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F e d e r a l Re s e r v e Ba n k o f D a lla s DALLAS, TEXAS 75222 C irc u la r No. 76-43 March 26, 1976 REGULATION Q - INTEREST ON DEPOSITS R e p rin t of Regulation Q and Amendment Concerning Negotiable O rd ers of W ithdraw al (NOW) TO A L L MEMBER BANKS AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE D IS T R IC T: T h e Board of Governors of the Federal R eserve System has rep rin te d its Regulation Q— Interest on Deposits— incorporating amendments issued through December 4, 1975. T h is booklet, w hich is enclosed, should be filed in you r Regulations B in d e r, and the corresponding booklet, as amended effective Jan uary 1, 1971, and subsequent amendments should be removed and destroyed. Please retain the supplement to Regulation Q effective December 4 , 1975, as it does not appear in the revised booklet. On March 1, 1976, the Board of Governors amended Regulation Q to perm it member commercial banks throughout New England to offer NOW accounts to th e ir customers. T h e action was taken in the light of legislation effective F eb ru ary 27, 1976, authorizing NOW accounts in M aine, Connecticut, Rhode Island, and V erm ont. Congress had p re v io u s ly authorized NOW accounts in Massachusetts and New Hampshire on an experim ental basis. T h e amendment extends the existing provisions of Regulation Q re g ard in g the offering of NOW accounts to member banks in those states in which Federal law perm its such accounts. Please note that member commercial banks located in the Eleventh Federal Reserve D is tric t a re not authorized to offer NOW accounts. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) - 2 - T h e amendment to Regulation Q Is enclosed and should be file d In y o u r Regulations B in d e r. If you have an y questions reg a rd in g Regulation Q , please contact R ichard West of our Regulations Departm ent a t (214) 651-6169. Additional copies of Regulation Q a n d /o r this amendment w ill be furnished upon request to the S e c reta ry 's Office o f this Bank. S in ce re ly y o u rs , T . W . Plant F irs t V ic e President Enclosures (2) BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM INTEREST ON DEPOSITS AMENDMENT TO REGULATION Qf E f f e c t i v e M a r c h 1, 1 9 7 6 , § 2 1 7 .1 ( e ) ( 3 ) , §217.5(c)(3), and §217.6(i) are am ended to read as follows: § 217.1 — D E F IN IT IO N S * * * * * HS S& £ * (3) In those states w here banks are perm itted to offer deposits subject to negotiable orders of w ithdraw al, such deposits m ay be m aintained if such deposits consist o f funds deposited to the credit of or in w hich the entire beneficial interest is held by one o r m ore individuals, or a corpora tion, association, or other organization operated prim arily for religious, philanthropic, charitable, educational, fraternal, o r other similar purposes, and n o t operated for profit. Deposits in w hich any beneficial interest is held by a corporation, part nership, association, o r other organization oper ated fo r profit or n o t operated prim arily for religious, philanthropic, charitable, educational, fraternal, o r other similar purposes m ay not be classified as deposits subject to negotiable orders of withdrawal. * * * * sfc § 217.5 — W IT H D R A W A L O F SAV ING S D EPO SITS sfc * * * * * (3) T he provisions of this paragraph do not apply to deposits subject to negotiable orders of w ithdraw al th a t are authorized by Federal law. * * (e) Savings deposits. 5{! (c) M anner o f paym ent o f savings d eposits. ={: sje sj; * * * § 217.6 — A D V E R T IS IN G O F IN T E R E S T O N D EPO SITS * * * * * (i) N eg o tiab le orders o f w ithdraw al. In addition to com pliance w ith th e other paragraphs of this section, m em ber banks offering accounts subject to negotiable orders of withdraw al, to the extent practicable, shall lim it every advertisement, an nouncem ent, o r solicitation m ade in any news paper, magazine, radio, television, o r other m edia to such facilities directed tow ard residents o f the States in w hich F ederal law authorizes the issuance of such accounts. All other advertisements, an nouncem ents, and solicitations of such accounts, including direct mailing, circulars, and notices, w hether w ritten or oral, to the extent practicable, shall be directed only to persons residing o r em ployed in the States in w hich F ederal law author izes the issuance of accounts subject to negotiable orders of withdraw al and to persons w ho are customers o f m em ber banks in those States on the effective date o f this am endm ent. t For this Regulation to be complete as amended effective March 1, 1976, retain: 1) Printed Regulation pamphlet as amended effective December 4, 1975; 2) Supplement effective December 4, 1975; and 3) This slip sheet. BO A R D OF G OVERNORS o i the FE D E R A L R ESERVE SYSTEM INTEREST ON DEPOSITS R EG U LA TIO N Q (12 CFR 217) As amended effective December 4, 1975 Any inquiry relating to this regulation should be addressed to the Federal Reserve Bank of the Federal Reserve District in which the inquiry arises. DECEMBER 1975 CONTENTS Page Page S e c . 2 1 7 .0 — Sc o p e .................................. 3 ........................................... 3 (a ) D em and d e p o s its ................................ (b) T im e deposits ..................................... (c ) T im e certificates of d e p o s i t .......... ( d ) T im e deposits, open account . . . . (e ) Savings deposits ................................ ( f ) Deposits as including certain promissory n o t e s ............................. (g) Multiple maturity time deposit . . . 