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F ederal R eserve Bank o f Dallas
DALLAS, TEXAS

75222

C i r c u l a r No. 75-53
A pril 18, 1975

INTERPRETATION OF REGULATION Q
PROPOSED AMENDMENT TO REGULATION Q

TO ALL MEMBER BANKS AND OTHERS
CONCERNED IN THE ELEVENTH
FEDERAL RESERVE DISTRICT:
The Board of G o v e rn o rs of the Fe d e ra l R e s e rv e System has
is su e d an in te rp r e ta tio n of its Regulation Q, " In te r e s t on D e p o s its ," p e r ­
mitting te le p h o n e t r a n s f e r s of fun ds from a s a v i n g s a cc o u n t. T h is new in­
te r p r e t a t i o n r e v e r s e s the 1936 in te r p r e ta tio n found in p a r a g r a p h 3510 of
the B o a r d 's P u b lish e d I n t e r p r e ta tio n s .
At the same time, the Board also is s u e d a p r o p o s e d a m e ndm ent to
Regulation Q that would p e rm it m em ber b a n k s to offer a b i l l - p a y i n g s e r v i c e
th r o u g h p r e a u t h o r i z e d t r a n s f e r s of fu n d s from a c u s to m e r 's s a v i n g s a cc o u n t.
In te re s te d p e r s o n s a r e invited to subm it r e le v a n t d a ta , v ie w s , or
a r g u m e n ts on the p ropo sa l in w ritin g to the S e c r e t a r y , Board of G o v e rn o rs
of the Federal R e s e r v e System, W ashington, D .C . 20551, to be r e c e iv e d not
la te r than J u n e 6, 1975.
P r in te d on the r e v e r s e of this c i r c u l a r an d the following p a g e s a r e
copie s of the in te r p r e ta tio n of Regulation Q, th e p r e s s r e l e a s e , a n d th e F e d ­
eral R e g is te r do cum ent re la tin g to the p r o p o s e d am end m en t.
Sincerely y o u rs,
T . W. P la n t
F i r s t Vice P r e s i d e n t

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

INTEREST ON DEPOSITS

IN T ER PR ETA TIO N O F R EG U LA TIO N Q

Effective A pril 7, 1975, P art 217 was amended
by adding the following new section:
SEC T IO N 217.152— W IT H D R A W A L S O F SAV ­
IN G S D EPO SITS BY T E L E P H O N E
(a) The Board of G overnors has been asked to
reconsider its view, adopted in 1936, th a t a m em ­
ber bank m ay not perm it a depositor to w ithdraw
funds from his savings account by m eans of a
telephone or other oral order (1936 Fed. Res.
Bulletin 6 2 4 ). T h at position was based upon the
B oard’s concern fo r m em ber bank security and
also upon its concern that unrestricted telephone
access to savings accounts m ight lead depositors
to treat such accounts as extensions of their check­
ing accounts and destroy the distinction between
the accounts.
(b ) T he Board has studied the telephone w ith­
draw al systems currently being developed by sev­
eral m em ber banks and feels th a t the security and

record-keeping devices m ade possible by new tech­
nology and incorporated into these systems will
keep errors and unauthorized use to a minimum.
(c)
The B oard recognizes that the telephone
has becom e an accepted m edium fo r transm itting
financial data and that the telephone merely p ro­
vides the custom er with an additional m ethod of
com m unicating instructions regarding his account
to his bank. In fact, num erous other depository in­
stitutions including nonm em ber com m ercial banks
and savings and loan associations have for some
time been perm itted to offer telephone w ithdrawal
services.
Therefore, the B oard w ithdraws its policy against
the offering of telephone withdraw al services while
advising m em ber banks to safeguard such transfers
with proper procedures and internal control.
(Interprets and applies 12 U.S.C. 371b)
4 /7 /7 5

TITLE 12—BANKS AND BANKING
CHAPTER II—FEDERAL RESERVE SYSTEM
SUBCHAPTER A—BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
(R E G . Q)
PART 217—INTEREST ON DEPOSITS
W ithdraw als from S a v in g s D eposits

