 CFR Part 329
Banks, banking, Interest rates.
For the reasons set forth in the preamble, the FDIC amends 12 CFR
part 329 as set forth below:
PART 329--INTEREST ON DEPOSITS
1. The authority citation for part 329 continues to read as
Authority: 12 U.S.C. 1819, 1828(g) and 1832(a).
2. In Sec. 329.103, paragraph (a)(1) is amended by removing ``, or
renewal of,'', and a new paragraph (e) is added after paragraph (d) to
read as follows:
* * * * *
Sec. 329.103 Premiums.
* * * * *
(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 and shall not be subject to the limitations in paragraph (a) of
By order of the Board of Directors.
Dated at Washington, D.C. this 23rd day of July, 1997.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
[FR Doc. 97-20018 Filed 7-29-97; 8:45 am]
BILLING CODE 6714-01-P