3 3 3 3 4 of Pa r t S e c . 217.4 — P a y m e n t o f T im e D e p o s i t s B e fo re S e c . 2 1 7 .1 — D S e c . 2 1 7 .2 — D (a ) (b ) e f in it io n s .......................... 5 Interest prohibited ........................... M eaning of in te r e s t........................... 5 5 em and Se c . 2 1 7 .3 — I n t e r e s t S a v in g s D e p o s it s D e p o s it s 4 5 on T im e and ................................................... (a ) M axim um rate .................................... (b ) M odification o f contracts to con form to r e g u la tio n .......................... (c ) M em ber banks lim ited to m axim um rate for State b a n k s ..................... (d ) G race periods in com puting interest on savings deposits ..................... (e) Com putation of in t e r e s t.................. (f) N o interest after m aturity or ex piration o f notice ........................ (g) T im e deposits o f foreign govern m ental entities and international o rg a n iz a tio n s .................................... 5 5 M a tu rity ................................................. (a ) Tim e deposits payable on a specified date .................................................... (b ) Tim e deposits payable after a spe cified p e r i o d ...................................... (c) T im e deposits payable after a spe cified n o t i c e ...................................... (d ) Penalty for early withdrawals . . . . (e) Disclosure of . early withdrawal p e n a l t y ............................................... ( f ) Loans upon security of tim e deposits S e c . 217.5 — W i t h d r a w a l o f S a v in g s D e p o s i t s ............................................... ( a ) Requirem ents regarding notice of withdrawal ........................................ (b ) Loans on security of savings deposits (c ) M anner o f paym ent of savings deposits ............................................. 6 6 6 6 6 7 7 7 7 7 7 S e c . 217.6 — A d v e r t i s i n g o f I n t e r e s t o n 5 5 5 5 5 6 D e p o s its ...................................................................... 8 (a ) A nnual rate o f simple interest . . . . 8 (b ) Percentage yields based on one year 8 (c ) Percentage yields based o n periods 8 in excess of one y e a r ................... (d ) T im e or am ount requirem ents . . . . 8 (e ) Penalty fo r early withdrawals . . . . 8 ( f ) Profit ...................................................... 9 (g ) A ccuracy of a d v e rtis in g ................... 9 (h ) Solicitation o f deposits for banks . . 9 ( i ) Negotiable orders of w ithdrawal . . 9 S t a t u t o r y A p p e n d i x ........................................... 10 [S e c . 2 1 7 . 7 — S u p p l e m e n t , M a x im u m R a t e s o f I n t e r e s t P a y a b l e b y M e m b e r B a n k s o n T im e a n d S a v in g s D e p o s i t s , is p r in te d s e p a ra te ly .] REGULATION Q (12 CFR 217) A s am ended effective D ecem ber 4 , 1975 INTEREST ON DEPOSITS* (1) O n a certain date, specified in the instru ment, not less than 30 days after date of the (a ) This P art is issued under authority of deposit, or provisions of section 19 of the Federal Reserve (2) A t the expiration o f a certain specified A ct which, together with related provisions of time not less than 30 days after the date of the law, are cited in the Appendix. instrument, o r (b) This P art relates to the paym ent of de (3) U pon notice in writing which is actually posits and interest thereon by m em ber banks of required to be given not less than 30 days before the Federal Reserve System and not to the com the date of repaym ent,1 and putation and m aintenance of the reserves which (4) In all cases only upon presentation and m em ber banks are required to m aintain against surrender of the instrument. deposits. T he rules concerning reserves of m em ber (d) T im e deposits, open account. T he term banks are contained in P art 204 of this chapter. “tim e deposit, open account” means a deposit, (c) T he provisions of this P art do not apply other than a “time certificate of deposit”, with to any deposit which is payable only at an office respect to which there is in force a w ritten con of a m em ber bank located outside of the States of tract with the depositor that neither the whole the U nited States and the D istrict of Columbia. n o r any p art o f such deposit m ay be withdrawn, by check or otherwise, p rior to the date of m a tu S EC T IO N 217.1— D E F IN IT IO N S rity, w hich shall be not less than 30 days after (a) D em an d deposits. T he term “any deposit the date of the deposit,2 or prior to the expira w hich is payable on dem and”, hereinafter referred to as a “dem and deposit”, includes every deposit w hich is not a “time deposit” o r “savings deposit” , * The text corresponds to the Code of Federal Regula as defined in this section. tions, Title 12, Chapter II, Part 217; cited as 12 C F R 217. (b) T im e deposits. The term “tim e deposits” The words “this P art”, as used herein, mean Regulation Q. 1 A deposit with respect to which the bank merely re m eans “tim e certificates of deposit” and “time serves the right to require notice of not less than 30 days, deposits, open account”, as defined in this section. before any withdrawal is made is not a “ time certificate (c) T im e certificates o f deposit. T he term “time of deposit” within the meaning of the above definition. 