T he B oard of G o v e rn o rs h a s b e en a s k e d to c o n s id e r am endm ents
to R eg ulation Q (I n te r e s t on D e p o sits) to p e rm it m em ber b a n k s to offer th e ir
c u sto m e rs the p r iv i le g e of w ith d ra w in g o r t r a n s f e r r i n g fu n d s from s a v in g s
de p o sits b y m eans of w ith d ra w a l r e q u e s t s o r a u th o riz a tio n to the b a n k for
p e rio d ic p ay m en ts or t r a n s f e r s of p r in c ip a l o r i n te r e s t on any type of i n d e b t­
e d n e s s of the d e p o sito r . T h e p r in c ip a l effect of the p ro p o s e d am endm ent
w ould b e to allow m em ber b a n k s to p ro v id e a full r a n g e of b ill p aym ent
s e r v ic e s to th e ir cu sto m ers w ith o u t r e g a r d to the n a tu r e of the d e p o s ito r 's
in d e b te d n e ss.
Since 1962, th e B o a r d 's R eg u latio n Q (§ 2 1 7 .5 ( c ) ( 2 ) ( ii ) ) h a s
p e rm itte d a d e p o sito r to d ir e c t th a t c e r ta in r e c u r r i n g p a y m e n ts b e made
from a s a v in g s d e p o s it, b u t th e s e p e rm is s ib le w ith d ra w a l a u th o riz a tio n s
a re lim ited to "the p a y m e n t of in sta llm e n ts of p r i n c i p a l , i n t e r e s t , o r o th e r
c h a r g e s (in c lu d in g taxes or in s u r a n c e p re m iu m s ) due on a r e a l e sta te loan
o r m o rtg a g e ." T h e B o ard b e lie v e s th a t th is p ro v is io n may b e u n n e c e s s a r ily
r e s t r i c t i v e a n d th a t it may be d e s ir a b le to p e rm it d e p o s ito rs to make th ir d

p a r ty p a y m e n t a u th o riz a tio n s w ith o u t r e g a r d to th e n a tu r e of the
in d e b te d n e ss.
U n d e r the p ro p o s e d am endm ent, d e p o s ito rs could a u th o riz e mem­
b e r b a n k s to w ith d ra w fu n d s from th e ir s a v in g s d e p o sits p e r io d ic a lly , or
o th e rw is e , for the p u r p o s e of p a y in g all or p a r t of the d e p o s ito r 's in d e b te d ­
n e s s to a th ir d p a r t y who may or may not m aintain a d ep o sit account at the
d e p o s ito r's b a n k .

S uch p a y m e n ts could be made b y tr a n s f e r to a n o th e r

account in the b a n k or b y the b a n k d ra w in g a ch eck on itse lf and s e n d in g
it to the c r e d ito r - p a y e e or to a n o th e r b a n k for the accoun t of the c r e d i t o r payee.
A c c o rd in g ly , the B oard p r o p o s e s , p u r s u a n t to its a u th o rity
u n d e r sec tio n 19 of the F e d e ra l R e s e rv e Act (12 U .S .C . 461) to define the
term s u s e d in th a t section to am end § 217 .5 (c ) of R egulation Q to r e a d as
fo llo w s:
§ 217.5

WITHDRAWAL OF SAVINGS DEPOSITS

(c) M anner of p a y m e n t of s a v in g s d e p o sits .
(1)

S u b je c t to the p ro v is io n s of s u b p a r a g r a p h (2) of t

p a r a g r a p h , a m em ber b a n k may p e rm it w ith d ra w a ls to b e m ade from a
s a v in g s d e p o sit o nly th ro u g h p a y m e n t

U to

the d e p o sito r ( b u t not to any

7/ P aym ent from a s a v in g s d e p o sit o r p r e s e n ta tio n of a p a s s b o o k may be
made o v e r th e c o u n te r , th r o u g h the m a ils , or o th e rw is e .

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o th e r p e r s o n w h e th e r o r n o t a cting fo r the d e p o s ito r) e x c e p t
(i)

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QQ

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(iii)

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(iv )

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(v i)

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(vii)

P u r s u a n t to n o n tr a n s f e r r a b le o r d e r s or a u th o r i­

zations to th e b a n k for th e p a y m e n t of amounts in su c h accounts to th ir d
p a r t i e s , p e rio d ic a lly o r o th e rw is e . Any s u c h o r d e r o r a u th o riz a tio n that
may b e h o n o re d as a w ith d ra w a l r e q u e s t for p a y m e n t to a th ir d p a r ty m ay,
if so a u th o riz e d b y the t h i r d p a r t y , also be h o n o re d as a tr a n s f e r to an
a cc o u n t of s u c h th ir d p a r t y . Any form for su c h o r d e r o r a u th o riz a tio n
s h a ll contain la n g u a g e in boldface ty p e of re a s o n a b le size to the effect th a t
the o r d e r o r a u th o riz a tio n is not n e g o tia b le or t r a n s f e r r a b l e .
(2)

