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federal reserve
Ba n k
DALLAS, TEXAS
of
Dallas
75222
Circular No. 80-199
October 23, 1980
TITLE 12 - CHAPTER XII - INTEREST ON DEPOSITS
New Ceiling Rate for 14-90 Day Time Deposits Under $100,000; Ceiling
Rate for NOW Accounts; Premium and Finders Fees Rules; New
Prohibition of Prepayment of Interest on Time Deposits
TO ALL MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Depository Institutions Deregulation Committee has final
ized several important changes in the rules regarding time and savings
deposits held at federally insured depository institutions. The Committee
has established the rates of interest to be paid on two new categories of
accounts and has changed the rules for premium and finders fees
programs. The Deregulation Committee has also prohibited the practice
previously perm itted of allowing prepayment of interest on time deposits.
The new rules are summarized as follows:
1. New Ceiling Rate for 14-90 Day Time Deposits Under
$100,000 - Effective October 30, 1980, depository institutions that are
members of the Federal Reserve System may pay interest on any time
deposit with an original m aturity or notice period of 14 days or more, but
less than
90 days, at a rate not to exceed 5 1/4% for time deposits of
less than
$100,000. Time deposits of $100,000 or more with an original
maturity (or notice period) of 14 days or more may be offered at a rate
negotiated between the bank and depositor since no ceiling exists.
2. NOW Account Ceiling Rate - Effective December 31, 1980,
the ceiling rate of interest payable on NOW accounts will be 5 1/4% for
all institutions authorized to offer such accounts including commercial
banks, mutual savings banks, and savings and loan associations.
3. Premium and finders fees rules - Effective December 31,
1980, premiums whether in the form of cash, merchandise, or credit to
depositors will not be regarded as a payment of interest if: (a) the
premium is given only when a new account is opened or an addition is
made to an existing account, (b) no more than two premiums per account
are given within a twelve-month period, and (c) the value of the premium
or the total cost of the merchandise (including shipping, packaging and
Banks and oth ers are encouraged to use the follo w in g incom ing W ATS num bers in co n tactin g this Bank:
1-800-442-7140 (in tra s ta te ) and 1-800-527-9200 (in te rs ta te ). For c a lls placed locally, please use 651 plus the
exten sio n referred to above.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
-2 handling expenses) does not exceed $10 for deposits of less than $5,000 or
$20 for deposits of $5,000 or more. Averaging of the prices of various
premiums will not be permitted. An executive officer of the institution
will be required to certify that the program complies with the three
requirements and that no portion of the premium cost has been allocated
to developmental or promotional expenses. Copies of the required certi
fications, which are to be be kept in the institution's own files, are
printed on the following pages.
Finders fees paid to third parties now will be defined as a
payment of interest to the depositor involved and subject to the
applicable interest rate ceiling for the deposit. Such fees will be required
to be paid only in cash.
4.
Prohibition of Prepayment of Interest on Time Deposits Effective December 31, 1980, the Committee has adopted a new rule
prohibiting the prepayment of interest to depositors in either cash or
merchandise on all deposits subject to interest rate ceilings. Depository
institutions may pay interest at maturity or as it is earned.
If
merchandise is given in lieu of cash, its cost must be certified by an
executive officer. The above described rules regarding premiums, finder
fees, and prepayment of interest apply only to deposits subject to interest
rate ceiling limitations.
The press release and Federal Register documents printed on
the following pages should be inserted in the Regulation Q section of your
regulations binders.
Questions concerning the actions taken should be directed to
the Consumer Affairs Section of our Bank Supervision and Regulations
Department, Ext. 6171.
Sincerely yours,
Robert H. Boykin
First Vice President
D E P O S I T O R Y I N S T I T U T I O N S D E R E G U L A T I O N C O M M I T T E E PRESS RELEASE
^^MPTROLLER OF THE CURRENCY
FEDERAL RESERVE BOARD
FEDERAL DEPOSIT INSURANCE CORPORATION FEDERAL HOME LOAN BANK BOARD
NATIONAL CREDIT UNION ADMINISTRATION
TREASURY DEPARTMENT
For limnediate release
October 9, 1980
The Depository Institutions Deregulation Comnittee today issued final
rules concerning premiums, finders fees and prepayment of interest.
