Full text of District Notices (Federal Reserve Bank of Dallas) : Analysis of Customers' Accounts for the Purpose of Determining Service Charges

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FEDERAL RESERVE BANK
OF DALLAS

December 7,1933.

ANALYSIS OF CUSTOMERS’ ACCOUNTS FOR THE PURPOSE
OF DETERMINING SERVICE CHARGES

To the Member Bank Addressed:
For your information and guidance there is quoted below a letter addressed by the Federal
Reserve Board, Washington, D. C., under date of November 28, 1933, to the chairman of the Bank­
ing Code Committee of the American Bankers Association:
The Federal Reserve Board has given consideration to your letter of November 24, 1933, in which
you inquire whether or not the practice therein outlined would be considered contrary to that portion of
Section 19 of the Federal Reserve Act, as amended, which provides that, “No member bank shall,
directly or indirectly by any device whatsoever, pay any interest on any deposit which is payable on
demand.”
It appears that Article VIII, Paragraph (3), of the Bankers Code of Fair Competition, as approved
by the President on October 3, 1933, requires every clearing house, county association, county group, or
State bank association to adopt rules fixing uniform service charges to be charged by banks whereby
services rendered by banks shall be compensated for either by adequate balances carried or by a scale
of charges.
It also appears from your letter that, in order to determine whether the balance carried in an
account is suffcient to compensate the bank fairly for services rendered, it is necessary to analyze the
account; that this requires the establishment of uniform rules which must give consideration to the
value of the account and proper service charges against the account; and that these charges are of two
classes: first, general overhead expenses of the bank, and second, out of pocket expenses, such as ex­
change, collection and other charges arising out of specific transactions for specific customers and
actually paid or credited by the bank on behalf of such customers.
It further appears that, under the Code, it is the duty of the Banking Code Committee to consider
the rules which are being submitted for approval by clearing houses and other banking groups provided
for in the Code and that, before passing upon these rules, your Committee desires to know whether it
would be contrary to that provision of the Federal Reserve Act referred to above for member banks
to take into consideration “the reasonable value of their customers’ deposit balances in analyzing ac­
counts in accordance with a uniform plan to be approved by the Banking Code Committee for the pur­
pose of determining whether service charges should be assessed against their customers and, if so,
the amount to be assessed: Provided, That (1) the value of each account to the bank is computed in
accordance with a uniform plan approved by the Banking Code Committee and (2) the banks require
actual reimbursement (without deduction of interest or of the estimated value of the customers’ bal­
ance to the banks) for exchange charges, collection charges, and other charges arising out of specific
transactions for specific customers and actually paid or credited by the bank on behalf of such cus­
tomers.”
After careful consideration, the Federal Reserve Board is of the opinion that a practice such as
that outlined in your letter would not be contrary to that provision of Section 19 of the Federal Reserve
Act which is quoted above.
In reaching this conclusion the Board has taken particularly into account the fact that it is pro­
posed, in proviso No. 2, among other things, that the banks will require actual reimbursement for
exchange and collection charges, without the deduction of interest or of the estimated value of the
customers’ balances to the banks. Such a practice would eliminate any question of illegality which
might be occasioned by the absorption by a bank of exchange or collection charges in an amount bear­
ing a substantially direct relationship to the amount of the balance.

Federal Reserve Agent.

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