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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 . 3 - 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) * * * * * QQ * * * * * (iii) * * * * * (iv ) * * * * * * * * * * (v i) * * * * * (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, - 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) k FEDERAL press RESERVE 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. - 0 -
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