N otw ithstanding the p ro v is io n s of s u b p a r a g r a p h (

this p a r a g r a p h , no w ith d ra w a l s h a ll b e p e rm itte d b y a m em ber b a n k to be
made from a s a v in g s d e p o sit, th ro u g h p a y m e n t to the b a n k itse lf o r th ro u g h
tr a n s f e r of c re d it to a dem and o r o th e r d e p o sit acco u n t of the same d e p o sito r
(o th e r th a n of in te r e s t on the s a v in g s d e p o sit) if s u c h p a y m e n t o r tr a n s f e r
is made p u r s u a n t to any a d v e r tis e d p la n o r an y a g re e m e n t, w ritte n or o r a l,

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4

w h ic h a u th o riz e s s u c h p a y m e n ts o r tr a n s f e r s of c r e d it to b e made as a
norm al p r a c tic e in o r d e r to c o v e r c h ec k s or d ra fts d ra w n b y the d e p o sito r
u p o n the b a n k .
(3) The p ro v is io n s of th is p a r a g r a p h do not a p p ly to d e ­
p o s its s u b je c t to n e g o tia b le o r d e r s of w ith d ra w a l a u th o riz e d by F e d e ra l law
to b e is s u e d in th e States of M assa c h u se tts an d New H a m p sh ire .
(4) W here a s a v in g s d e p o sit is e v id e n c e d b y a p a s s b o o k ,
e v e r y w ith d ra w a l made u p o n p r e s e n ta tio n of the p a ss b o o k s h a ll b e e n te re d
in the p a ss b o o k a t the time of w ith d ra w a l, and e v e r y o th e r w ith d ra w a l from
su c h a d e p o sit s h a ll b e e n te re d in the p a s s b o o k as soon as p ra c tic a b le after
the w ith d ra w a l is m ade.
To aid in the c o n s id e ra tio n of th is m atter b y the B o a r d , in te r e s te d
p e r s o n s a r e in v ite d to subm it r e le v a n t d a t a , v i e w s , or a r g u m e n t s . Any s u c h
m a te ria l s h o u ld b e su b m itte d in w ritin g to the S e c r e ta r y , B oard of G o v e rn o rs
of the F e d e ra l R e s e rv e S y stem , W ashington, D . C . 20551, to be re c e iv e d not
la te r th a n J u n e 6, 1975. S uch m a te ria l w ill be m ade a v ailab le for in s p e c tio n
and copying u p o n r e q u e s t , e x c e p t as p r o v id e d in § 2 6 1 .6 (a ) of the B o a r d 's
R ules R e g a rd in g A vailability of In fo rm a tio n .
By o r d e r of the B o ard of G o v e rn o rs , A p ril 7, 1975.
(S ig n e d ) T h e o d o re E . A llison

T h e o d o re E . A llison
S e c r e ta r y of the B oard
(SEAL)

FEDERAL RESERVE

k
press

release

For immediate release

April 7, 1975

The Board of Governors of the Federal Reserve System announced
today two moves that would permit member banks to offer more convenient
banking services to their customers.
In one action, effective immediately, the Board authorized
member banks to permit use of the telephone by their customers to with­
draw funds from their savings accounts or to transfer funds from a
savings account.

This rescinds a policy in effect since 1936.

The Board has studied the telephone withdrawal systems currently
being developed by several member banks and feels that the security and
record-keeping devices made possible by new technology and incorporated
into these systems will keep errors and unauthorized use to a minimum.
Further, the Board recognizes that the telephone has become an accepted
medium for transmitting financial data and that the telephone merely
provides the customer with an additional method of communicating instruc­
tions regarding his account to his bank.
The other action by the Board was a proposal,
to amend Regulation Q.

issued for comment,

This would:

Permit member banks to offer a bill-paying service through pre­
authorized transfer of funds from a customer's savings account to pay his
debts.

The proposal would apply to any type of indebtedness and not just

to mortgage related payments as presently permitted.

2

Under the proposed amendment, depositors could authorize member
banks to withdraw funds from their savings deposits periodically, or
otherwise, for the purpose of paying all or part of the depositor's
indebtedness to a third party who may or may not maintain a deposit account
at the depositor's bank.

Such payments could be made by transfer to another

account in the bank or by the bank drawing a check on itself and sending it
to the creditor payee or to another bank for the account of the creditorpayee.
Comment on the proposal will be received by the Board through
June 6 ,
A Similar action is being announced by Federal Deposit Insurance
Corporation.
Copies of the Board's orders in the above matters are attached.

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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102