2 Deposits, such as Christmas club accounts and vacation certificate o f deposit” means a deposit evidenced club accounts, which are made under written contracts by a negotiable o r non-negotiable instrum ent providing that no withdrawal shall be made until a certain number of periodic deposits have been made during a w hich provides on its face that th e am ount of period of not less than 3 months constitute “ time deposits, such deposit is payable to bearer or to any speci open account”, even though some of the deposits are made fied person o r to his order: within 30 days from the end of the period. S EC T IO N 217.0— SCO PE O F P A R T 3 § 217.1 tion o f the period of notice w hich m ust be given by the depositor in writing not less than 30 days in advance of withdrawal. (e) Savings deposits. The term “savings deposit”means a deposit— (1) th a t consists of funds deposited to the credit of or in which the entire beneficial interest is held by one o r m ore individuals, o r of a corporation, association, or other organization operated prim arily for religious, philanthropic, charitable, educational, fraternal, or other similar purposes and not operated for profit;4 or that consists o f funds deposited to the credit of or in w hich the entire beneficial interest is held by the United States, any State of the United States, o r any county, municipality, or political sub division thereof, the District of Columbia, the Com m onw ealth of Puerto Rico, the Virgin Islands, A m erican Samoa, G uam , o r political subdivision thereof; or that consists of funds deposited to the credit of, or in which any beneficial interest is held by a corporation, asso ciation, or other organization not qualifying above to the extent such funds do not exceed $150,000 per such depositor at a m em ber bank; and (2) with respect to which the depositor is not required by the deposit contract but may at any tim e be required by the bank to give notice in writing of an intended withdrawal not less than 30 days before such w ithdrawal is m ade and w hich is not payable on a specified date or at the expiration of a specified tim e after the date of deposit. (3) in those States where banks are permitted to offer deposits subject to negotiable orders of withdrawal, such deposits m ay be m aintained if such deposit consists of funds deposited to the credit o f o r in w hich the entire beneficial interest is held by one or m ore individuals, or of a corporation, association, or other organization op 1 A deposit with respect to which the bank merely re serves the right to require notice of not less than 30 days before any withdrawal is made is not a “time deposit, open account” , within the meaning of the above definition. * Deposits in joint accounts of two or more individuals may be classified as savings deposits if they meet the other requirements of the above definition. Deposits of a partnership operated for profit may also be classified as savings to the extent such deposits do not exceed $150,000 per partnership at a member bank. “ The exercise by the bank of its rights to require such notice shall not cause the deposit to cease to be a savings deposit. REGULATION Q erated prim arily for religious, philanthropic, char itable, educational, fraternal, or other similar purposes, and not operated for profit. Any de posit account subject to negotiable orders of w ithdrawal established p rior to M ay 16, 1975, which consists of funds deposited to the credit of o r in w hich the entire beneficial interest is held by a governm ental unit not qualifying herein may be maintained through D ecem ber 31, 1975. (f) Deposits as including certain promissory notes and other obligations. F or the purposes of this Part, th e term “deposits” also includes a mem ber bank’s liability on any promissory note, acknow ledgem ent of advance, due bill, o r similar obligation (written or oral) that is issued or under taken by a mem ber bank principally as a means of obtaining funds to be used in its banking business, except any such obligation that: (1) is issued to (or undertaken with respect to) and held fo r the account o f (i) a bank or an institution the time deposits o f which are exempt from § 217.7 pursuant to § 217.3(g) o r (ii) an agency of the U nited States or the G overnm ent Developm ent Bank for Puerto Rico; (2) evidences an indebtedness arising from a transfer of direct obligations of. or obligations that are fully guaranteed as to principal and interest by, the U nited States or any agency thereof that the bank is obligated to repurchase; (3) (i) bears on its face, in bold-face type, the following: “This obligation is not a deposit and is not insured by the Federal Deposit Insurance Corporation”; states expressly that it is subordinated to the claims of depositors and ineligible as collateral for a loan by the issuing bank; is unsecured; has an original m aturity of 7 years o r more; is in an am ount of at least $500; and has been approved by the Com ptroller o f the Currency, in the case of a national bank, or by the Board of Governors, in the case o f a State m em ber bank, as an addition to the b an k’s capital structure; or (ii) meets all of the requirem ents in the preceding clause except m aturity and with respect to which the C om p troller, in the case of a national bank, or the Board, in the case of a State m em ber bank, has determ ined th at exigent circum stances require the issuance of such obligation without regard to the provisions of this P art; or (iii) was issued or publicly offered before lu n e 30, 1970, with an original m aturity o r m ore than 2 years; or REGULATION Q (4) arises from a borrow ing by a m em ber bank from a dealer in securities, fo r one business day, o f proceeds o f a transfer of deposit credit in a Federal Reserve Bank (or other im m ediately avail able funds), com