The Committee^ also issued rules establishing a ceiling rate of
interest payable on Negotiable Order of Withdrawal (NOW) accounts and on
consumer type time accounts with a minimum maturity of 14 days.
The new short
term time accounts may be issued by banks that are members of the Federal
Reserve System beginning October 30.
Effective December 31, 1980, the Comnittee took the following actions
concerning premiums, finders fees and prepayment of interest with respect to
deposits subject to interest rate ceilings:
--Premiums, whether in the form of merchandise, credit or cash, will
not be regarded as payment of interest, if:
--The premium is given to a depositor only when a new
account is opened, an existing account is renewed or
funds are added to an existing account;
— No more than two premiums per account are given in any
12 month period;
— The value of the premium, or, if merchandise is given,
its total cost, is no more than $10 for deposits of
less than $5,000 or $20 for deposits of $5,000 or more.
The cost of merchandise must be certified by an executive officer
of the institution and must include shipping, packaging and handling expenses.
Averaging of the prices of various premiums will not be permitted.
1/ The Comnittee was created by the Depository Institutions Deregulation
and Monetary Control Act of 1980 to phase out interest rate ceilings on time
and savings deposits over the next six years. The members of the Comnittee
are the heads of the agencies listed on this page.
Finders fees will be defined as payment of interest to the depositor.
Such fees may be paid only in cash.
Certain incentive plans for employees of
institutions are exempted from the rule.
For those institutions that have a
history of obtaining, on the average, 25 percent or more of their
domestic
small time and savings deposits through finders fees the Committee proposed, for
public comment through November 17, a two-year phase-out program.
The proposal
is described in detail in the preamble to the attached notice.
Prepayment of interest on deposits of less than $100,000, in either
cash or merchandise, will be prohibited.
The Committee established a ceiling rate of interest of 5-1/4 percent
on the new category of 14-90 day time accounts at banks that are members of the
Federal Reserve System, effective October 30.
This will apply to accounts at
member banks under $100,000 with original maturities or notice periods of
14-90 days.
In the event that their Federal regulators authorize them to issue
such accounts, the ceiling rate on 14-90 time accounts at insured non-member
commercial banks will be 5-1/4 percent.
At insured mutual savings banks and
savings and loan association it will be 5-1/2 percent.
The Committee established a 5-1/4 percent ceiling rate of interest
on NOW accounts to apply at all types of depository institutions authorized
to issue NOW accounts on December 31.
The ceiling rate payable on the NOW
accounts by institutions already authorized to offer them will remain at
5 percent through December 30.
-3-
The Committee said it intends to consider raising the passbook savings
rate as soon as feasible and will consider the issue no later than September 30,
1981.
The Committee1s notice of its actions are attached.
- 0 -
TITLE 12 —
BANKS AMD BANKING
I
CHAPTER XII —
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
[Docket No. D-0004]
PART 1204 —
INTEREST ON DEPOSITS
Premiums, Finders Fees, and the Prepayment of Interest
AGENCY:
Depository Institutions Deregulation Committee.
ACTION:
Final rules.
SUMMARY: The Depository Institutions Deregulation Committee ("Committee1')
has adopted final rules concerning the use of premiums, finders fees,
and the prepayment of interest by depository institqtions. The rules
adopted by the Committee apply only to deposits subject to interest
rate ceiling limitations. Under the rules adopted, premiums (whether
in the form of merchandise, credit, or cash) given by depository institutions
to their depositors will not be regarded as a payment of interest if:
(a) the premium is given to a depositor only at the time of the opening
of a new account or an addition to or renewal of an existing account;
(b) no more than two premiums per account are given within a twelve
month period; and (c) the value of the premium or, in the case of articles
of merchandise, the total cost (including shipping, packaging and handling
expenses) does not exceed $10 for deposits of less than $5,000 and $20
for deposits of $5,000 or more. In addition, averaging the price of
various premiums will not be permitted and depository institutions will
be required to certify that the total cost of a premium does not exceed
the $10/$20 limitations.
With regard to finders fees, the Committee adopted a rule
defining such fees as a payment of interest to the depositor and requiring
that such fees be paid only in cash. Certain incentive programs for
the employees of depository institutions are excepted frcm this rule.
