Full text of District Notices (Federal Reserve Bank of Dallas) : Board of Governors Opinion - Advertisements for Money Market Deposit and $2,500 NOW Accounts, Circular No. 83-47

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Federal

reserve

Ban k

DALLAS, TE X A S

of

Dallas

75222

Circular No. 83-47
March 24, 1983

BOARD OF GOVERNORS OPINION
ADVERTISEMENTS FOR MONEY MARKET
DEPOSIT AND $2,500 NOW ACCOUNTS
TO ALL MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
A ttached is the te x t of a le tte r dated March 9, 1983 to Mr. Robert H.
Boykin, President of the Federal Reserve Bank of Dallas, from Mr. William H.
Wiles, Secretary of the Board of Governors of the Federal Reserve System,
expressing the Board's opinion regarding the advertising of Money Market Deposit
Accounts and $2,500 NOW Accounts. The Board emphasizes th a t advertisem ents
which fail to disclose certain split interest ra te s or service charges are in violation
of Regulation Q (Interest on Deposits).
Questions regarding the m aterial in this circular should be directed to
the Legal D epartment, Extension 6171.
Additional copies of this circular will be furnished upon request to the
Public Affairs Departm ent, Extension 6289.
Sincerely yours,

William H. Wallace
First Vice President

Banks and others are encouraged to use the following incoming W A T S numbers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extension referred to above.

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

BOARD OF G O V E R N O R S
□ r THE

FEDERAL RESERVE SYSTEM
W A S H IN G T O N ,

D.

C.

20551
a o o r e s s

a r ric iA t
TO

THC

c o r r c s p o n d c n c c

BCARO

March 9, 1983

Mr. Robert H. Boykin, P r e s i d e n t
Federal Reserve Bank o f D a lla s
D a l l a s , Texas 75222
Dear Mr. Boykin:
As you know, q ue s ti ons have bee n raised recentl y con cerning whether
d e p o s i t o r y institutions are providi ng accurate and me anin g f ul information to
co ns u me r s in their ad vert i s em e nt s for Money Market De posit Accou nts (MMDAs)
and N O W a cc oun ts of $2,500 or more, which are not subject to interest rate
ce ilings.
The pri n c ip al areas of co nc e rn have been the payment of split
interest rates on the acc ounts and the disclosu re of service charges.
The
pu rp o se of this letter is to advise you of the Board staff's view of how the
ad ve r ti s in g p ro v is ions of Reg ulation Q — Interest on Deposits
(12 CF R
Part 217) apply to c ertai n aspects of a dve rtis emen ts for MMDAs and "Super
N O W accounts.
M a n y d ep o si tor y institutions have been offeri ng such accounts with
an interest rate struc tu re whe reby the account earns 5-1/4 percent on the
first $2,500 in the ac cou nt
and some higher rate, say 10 percent, on
the
a ccount balan ce in exces s of $2,500.
Section 217.6(d) of Regulation Q (12
C F R § 217.6(d))
sp eci fica lly provides that "if an adve rt ise d rate is payable
o nl y on d e posit s that meet.
. .amount requirements, such requirements shall
be cl e a rl y and con s p ic u ou s ly stated."
Consistent with this requirement,
wh ere a memb er bank adve rt ise s a split rate on an account, it cannot
ad vertise the higher rate unless it (1) states cl ea r ly in close pr oximity to
the rate that the rate applies on ly to balances above a stated amount, and
(2) includes the lower rate that applies to the amoun t of the account below
the cuto ff rate in the ad vert isem ent in equal p ro min ence with the higher
rate.
M a ny member banks are paying one interest rate on such accounts that
meet the regulatory min imum d en om inati on requirement of $2,500, or perha ps
some higher m i n i mu m est ablis hed by the bank.
In these cases, such
a dv e rt i se me n ts that include an interest rate need only state the mi n i mu m
d e n o m in a ti o n that applies to the accounts.
Regulati on Q does not require
that the rate that applies when the account falls b elo w the mini mum required
ba la nce be included in the advertisement.
However, ma ny institutions do
include this in formati on in their advertisements, and the Board's staff
be lieves that this information is helpful to consumers and encourages member
banks to c o ntinu e to provid e such information.
The second major area of concern is the imposition of service
charges.
O r dina ry and recurring service charges on deposit accounts may
s ub st anti ally reduce the yield on such accounts.
The staff regards any
a dv er tise me nt or other solicita tion for an interest-beari ng account that

fails to di s cl ose the existen ce of such charges as inaccurate, misleading,
or
m i s r e p r e s e nt a ti v e
of
its
deposit
cont ract s
in
vi olat io n
of
se ct ion 217.6(g) of Regul at ion Q (12 C F R § 217.6(g)).
Accordingly, if
s ervic e ch ar ges or other similar fees are imposed on an inter est-bearing
ac coun t and an interest rate is advertised, the ex ist ence of such fees must
be stated c o n s p i cu o us l y in the advertisem ent.
W he re the on ly charges that
w il l be imposed will be those made in co n necti on with overdrafts, returned
checks, or stop payments, the ex istence of such ch ar ges need not be
d is cl o s e d
in adverti seme nts.
In
this
regard,
such
charges
are
d i s t i ng u is h ab l e from or d in ary and recurring charg es such as per check
char ges and m onth ly service charges, which are applied essentially uniformly
and incurred regularly.
Per check and mont hly service charges also may
su bs tan t i al l y dim inish a d e p o s i t o r ’s m onth ly return on the account.
The staff believe s that not all de tails of service charg es need be
included in advertising .
However, all information conce rning service
c h a rg e s or ot her fees must be provided to a customer at the time a deposit
ac co unt is opened.
In this regard, the Board has issued an interpretation
(12 C F R § 217.148) that provides that member banks must advise customers at
the ope nin g of an accou nt "as to the method that will be used in computing
and pay ing interest on the account, including any pr ovision for nonpayment
of interest. . ."
Servic e ch arges are a pertin ent element of this formula
and must be fully disclosed.
We would ap preciate it if you would
all member banks in your district.

send a copy of

Wi ll iam W. Wiles
Secretary

TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS AND
OFFICERS IN CHARGE OF BRANCHES

this letter

to