monly referred to as “Federal funds”, received by such dealer on the date of the loan in connection with clearance of securi ties transactions. This paragraph shall not, however, affect (i) any instrum ent issued before June 27, 1966, or (ii) any instrum ent that evidences an indebted ness arising from a transfer of assets under re purchase agreem ent issued before July 25, 1969. (g) Multiple maturity time deposit. The term “multiple m aturity time deposit” means any time deposit (1) that is payable at the depositor’s option on m ore than one date, w hether on a specified date or at the expiration of a specified time after the date of deposit (e.g., a deposit payable at the option of the depositor either three m onths or six m onths after the date of deposit), (2) that is payable after written notice of w ithdrawal, or (3) w ith respect to which the underlying instru m ent or contract or any inform al understanding or agreem ent provides for autom atic renewal at maturity. SEC T IO N 217.2— D E M A N D D EPO SITS (a) Interest prohibited. Except as provided by section 19 of the Federal Reserve Act, no m em ber bank of the F ederal Reserve System shall, directly or indirectly, by any device whatsoever, pay any interest on any dem and deposit. (b) Meaning of interest. W ithin this Part, any paym ent to o r for the account o f any depositor as com pensation for the use o f funds constituting a deposit shall be considered interest. SEC T IO N 217.3— IN T E R E S T O N T IM E A N D SA V IN G S D EPO SITS (a) Maximum rate. E xcept as provided in this section, no m em ber bank shall, directly or in directly, by any device whatsoever, pay interest on any time o r savings deposit at a rate in excess of such applicable m axim um rate as the Board of G overnors o f the F ederal Reserve System shall prescribe from tim e to time in § 217.7. In as certaining the rate of interest paid, the effects of com pounding of interest may be disregarded. (b) Modification of contracts to conform to regulation. N o certificate o f deposit o r other con §§ 217.1-217.2-217.3 tract shall be renewed o r extended unless it be modified to conform to the provisions o f this Part, and every m em ber bank shall take such action as may be necessary, as soon as possible con sistently with its contractual obligations, to bring all of its outstanding certificates of deposit or other contracts into conform ity w ith the provi sions o f this Part. (c) Member banks limited to maximum rate for State banks. T he rate of interest paid by a mem ber bank upon a time deposit or savings deposit shall not in any case exceed (1) the applicable m axi mum rate prescribed pursuant to the provisions of paragraph (a) of this section, or (2) the appli cable m axim um rate authorized by law to be paid upon such deposits by State banks or trust com panies organized under the laws of the State in w hich such m em ber bank is located, whichever may be less. (d) Grace periods in computing interest on sav ings deposits. A m em ber bank m ay pay interest on a savings deposit received during the first 10 calendar days of any calendar m onth at the applicable m axim um rate prescribed pursuant to paragraph (a) of this section calculated from the first day of such calendar m onth until such de posit is w ithdraw n or ceases to constitute a savings deposit under the provisions of this Part, w hich ever shall first occur; and a m em ber bank may pay interest on a savings deposit w ithdraw n d ur ing its last 3 business days of any calendar m onth ending a regular quarterly or semiannual interest period at the applicable m axim um rate prescribed pursuant to paragraph (a) of this section cal culated to the end of such calendar m onth. (e) Computation of interest. In the com putation of simple daily interest, the time factor should be expressed as a fraction in which the actual num ber of days the funds earn interest is the num erator, and the denom inator is either 360, 365, or, in a leap year, 366. However, when a deposit m atures in one m onth (or multiples thereof), the bank may use 30 days in the num erator (or corresponding multiples thereof). (f) No interest after maturity or expiration of notice. A fter the date of m aturity of any time deposit, such deposit is a dem and deposit, and no interest m ay be paid on such deposit fo r any period subsequent to such date. A fter the expira tion of the period of notice given with respect to the repaym ent of any tim e deposit or savings deposit, such deposit is a dem and deposit and no §§ 217.3-217.4 REGULATION Q interest m ay be paid on such deposit fo r any the presentm ent o f such a certificate fo r paym ent, period subsequent to the expiration of such notice, the b ank m ay pay the holder the contract rate except that, if the ow ner o f such deposit advise of interest on the deposit fo r the tim e that the the bank in w riting that the deposit will not be certificate was actually owned by a n entity so w ithdraw n pursuant to such notice or that the exempt. deposit will thereafter again be subject to the contract or requirem ents applicable to such de S E C T IO N 217.4— P A Y M E N T O F T IM E posit, the deposit will again constitute a time D E PO SIT S B E F O R E M A T U R IT Y deposit o r savings deposit, as the case m ay be, (a) T im e deposits payable on a specified date. after th e date upon w hich such advice is received N o mem ber ban k shall pay any tim e deposit, by th e bank. On each certificate, passbook, or which is payable on a specified date, before such other docum ent representing a tim e deposit, the specified date, except as provided in paragraph