On September 27, 2010, the FDIC's Board of Directors issued a proposed rule to implement section 343 of the Dodd-Frank Act. This separate coverage for noninterest-bearing transaction accounts becomes effective on December 31, 2010, and terminates on December 31, 2012. Beginning January 1, 2013, such accounts will be insured under the FDICs general deposit insurance coverage rules.
The new Dodd-Frank provision is similar to the FDIC's TAGP, which expires on December 31, 2010. But, as emphasized in the proposed rule, it differs significantly from the TAGP in defining a "noninterest-bearing transaction account." Dodd-Frank provides unlimited insurance coverage only for traditional noninterest-bearing transaction accounts. Thus, unlike the TAGP, the Dodd-Frank provision does not include within the definition of a noninterest-bearing transaction account either low-interest NOW accounts or IOLTAs. It is very important that bank personnel and depositors understand this difference.
The Proposed Rule
The proposed rule would revise the Corporations deposit insurance regulations to include noninterest-bearing transaction accounts as a new temporary deposit insurance account category. The proposed rule explains that all funds held in noninterest-bearing transaction accounts would be fully insured, without limit, and that this unlimited coverage would be separate from, and in addition to, the coverage provided to depositors with respect to other accounts held at an IDI.
The proposed rule follows the definition of a noninterest-bearing transaction account in the Dodd-Frank Act, which does not include any interest-bearing accounts. The Dodd-Frank definition of noninterest-bearing transaction accounts encompasses only traditional, noninterest-bearing demand deposit (or checking) accounts that allow for an unlimited number of deposits and withdrawals at any time, whether held by a business, an individual or other type of depositor. The proposed rule expressly states that low-interest NOW accounts and IOLTAs, which are covered under the TAGP, are not covered under the Dodd-Frank definition of noninterest-bearing transaction accounts and, thus, do not qualify for temporary unlimited coverage under this proposed rule.
The proposed rule would impose three notice and disclosure requirements to ensure that IDIs and depositors are aware of and understand what types of accounts will be covered by this temporary deposit insurance coverage for noninterest-bearing transaction accounts. As explained in detail in the attached Federal Register notice: (1) IDIs must post a prescribed notice in their main office, each branch and, if applicable, on their Website; (2) IDIs currently participating in the TAGP must notify NOW account depositors and IOLTA depositors (currently protected under the TAGP) that, beginning January 1, 2011, those accounts no longer will be eligible for unlimited protection; and (3) IDIs must notify customers of any action they take to affect the deposit insurance coverage of funds held in noninterest-bearing transaction accounts.
Comments are due on the proposed rule no later than October 15, 2010. This limited time is necessary because the Dodd-Frank provision becomes effective December 31, 2010, and insured depository institutions need adequate time to comply with the notice and disclosure requirements by that date.