The Committee is aware that some institutions may have relied extensively
on the use of finders fees to attract or retain deposits. Accordingly,
the Committee requests public comment on a proposal (explained below)
to permit the phaseout of finders fees at such institutions. The Committee
also adopted a rule prohibiting depository institutions frcm prepaying
interest on deposits of less than $100,000 in ei€her cash or merchandise.
The rules adopted by the Committee apply to all commercial
banks, mutual savings banks, and savings and loan associations subject
to the authorities conferred by section 19 (j) of the Federal Reserve
Act, section 18(g) of the Federal Deposit Insurance Act, and section
5B(a) of the Federal Home Loan Bank Act.
EFFECTIVE DATE: December 31, 1980. Comments on the proposed phase
out of finders fees should be received by November 17, 1980.
ADDRESS: Interested parties are invited to submit written comments
on the proposed phaseout of finders fee programs to Normand R. V. Bernard,
Executive Secretary, Depository Institutions Deregulation Committee,
Federal Reserve Building, 20th Street and Constitution Avenue, N.W.,
Washington, D .C. 20551. All material submitted should include the
Docket Number D-0012. Such material will be made available for inspection
and copying upon request except as provided in section 1202.5 of the
Committee's Rules Regarding Availability of Information (12 CFR 1202.5).
FOR FURTHER INFORMATION CONTACT: Rebecca Laird, Senior Associate General
Counsel, Federal Home Loan Bank Board (202/377-6446), Debra Chong, Attorney
Office of the Comptroller of the Currency (202/447-1632), F. Douglas
Birdzell, Counsel, Federal Deposit Insurance Corporation (202/389-4324),
Daniel L. Rhoads, Attorney, Board of Governors of the Federal Reserve
System (202/452-3711), Allan Schott, Attorney-Advisor, Treasury Department
(202/566-6798) , or Anthony F. Cole, Deputy General Counsel, Depository
Institutions Deregulation Committee (202/452-3612).
SUPPLEMENTARY INFORMATION: On May 6 , 1980, the Committee issued for
comment proposals to:
(1 ) prohibit depository institutions from giving
depositors premiums or gifts associated directly with the receipt of
a deposit; (2 ) require that finders fees paid to a person who introduces
a depositor to an institution be paid only in cash and be regarded as
a payment of interest to the depositor; (3) require that interest be
paid only in the form of cash or a credit to a deposit account; and
(4) prohibit the prepayment of interest.
(45 Fed. Reg. 32323). Over
5,000 comments were received on the Committee's proposals. The majority
of commenters opposed a prohibition on the use of premiums by depository
institutions to attract deposits. Many of these respondents favored
strengthening existing regulations as an alternative to the proposal.
A majority of commenters favored the finders fees proposal, and the
proposals to prohibit the prepayment of interest and to require that
interest be paid in cash.
Premiums
The rules of the Board of Governors of the Federal Reserve
System ("Federal Reserve"), Federal Deposit Insurance Corporation ("FDIC"),
and Federal Home Loan Bank Board ("FHLBB") currently limit the cost
of premiums to $5 for deposits of less than $5,000 and $10 for deposits
of $5,000 or more. Premiums may be in the form of cash or merchandise,
but merchandise is used more commonly. In the case of merchandise,
the $5 and $10 limits apply to the cost to the institution, excluding
shipping and packaging costs. Depository institutions can offer premiums
at any time to depositors who open new accounts or add to existing accounts
However, premiums may not be given on a recurring basis to the same
individual. The current premium rules were adopted by the agencies
in 1970 in order to establish what constituted a de minimis amount that
would not be regarded as the payment of interest. The rules were intended
to clarify this matter and reduce time spent by the agencies in reviewing
individual programs. This has not been accomplished, however, because
in practice the rules are difficult to enforce since they can be circumvented
by attributing an inflated portion of the total cost of the premium
to shipping and packaging, rather than to the direct cost of the premium.
In view of these considerations, the Committee has modified the current
premium rules to lessen the potential for abuses.