bank shall have printed or stam ped a conspicuous (d) of this section. statem ent indicating th at no interest will be paid (b) T im e deposits payable after a specified on the deposit after the m aturity date or, in the period. N o m em ber bank shall pay any time case o f a time deposit that is automatically re deposit, w hich is payable at the expiration of a newable, a conspicuous statem ent indicating th at certain specified period, before such specified the contract will be renewed autom atically upon period has expired, except as provided in p ara m aturity, an d indicating th e term s o f such graph (d) of this section. renewal. (c) T im e deposits payable after a specified (g) T im e deposits o f foreign governm ental en notice. N o m em ber bank shall pay any time tities and international organizations. Section 217.7 deposit, with respect to w hich notice is required does not apply to the rate of interest th at may be to be given a certain specified period before any paid by a m em ber bank on a tim e deposit having withdraw al is made, until such required notice a m aturity of 2 years or less and representing has been given and the specified period thereafter funds deposited and ow ned by (1) a foreign na has expired, except as provided in paragraph (d) tional governm ent, o r an agency o r instrum en of this section. tality thereof5a engaged principally in activities (d) P enalty fo r early w ithdraw als. W here a w hich are ordinarily perform ed in the U nited tim e deposit, o r any portion thereof, is paid b e States by governm ental entities, (2) an interna fore m aturity, a m em ber bank may pay interest tional entity of w hich th e U nited States is a on the am ount w ithdraw n at a rate not to exceed m ember, or (3) any other foreign, international, that currently prescribed in § 217.7 for a savings or supranational entity specifically designated by deposit: P rovided, T hat the depositor shall forfeit the B oard as exempt from § 217.7. All certificates three months o f interest payable at such rate. If, of deposit issued by m em ber banks to such enti however, the am ount w ithdraw n has remained on ties on which the contract rate o f interest exceeds deposit for three months or less, all interest shall the m axim um prescribed under § 217.7 shall pro be forfeited. Where necessary to com ply with the vide that (1) in the event of transfer, the date of requirem ents o f this paragraph, any interest al transfer, attested to in writing by the transferor, ready paid to or fo r the account of the depositor shall appear on the certificate, and (2) the m axi shall be deducted from the am ount requested to m um rate limitations o f § 217.7 in effect at the be w ithdrawn. However, upon the death of any date of issuance of the certificate shall apply to person whose nam e appears on the tim e deposit the certificate fo r any period during which it is passbook or certificate, a m em ber bank may pay held by a person other th an an entity exempt such time deposit before m aturity without a therefrom under the foregoing sentence.6 U pon reduction or forfeiture of interest as prescribed by this paragraph.61 A ny am endm ent of a time de 5* Other than States, provinces, municipalities or other regional or local governmental units, or agencies or in strumentalities thereof. “ A new certificate not maturing prior to the maturity date of the original certificate may be issued by the member bank to the transferee, in which event the original must be retained by the bank. The new certificate may not provide for interest after the date of transfer at a rate in excess of he applicable maximum rate authorized by § 217.7 as of the date of issuance of the original certificate. *“ The provisions of this paragraph apply to all time deposit contracts entered into after July 5, 1973 and to all existing time deposit contracts that are extended or re newed (whether by automatic renewal or otherwise) after such date, and to all time deposit contracts that REGULATION Q §§ 217.4-217.5 posit contract that results in an increase in the Such statements shall be expressly called to the attention of the customer. In addition, every nego rate of interest paid o r in a change on the m atu rity of the deposit constitutes a paym ent of the tiable Investm ent Certificate shall state conspicu time deposit before maturity. P ro vid e d further, ously on its face that, “This time deposit cannot T hat Investm ent Certificates issued in negotiable be paid p rio r to m aturity.” (f) L oan s upon security o f tim e deposits. A form by a mem ber bank pursuant to subpart 3 of § 217 .7 (b ) may not be paid before maturity. m em ber bank m ay m ake a loan to the depositor This provision does not prevent a mem ber bank upon the security of his tim e deposit provided from arranging the sale or purchase of such a th at the rate of interest on such loan shall be certificate on behalf o f the holder or prospective not less than 2 percent p er ann um in excess of purchaser of a certificate issued under that sub the rate o f interest on the tim e deposit. part. A m em ber bank m ay not, however, repur S E C T IO N 217.5— W IT H D R A W A L chase such certificates for its own account. O F SA V IN G S D EPO SITS W here a tim e deposit representing funds con tributed to an Individual Retirem ent A ccount (a) R equirem ents regarding notice o f w ith established pursuant to 26 U.S.C. (I.R.C. 1954) drawal. W hether or not interest is paid, no m em § 408 is paid before maturity when the individual ' bers shall require or waive notice of withdrawal for whose benefit the account is m aintained attains as to