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R e s e r v e B a n k o f D alla s
DALLAS. TEXAS
75222
Circular No. 82-133
O ctober 19, 1982
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
Septem ber 17, 1982 M eeting
TO ALL MEMBER BANKS AND OTHERS CONCERNED
IN THE ELEVENTH FEDERAL RESERVE DISTRICT:
The D epository Institutions D eregulation C o m m itte e (DIDC) took the
follow ing a c tio n s a t its Septem ber 17, 1982 m eeting:
1. Issued an in terp retive ruling th at f e e s may be paid to bona fide
brokers and not be included as in terest under conditions that ensure
that no part o f the finders' f e e is paid to depositors.
2. D enied p e titio n s by four s t a t e s requesting ce rta in e x em p tion s for
depository institu tions in their s t a t e s from DIDC regulations lim iting
in terest rate ceilin gs.
Enclosed are cop ies o f the DIDC's press r e le a s e and the m aterial as
subm itted for publication in the Federal R e g is te r .
Q uestions regarding the
m aterial contained in this circular should be d irected to this Bank's Legal
D epartm ent, Extension 6171.
Additional c o p ies o f this circular will be furnished upon request to the
D ep artm en t o f Com m unications, Financial and C om m unity A ffairs, Extension 6289.
Sincerely yours,
William H. W allace
First Vice President
Enclosure
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)
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
Wtfrhinpton. D.C. 20220
COMPTROLLER OF THE CURRENCY
FEDERAL RESERVE BOARD
FEDERAL DEPOSIT INSURANCE CORPORATION
NATIONAL CREDIT UNION ADMINISTRATION
FEDERAL HOME LOAN BANK BOARD
DEPARTMENT OF THE TREASURY
September 23, 1982
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
September 17, 1982 Meeting
At its September 17, 1982 meeting, the Depository Institutions
Deregulation Committee (DIDC) determined that its finders' fee
regulation, which requires a finders' fee to be considered as part
of interest paid to a depositor, does not apply to fees paid to
bona fide brokers.
A finders' fee is defined as a fee paid by a
depository institution to a third party who introduces a depositor
to the institution.
In 1980, when, the regulation was issued, the
Committee was concerned about depository institutions circumventing
interest rate ceilings by paying finders' fees, which were then
given back to depositors.
The Committee's interpretive ruling
means that a bona fide broker can receive a fee for placing any
type of deposit (time or demand) with a depository institution
and not reduce the interest paid to the depositor, as long as
certain conditions are met.
These conditions assure that no por
tion of the fee paid to the broker is passed on to the depositor.
The Committee defined a bona fide broker as a person principally
engaged in the business of acting as a broker or dealer in regard
to deposits, securities or money market instruments.
The Committee also denied petitions by four states requesting
certain exemptions for depository institutions in their states
from DIDC regulations limiting interest rate ceilings.
The states
requested the exemptions in order to permit institutions in their
states to compete with money market mutual funds. The Committee
concluded that granting such exemptions could aggravate thrift
earnings problems, and would put institutions in neighboring states
at a competitive disadvantage.
The DIDC noted that Congress is
in the midst of considering legislation that:
(1) could expand
thrift asset powers, thus allowing them to increase their profit
ability, and (2) could direct the DIDC to authorize an instrument
to be issued by all depository institutions nationwide which would
be competitive with money market mutual funds.
Therefore, the
Committee denied the petitions and declined to take any further
action on this issue until Congress has completed its consideration
of the financial reform legislation.
The next DIDC meeting will be held on Wednesday, December
1, 1982, at 3:00 p.m.
DEPOSITORY IN ST IT U T IO N S DEREGULATION COMMITTEE
12 C.F.R. Part 1204
[Docket No. D-0028]
Payment of Finders' Fees to Bona Fide Brokers
AGENCY:
Depository Institutions Deregulation Committee
ACTION:
Interpretive Ruling
SUMMARY:
Effective December 31, 1980, the Depository
Institutions Deregulation Committee ("Committee") adopted the
finders'
fee regulation (12 C.F.R. 1204.110) which defined as
interest a fee paid by a depository institution to a third
party who introduced a depositor to the institution.
That
regulation was adopted in response to concern with widespread
use of finders'
passing finders'
fees to circumvent interest rate ceilings by
fees through to the depositors.
The Committee
has received questions as to whether the regulation applies
to the payment of a fee to a bona fide broker for the place
ment of deposits with a depository institution.
At its
September 17, 1982 meeting, the Committee determined that
fees may be paid to bona fide brokers and not be included as
interest under conditions that ensure that no part of the
finders'
fee is paid to depositors.
EFFECTIVE DATE:
September 17, 1982
LIST OF SUBJECTS IN 12 C.F.R.'Part 1204:
Banks, banking
-
2
FOR FURTHER INFORMATION CONTACT:
-
Elaine Boutilier, Attorney-
Advisor, Department of the Treasury (202) 566-8737; Rebecca
Laird,
Senior Associate General Counsel, Federal Home Loan
Bank Board (202) 377-6446; Alan Priest, Attorney, Office of
the Comptroller of the Currency (202) 447-1880; F. Douglas
Birdzell, Counsel, or Joseph A. DiNuzzo, Attorney, Federal
Deposit Insurance Corporation (202) 389-4147; or Paul S.
Pilecki, Senior Attorney, Board of Governors of the Federal
Reserve System (202) 452-3281.
SUPPLEMENTARY INFORMATION:
Pursuant to its authority under
Title II of the Depository Institutions Deregulation and
Monetary Control Act of 1980 (94 Stat. 142; 12 U.S.C. § 3501
et se q .), to prescribe rules governing the payment of interest
and dividends on deposits of Federally insured commercial
banks,
savings and loan associations, and mutual savings
banks, the Committee amends, effective September 17, 1982,
Part 1204 —
Interest on Deposits (12 C.F.R. Part 1204) by
adding a new Section 202 to read as follows:
§ 1204.202 - Payment of Fees to Bona Fide Brokers
(a)
Under section 1204.110 of the Committee's rules, any
fee paid by a depository institution to a person who introduces
a depositor to the institution must be paid in cash when paid
for a deposit subject to rate ceilings and c enerally will be
regarde
as a payment of interest for purposes of compliance
with rat.* ceilings.
This rule was adopted effective December 31,
1980, in order to prevent the-circumvention of rate ceilings
- 3 -
that could occur if a “finders' fee" is passed on to the de
positor.
(b) The Committee has received several inquiries as to
whether depository institutions are required to pay fees in cash
to brokers that solicit deposits on behalf of the institution
and to regard such payments as interest.
The Committee pre
viously found the finders' fee regulation inapplicable to
All-Savers Certificates and to a specific person who acted as
a broker of demand deposits.
The Committee has determined
that finders’ fees may be paid to bona fide brokers of time
and demand deposits without regarding such payments as interest
for purposes of deposit interest rate ceilings.
Accordingly,
a fee to a broker will not be regarded as a payment of interest
if:
(1) the fee is paid to a bona fide broker, which is a
person who is principally engaged in the business of acting as
a broker or dealer in regard to deposits, securities or money
market instruments;
(2) the relationship between the broker and
depository institution is memorialized in a written agreement,
a copy of which is retained by the depository institution and
made available to examiners; and (3) an officer of the broker
certifies that no portion of the fee paid to the broker is
directly or indirectly passed on to the depositor, and a copy
of the certification is given to the depository institution to
be retained on file with the agreement.
By order of th^
'mmittee, September 24, 1982.
Gordon Eastburn
Policy Director
@FedFRASER