The rule adopted by the Committee permits depository institu
tions to continue to offer depositors a premium at the time of opening
a new account or adding to or renewing an account. However, a depository
institution may not give more than two premiums per account during a
12-month period. The 12-month period begins on the date the depositor
receives the first premium. In addition, the dollar limitations on
the permissible cost of premiums has been raised to $10 for deposits
of less than $5,000 and to $20 for deposits of $5,000 or more. All
costs associated with a premium, including its cost and all other charges
such as shipping, warehousing, handling and packaging costs must be
included in determining compliance with the $10/$20 limitations. The
expenses associated with developing, advertising or promoting a premium
program need not be included in determining the cost of a premium, and
such expenses may not be used to absorb any of the cost of the premium.
In addition, repackaging and return freight expenses may not be used
to defray the cost of a premium. Any averaging of the cost of various
items of merchandise offered in a premium program is prohibited. An
executive officer of the institution will be required to certify, prior
to the beginning of a premium program, that the institution’s program
complies with these requirements and that no portion of the cost of
a premium has been attributed to development, advertising, promotional,
or other expenses. This certification must be retained in the institution's
files and must be made available to the institution's primary Federal
supervisor upon request. Falsified certifications can result in the
imposition of criminal penalties under 18 U.S.C. §§ 1001, 1005, and
1006. Model certifications that must be used by depository institutions
are contained in the regulations.
Merchandise sold to a depositor pursuant to a self-liquidating
program in which the depositor pays the total cost of the merchandise
(including shipping, warehousing, handling and packaging costs) would
not be regarded as a premium. An executive officer of the institution,
however, would be required to certify that the depositor had paid a
price at least equal to the total cost of the merchandise as defined
above and that no portion of the total cost had been attributed to development
advertising, promotional, or other expenses. Continuity programs where
a depositor receives a premium for one deposit and has the right to
purchase additional items at the time of subsequent deposits are subject
to the premium rule.
(For example, under a continuity program where
a depositor receives a gift for the first deposit and for a subsequent
deposit, the depositor will have received two premiums under the Committee's
rule.) An executive officer of the institution must certify that both
the premium portion and the self-liquidating portion of a continuity
program comply with the regulations by using both certifications provided
for in the regulations. Promotional items such as pencils, pens and
calendars, distributed to existing or potential depositors, would not
be regarded as premiums in the absence of a requirement that an account
be opened, renewed or added to.
Finders Fees
Finders fees, whether in the form of cash or merchandise,
are fees paid to a person who introduces a depositor to an institution.
The amount of a finders fee typically is related to the size of the
deposit received by the institution. Under the current rules of the
FHLBB, the total cost of any premiums given to a depositor and finders
fees given to a third party are regarded as a payment of interest if
in excess of $5 for deposits of less than $5,000 and $10 for deposits
of $5,000 or more. The FHLBB excepts from the rule, however, prizes
in cash given to employees who participate in a new account drive or
contest sponsored by an association or, with certain limitations, sales
commissions paid to a broker with respect to accounts opened or increased
as a result of the services of the broker. The rules of the FDIC and
Federal Reserve do not restrict the use of finders fees paid to third
parties. However, if any portion of the fee is passed on to the depositor
or a member of the depositor's household, that portion is regarded as
additional interest on the deposit.
In view of the increased use of finders fees and the consideration
that finders fees may, in some cases, be used to circumvent interest
rate ceilings, the Committee has determined that such fees should be
regarded as a payment to or for the account of the depositor. Accordingly,
the Committee has adopted a rule defining finders fees as a payment
of interest to the depositor for purposes of determining compliance
with interest rate ceiling limitations. This rule also requires that
such fees, when paid for deposits subject to interest rate ceiling limitations
be paid only in cash. This requirement extends to fees paid to individuals
or firms that are in the business of brokering funds, but does not apply
to bonuses or amounts paid to a depository institution's own employees
for participating in an account drive, contest, or other incentive plan
provided such bonuses or amounts are tied to the total amount of deposits
solicited and are not tied to specific, individual deposits.
The Committee is aware that some institutions may have relied
extensively on the use of finders fees to attract or retain deposits
and that immediate application of this rule on December 31, 1980, may
cause hardship for such institutions. Accordingly, the Committee is
prepared to consider a phaseout of finders fee programs. If a phaseout
is adopted, certain principles would apply. First, in order to be eligible
for the phaseout, an institution would be required to demonstrate that
finders fees have accounted for a significant share of its outstanding
domestic small-denomination (under $100,000) time and savings deposits
over a meaningful period of time. Second, the phaseout would be designed
to encourage institutions to develop alternative marketing strategies
as soon as possible. Third, to ensure that an undue competitive advantage
would not be given to any eligible institution, the phaseout period
would be of limited duration and the marketing practices for finders
fees could be restricted. In this regard, those institutions qualifying
for the phaseout could be limited to contacting directly the original
finder.