any am ount o r percentage o f the savings age 5 9 V2 or is disabled (as defined in 26 U.S.C. deposit of any depositor unless it shall similarly (I.R.C. 1954) 72{m)(7)) or thereafter, a mem ber require o r waive such notices as to the same bank m ay pay all or a portion of such tim e am ount or percentage of the savings deposits of deposit without a reduction or forfeiture of interest every other depositor w hich are subject to the as prescribed by this paragraph. same contractual provisions w ith respect to notice (e) D isclosu re o f early w ithdraw al penalty. A t of w ithdrawal. If a m em ber bank, w ithout requir the time a depositor enters into a tim e deposit ing notice o f w ithdraw al, pays interest that has contract w ith a m em ber bank, the bank shall pro accrued on a savings deposit during the preceding vide a w ritten statem ent of the effect o f the interest period, it shall, upon request an d without penalty prescribed in paragraph (d) of this sec requiring such notice, pay interest that has ac tion, w hich shall (1) state clearly th a t the cus crued during said period on the savings deposits tom er has contracted to keep his funds on deposit of every other depositor. N o m em ber bank shall for th e stated m aturity, an d (2) describe fully change its practice w ith respect to the requiring and clearly how such penalty provisions apply or waiving of notice of withdraw al o f savings to tim e deposits in such bank, in the event the deposits fo r the purpose of discriminating in bank, nothw ithstanding the contract provisions, favo r of or against any depositor o r depositors, perm its paym ent before m aturity. Such statements and no such change of practice shall be m ade shall be expressly called to the attention of the except pursu ant to duly recorded action of the customer. W ritten statements m ade w ith respect bank’s board of directors o r a properly authorized to negotiable Investm ent Certificates issued by a com m ittee thereof. m em ber b ank pursuant to subpart 3 of § 217.7(b) (b) L oans on security o f savings deposits. If it shall state clearly th at no paym ent before m atu is not the practice of a m em ber bank to require rity will be perm itted under any circumstances. notice of withdraw al of savings deposits, no restrictions are imposed by this P art upon loans are amended after such date so as to increase the rate by such bank to its depositors upon the security of interest paid. AH contracts not subject to the provisions of such deposits. If it is the practice of a m em ber of this paragraph shall be subject to the restrictions of § 217.4(d) in effect prior to July 5, 1973, which permitted bank to require notice of w ithdraw al o f a savings payment of a time deposit before maturity only in an deposit, such bank m ay m ake loans to a depositor emergency where necessary to prevent great hardship to upon the security of such deposit, but the rate of the depositor, and which required the forefeiture of accrued and unpaid interest for a period of not less than interest on such loans shall be not less th an 2 per 3 months on the amount withdrawn if an amount equal cent per annum in excess of the rate of interest to the amount withdrawn had been on deposit for 3 paid on such deposit. months or longer, and the forfeiture of all accrued and unpaid interest on the amount withdrawn if an amount (c) M anner o f paym ent o f savings deposits. equal to the amount withdrawn had been on deposit less (1) Subject to the provisions of subparagraphs than 3 months. §§ 217.5-217.6 (2) and (3) of this paragraph, a m em ber bank m ay perm it withdraw als to be m ade fro m a sav ings deposit only through p ay m en t7 to th e deposi tor him self (but not to any other person whether or not acting for the depositor), except (1) w here the deposit is represented by a pass book, to any person presenting th e p assb o o k ;7 (ii) to any executor, adm inistrator, trustee, or other fiduciary holding the savings deposit as part of a fiduciary estate, or to a person, other than the bank, holding a general pow er of attorney granted by the depositor. (iii) to any person, including the bank, that has extended credit to the depositor on the secu rity of the savings deposit, w here such paym ent is m ade in order to enable the creditor to realize upon such security; (iv) pursuant to the ord er of a court o f com petent jurisdiction; (v) upon the death of the depositor, to any person authorized by law to receive the deposit; or (vi) interest paid to a third person pursuant to w ritten instruction or assignment by the depositor accepted by the bank, and placed on file therein. (vii) pursuant to nontransferable withdrawal orders or authorizations received from a depositor by a m em ber bank for the paym ent of amounts from such deposits to third parties, including the bank (except as prohibited by subparagraph 2), periodically or otherwise. A ny such withdrawal order or authorization th at may be honored as a withdrawal request for paym ent to a third party may, if so authorized by th e third party, be honored as a transfer to an account of such third party. Any form for such withdrawal order or authorization shall contain language in boldface type of reasonable size to the effect that it is not negotiable o r transferable. (2) N otw ithstanding the provisions of subpara graph (1) of this paragraph, no w ithdrawal shall be perm itted by a mem ber bank to be made from a savings deposit, through paym ent to the bank itself or through transfer of credit to a dem and o r other deposit account of the same depositor (other than of interest on the savings deposit) if such paym ent o r transfer is m ade pursuant to any advertised plan or any agreement, written or oral which authorizes such paym ents or transfers of 7 Payment from a savings deposit or presentation of a passbook may be made over the counter, through the mails, or otherwise. REGULATION Q credit to be m ade automatically or as a norm al practice in order to cover checks o r drafts drawn by the depositor upon the bank. (3) The provisions of this paragraph do not apply to deposits subject to negotiable orders of withdrawal authorized by F ederal law to be issued in the States of Massachusetts and N ew H am pshire. (4 ) W here a savings deposit is evidenced by a passbook, every withdraw al made upon presenta tion o f the passbook shall be entered in the pass book at the tim e o f withdrawal, and every other w ithdrawal for such a deposit shall be entered in the passbook as soon as practicable after w ith draw al is made. S EC T IO N 217.6— A D V E R T IS IN G O F IN T E R E S T O N D EPO SITS E very advertisement, announcem ent, o r solici tation relating to the interest paid on deposits in m em ber banks shall be governed by the following rules; (a) Annual rate of simple interest. Interest rates shall be stated in term s o f the annual rate of simple interest. In no case shall a rate be adver tised th at is in excess o f th e applicable m axim um rate fo r the particu lar deposit. (b) Percentage yields based on one year. W here a percentage yield achieved by com pounding in terest during one year is advertised, the annual rate of simple interest shall be stated with equal prom inence, together w ith a reference to the basis o f com pounding. N o m em ber bank shall advertise a percentage yield based on the effect of grace periods perm itted in § 217.3(d). (c) Percentage yields based on periods in excess of one year. N o advertisem ent shall include any indication of a total percentage yield, com pounded o r simple, based on a period in excess of a year, o r an average annual percentage yield achieved by com pounding during a period in excess of a year. (d) Time or amount requirements. If an adver tised rate is payable only on deposits th at meet tim e o r am ount requirem ents, such requirem ents shall be clearly and conspicuously stated. W here the time requirem ent fo r an advertised rate is in excess o f a year, the required num ber o f years fo r the rate to apply shall be stated with equal prom inence, together with an indication of any low er rate o r rates th at will apply if the deposit is w ithdraw n at an earlier maturity. (e) Penalty for early withdrawals. A ny adver tisement, announcem ent, o r solicitation relating REGULATION Q to interest paid by a m em ber bank on tim e de posits shall include clear and conspicuous notice that F ederal law and regulation prohibit the bank from allowing paym ent o f a tim e deposit before m aturity unless substantial interest is forfeited. Such notice m ay state that, “F ederal law and regulation prohibit the paym ent of a tim e deposit prior to m aturity unless three m onths of the interest thereon is forfeited and interest on the am ount with draw n is reduced to the passbook rate.” With respect to any advertisement, announce ment, o r solicitation m ade by television or radio, the required notice of penalty m ay be stated in a form such as “Substantial interest penalty is re quired for early w ithdraw al.” A ny advertisement, announcem ent o r solicitation relating to interest paid by a m em ber bank on negotiable Investm ent Certificates issued pursuant to subpart 3 of § 217.7(b) shall include clear and conspicuous notice that Federal law and regulation prohibit the paym ent of such certificate prior to m aturity. (f) Profit. T he term “profit” shall not be used in referring to interest paid on deposits. (g) A ccuracy o f advertising. N o m em ber bank shall m ake any advertisement, announcem ent, o r solicitation relating to the interest paid on deposits that is inaccurate o r misleading or that misrep resents its deposit contracts. (h) S olicitation o f deposits for banks. A ny per § 217.6 son or organization th a t solicits deposits for a m em ber bank shall be bound by the rules con tained in this section with respect to any adver tisement, announcem ent, or solicitation relating to such deposits. N o such person o r organization shall advertise a percentage yield on any deposit it solicits fo r a m em ber bank that is not author ized to be paid and advertised by such bank. (i) N egotiab le orders o f w ithdraw al. In addi tion to compliance with the other paragraphs of this section, m em ber banks offering accounts sub ject to negotiable orders of w ithdrawal, to the extent practicable, shall limit every advertise ment, announcem ent o r solicitation made in any newspaper, magazine, radio, television o r other m edia to such facilities directed tow ard residents o f N ew H am pshire and M assachusetts. All other advertisement, announcem ents and solicitations of such accounts, including direct mailing, circu lars, and notices, w hether w ritten o r oral, to the extent practicable, shall be directed only to p er sons residing or em ployed in N ew H am pshire and M assachusetts and to persons who are customers o f m em ber banks in those States on the effective date o f this am endm ent. (SECTIO N 217.7— M A X IM U M RA T E S O F IN T E R E S T PA Y A B L E BY M E M B E R BA N K S O N T IM E A N D SA V IN G S DEPOSITS, is printed separately.) REGULATION Q STATUTORY APPENDIX STATUTORY APPENDIX Section 19 of the F ederal Reseve A ct provides in p a rt as follows: (a) T he Board is authorized for the purposes