Comment is requested on a proposal that would provide a
phaseout of finders fee programs only for those institutions that can
demonstrate that finders fees have accounted, on average, for 25 per
cent or more of their outstanding domestic small-denomination time and
savings deposits over the ten-quarter period ending June 30, 1980.
Under this proposal, the base for the phaseout would be the amount of
domestic small-denomination time and savings deposits outstanding on
June 30, 1980, on which finders fees had been paid. This base amount
could not be exceeded during the phaseout period. The maximum amount
of domestic small-denomination time and savings deposits that could
be raised through the continued use of finders fees would be limited
to 90 per cent of the amount of domestic small-denomination time and
savings deposits on which finders fees had been paid maturing in the
quarter ending March 31, 1981. In each succeeding quarter, the maximum
amount permitted to be raised would be subject to the percentages outlined
in the schedule below. Under this proposal, any maturing domestic smalldenomination time deposit on which a finders fee had been paid and that
is renewed will be included in the amount of deposits obtained through
the use of finders fees for the purpose of the schedule below. An institution
would be required in advance to receive certification from its primary
Federal supervisory agency that it had met the criteria to be eligible
for the phaseout.
-6-
Quarter ending
1981 - March 31
June 30
September 30
December 31
1982 - March 31
June 30
September 30
December 31
1983 - March 31
Maximum percentage of maturing
finders fee deposits permitted
to be raised through the continued
use of finders fees
90
80
70
60
50
35
20
5
0
Specific comments are requested on:
(1) the minimum proportion
of domestic small-denomination time and savings deposits and the minimum
period of time for which finders fees have been paid necessary to qualify
for the proposed phaseout; (2 ) whether the remaining maturity structure
of outstanding deposits obtained through finders fees is consistent
with the proposed phaseout schedule; (3) whether limitations or restrictions
on advertising the continued availability of finders fees during a phaseout
period should be imposed and, if so, what types of limitations or restric
tions; (4) the ability of institutions to identify prior recipients
of finders fees; and (5) whether records maintained by institutions
are adequate to implement the proposed phaseout.
Prepayment of Interest
The Federal Reserve and the FDIC both currently permit prepayment
of interest either in cash or merchandise. However, prepaid interest
must be discounted to its present value— that is, the amount of prepaid
interest plus interest thereon at the maximum rate that may be paid
on the type of deposit involved may not exceed the aggregate amount
of interest that could have been paid on the deposit at maturity computed
at the applicable maximum rate. Under FHLBB rules, however, insured
savings and loan associations are not permitted to prepay interest.
The Committee believes that the prepayment of interest,
particularly in the form of merchandise, can result in confusion as
to the actual rate of return earned on a deposit and presents increased
problems of enforcing deposit interest rate ceilings. In view of these
considerations, the Committee has adopted a rule prohibiting the prepayment
-7-
of interest to depositors, in either cash or merchandise, on all deposits
subject to interest rate ceilings. This rule does not affect or limit
the use of finders fees offered pursuant to the requirements of 12 CFR
§ 1204.110. The Committee has determined not to adopt its proposal
to require that interest be paid only in the form of cash or a credit
to a deposit account. Accordingly, depository institutions may pay
interest, as it is earned, in the form of merchandise rather than in
cash or a credit to a deposit account. For purposes of determining
compliance with interest rate ceiling limitations, the cost of any merchandise
given in lieu of cash interest must include the total cost of the merchandise.
An executive officer of the institution must certify that the total
cost includes shipping, warehousing, packaging, and handling fees, and
that no portion of the cost has been attributed to development, advertising,
promotional, or other expenses. A model certification that institutions
must use if they pay interest in the form of merchandise is contained
in the regulations.