of this section to define the term s used in this section, to determ ine w hat shall be deemed a paym ent o f interest, to determ ine w hat types of obligations, w hether issued directly by a m em ber bank or indirectly by an affiliate of a mem ber bank o r by other meanSjand, regardless of the use of the proceeds, shall be deemed a deposit, and to prescribe such regulations as it m ay deem neces sary to effectuate the purposes of this section and to prevent evasions thereof. agency, or officer of the foregoing, as is incon sistent with the provisions o f this section as am ended, is hereby repealed. [U.S.C., title 12, sec. 371a.] (j) The Board m ay from tim e to time, after consulting with the Board of D irectors of the F ederal D eposit Insurance C orporation and the F ederal H om e L oan B ank Board, prescribe rules governing the paym ent and advertisement of in terest on deposits, including limitations on the rates of interest w hich m ay be paid by mem ber banks on time and savings deposits. T he Board m ay prescribe different rate limitations for dif ferent classes of deposits, fo r deposits of different [ U . S . C . , t i t l e 12, s e c . 4 6 1 ] am ounts or with different m aturities o r subject • •• to different conditions regarding withdraw al or (i) N o m em ber bank shall, directly o r indi repayment, according to the nature or location rectly, by any device whatsoever, pay any interest of mem ber banks or their depositors, o r accord o n any deposit w hich is payable on dem and: ing to such other reasonable bases as the Board Provided, T h at nothing herein contained shall be m ay deem desirable in the public interest. N o construed as prohibiting the paym ent of interest m em ber bank shall p ay any tim e deposit before in accordance with the term s of any certificate of its m aturity except upon such conditions and in deposit o r other contract entered into in good accordance w ith such rules and regulations as faith w hich is in force on the date on w hich the m ay be prescribed by the said Board, o r waive bank becomes subject to the provisions of this any requirem ent of notice before paym ent of paragraph; but no such certificate o f deposit or any savings deposit except as to all savings de other contract shall be renewed o r extended u n posits having the same requirem ent: P ro vided , less it shall be modified to conform to this p ara T hat the provisions of this paragraph shall not graph, and every m em ber bank shall take such apply to any deposit w hich is payable only at an action as m ay be necessary to conform to this office of a m em ber ban k located outside of the paragraph as soon as possible consistently with its States of the U nited States and the D istrict of contractual obligations: P ro v id e d further, T h at Columbia. D uring the period com mencing on this paragraph shall not apply to any deposit of October 15, 1962, and ending on O ctober 15, such bank w hich is payable only at an office 1968, the provisions of this paragraph shall not thereof located outside of the States of the United apply to the rate of interest which m ay be paid States and the District of Colum bia: P ro vid ed by m em ber banks on tim e deposits of foreign further, T h at until the expiration o f two years governments, m onetary and financial authorities after the date of enactm ent of the Banking A ct of o f foreign governments when acting as such, or 1935 this paragraph shall not apply (1 ) to any international financial institutions o f which the deposit m ade by a savings bank as defined in sec U nited States is a member. tion 12B o f this Act, as amended, or by a m utual [ U . S . C . , t i t l e 1 2 , s e c . 3 7 1 b . T h e f ir s t t w o s e n t e n c e s o f t h i s savings bank, o r (2 ) to any deposit of public p a r a g r a p h a re , in p a r t , te m p o r a r y . U n le ss se c tio n 7 o f th e A c t funds m ade by or on behalf of any State, county, o f S e p t e m b e r 21 1 9 6 6 ( 8 0 S t a t . 8 2 5 ) , a s a m e n d e d b y t h e A c t school district, or other subdivision o r municipal O c t o b e r 2 8 , 1 9 7 4 (8 8 S t a t. 1 5 0 5 ) , is m o d if ie d , o n D e c e m b e r 3 1 , 1975, s u c h s e n te n c e s w ill r e a d a s fo llo w s : “ T h e B o a r d o f ity, o r to any deposit of trust funds if the pay G o v e r n o r s o f th e F e d e r a l R e s e rv e S y ste m s h a ll f r o m tim e to m ent of interest with respect to such deposit of t im e p r e s c r i b e r u l e s g o v e r n i n g t h e p a y m e n t a n d a d v e r t i s e m e n t of in te r e s t o n d e p o s its , in c lu d in g lim ita tio n s o n th e r a t e o f public funds or of trust funds is required by State in te r e s t w h ic h m a y b e p a id b y m e m b e r b a n k s o n tim e a n d law. So m uch o f existing law as requires the pay s a v in g s d e p o s i t s , a n d s h a ll p r e s c r i b e d i f f e r e n t r a t e s f o r s u c h m ent of interest with respect to any funds de p a y m e n t o n t im e a n d s a v in g s d e p o s i t s h a v i n g d i f f e r e n t m a t u r i t ie s , o r s u b j e c t t o d i f f e r e n t c o n d i t i o n s r e s p e c t i n g w i t h d r a w a l o r posited by the U nited States, by any Territory, re p a y m e n t, o r s u b je c t to d iffe re n t c o n d itio n s b y r e a s o n o f District, o r possession thereof (including the Phil d iffe re n t lo c a tio n s , o r a c c o rd in g t o th e v a ry in g d is c o u n t r a te s ippine Islands), or by any public instrumentality, o f m e m b e r b a n k s i n t h e s e v e r a l F e d e r a l R e s e r v e d i s t r i c t s , ’*]