Pursuant to its authority under Title II of Public Law 96
221, 94 Stat. 142 (12 U.S.C. § 3501 et seq.), 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,
effective December 31, 1980, the Committee amends Part 1204 (Interest
on Deposits) £y adding sections 109, 110 and 111 as follows:
PART 1204— INTEREST ON DEPOSITS
§ 1204.109— Premiums Not Considered Payment of Interest
(a)
Premiums, whether in the form of merchandise, credit,
or cash, given by a depository institution to a depositor will be regarded
as an advertising or promotional expense rather than a payment of interest
if:
(1 ) the premium is given to a depositor only at the time of the
opening of a new account or an addition to, or renewal of, an existing
account; (2) no more than two premiums per account are given within
a 12-month period; and (3) the value of the premium or, in the case
of articles of merchandise, the total cost (including shipping, warehousing,
packaging, and handling costs) does not exceed $10 for deposits of less
than $5,000 or $20 for deposits of $5,000 or more. The costs of premiums
may not be averaged. Prior to the beginning of a premium program, an
executive officer of the depository institution must certify that the
total cost of a premium, including shipping, warehousing, packaging,
and handling costs, does not exceed the applicable $10/$20 limitations
and that no portion of the total cost of any premium has been attributed
to development, advertising, promotional, or other expenses. The certification
and supporting documents must be retained by the institution in its
files and must be made available to the institution's primary Federal
supervisory agency upon request.
-8(b) Certifications required by paragraph (a) must contain
the following language:
(1)
I»
(For use with premium programs.)
_________________________________________________________________________________________________
r
(name and title of certifying officer and institution)
do hereby certify, to the best of my knowledge and belief, that the
total cost(s) of the premium(s) offered by this institution during a
premium program to be conducted from _______________ to _____________ ,
(date)
(date)
including the wholesale cost, shipping, warehousing, packaging and handling
costs, does (do) not exceed $10 for deposits of less than $5,000 or
$20 for deposits of $5,000 or more. I further certify that the costs
of premium items have not been averaged, that no portion of the cost
of any premium has been attributed to development, advertising, promotional,
or other expenses, and that this program complies in all respects with
the requirements of 12 CFR § 1204.109.
(signature)
(date)
Falsification of this document may result in a fine of not
more than $10,000 or imprisonment of not more than five years, or both.
18 U.S.C. §§ 1001, 1005, 1006.
(2)
I f
(For use with self-liquidating programs.)
,
(name and title of certifying officer and institution)
do hereby certify, to the best of my knowledge and belief, that depositors
are required to absorb the total costs of items sold by this institution
in a self-liquidating program to be conducted from _______________ to
(date)
_______________ , including the wholesale cost, shipping, warehousing,
(date)
packaging and handling costs. I further certify that the costs of items
have not been averaged, that no portion of the cost of any item has
been attributed to development, advertising, promotional, or other expenses,
and that this program complies in all respects with the requirements
of 12 CFR § 1204.109.
(signature)
(date)
Falsification of this document may result in a fine of not
more than $10,000 or imprisonment of not more than five years, or both.
18 U.S.C. SS 1001, 1005, 1006.
S 1204.110— Finders Fees
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 deposits subject to interest rate ceilings, and will be regarded
as a payment of interest to the depositor for purposes of determining
compliance with interest rate ceilings, except that a depository institution
may pay bonuses in cash or merchandise to its employees for participating
in an account drive, contest, or other incentive plan, provided such
bonuses are tied to the total amount of deposits solicited and are not
tied to specific, individual deposits.
S 1204.111— Prepayment of Interest and Payment of Interest in Merchandise
(a)
Interest may be paid in the form of merchandise, cash,
or a credit to a deposit account. However, interest on a deposit subject
to deposit interest rate ceilings, whether in the form of merchandise,
cash, or credit to an account, may not be paid by a depository institution
until such interest has been earned, except as provided in 12 CFR s 1204.110.
Where merchandise is paid in lieu of cash interest, an executive officer
of the depository institution must certify that the total cost of such
merchandise includes shipping, warehousing, packaging, and handling
costs, and that no portion of the cost has been attributed to development,
advertising, promotional, or other expenses. The costs of individual
items of merchandise may not be averaged. The certification and supporting
documents must be retained by the institution in its files and must
be made available to the institution's primary Federal supervisory agency
on request.
-10-
(b)
the following language:
I ,
Certifications required by paragraph (a) must contain
_________________________________________________________________________________________________
(name and title of certifying officer and institution)
do hereby certify, to the best of my knowledge and belief, that the
total cost(s) of merchandise offered by this institution in lieu of
cash interest during a program conducted from _____________ t o _______
(date)
(date)
includes the wholesale cost, shipping, warehousing, packaging and handling
costs, and does not exceed the maximum amount of earned interest that
could have been paid in the form of cash or a credit to an account.
I further certify that the costs of the items have not been averaged,
that no portion of the cost of any item has been attributed to development,
advertising, promotional, or other expenses, and that this program complies
in all respects with the requirements of 12 CFR § 1204.111.
(signature)
(date)
Falsification of this document may result in a fine of not
more than $10,000 or imprisonment of not more than five years, or both.
18 U.S.C. SS 1001, 1005, 1006.
By order of the Committee, October 9, 1980.
(Signed)
Normand R. V. Bernard
Normand R. V. Bernard
Executive Secretary of the Committee
[SEAL]
TITLE 12— BANKS AND BANKING
CHAPTER XII— DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
[Docket NO. D-0011]
PART 1204— INTEREST ON DEPOSITS
Maximum Rate of Interest Payable on Negotiable Order of Withdrawal Accounts
AGENCY:
Depository Institutions Deregulation Committee.
ACTION:
Final Rule.
SUMMARY: The Depository Institutions Deregulation Committee ("Committee")
has adopted a final rule concerning the ceiling rate of interest payable
on negotiable order of withdrawal ("NOW") accounts. Effective December 31,
1980, the ceiling rate of interest payable on NOW accounts will be 5-1/4
per cent for all institutions authorized to offer such accounts. The
rule applies to all commercial banks, mutual savings banks, and savings
and loan associations subject to the authorities conferred by section
1 9 (j) of the Federal Reserve Act, section 18(g) of the Federal Deposit
Insurance Act, and section 5B(a) of the Federal Home Loan Bank Act.
EFFECTIVE DATE:
December 31, 1980.
FOR FURTHER INFORMATION CONTACT: Rebecca Laird, Senior Associate General
Counsel, Federal Home Loan Bank Board (202/377-6446) , Debra Chong, Attorney,
Office of the Comptroller of the Currency (202/447-1632), F. Douglas
Birdzell, Counsel, Federal Deposit Insurance Corporation (202/389-4324),
John Harry Jorgenson, Attorney, Board of Governors of the Federal Reserve
System (202/452-3778), Allan Schott, Attorney-Advisor, Treasury Department
(202/566-6798), or Anthony F. Cole, Deputy General Counsel, Depository
Institutions Deregulation Committee (202/452-3612).
SUPPLEMENTARY INFORMATION: Title III of the Depository Institutions
Deregulation and Monetary Control Act of 1980 (P.L. 96-221) authorizes
depository institutions nationwide, except credit unions, to offer NOW
accounts to individuals and certain nonprofit organizations effective
December 31, 1980. On June 25, the Committee requested public comment
on proposed rules concerning the maximum rate of interest payable on
interest-bearing transaction accounts (45 Fed. Reg. 45303). The Committee
proposed to establish a uniform ceiling rate on all interest-bearing
transaction accounts at commercial banks, mutual savings banks, and
savings and loan associations. To encourage depositors to segregate
transaction balances from balances that are inactive and thus facilitate
the conduct of monetary policy, the Committee also proposed to establish
a ceiling rate on transaction accounts that was below the ceiling rate
-2-
payable on nontransaction accounts, in this regard, the Committee proposed
to define interest-bearing transaction accounts to include: NOW accounts;
savings accounts subject to automatic transfers, telephone transfers
and preauthorized nonnegotiable transfers; and savings accounts that
permit payments to third parties by means of an automated teller machine,
remote service unit or other electronic device. Comment was requested
on four options for uniform ceilings on transaction accounts. The options
called for ceilings of 5 per cent, 5-1/4 per cent, 5-1/2 per cent, or
a ceiling higher than 5-1/2 per cent.
After considering over 770 comments on its proposals, the
Committee has determined to take action at this time only with respect
to the ceiling rate of interest payable on NOW accounts. The ceiling
rate of interest payable on NOW accounts for all depository institutions
authorized to offer such accounts will be 5-1/4 per cent effective December 31,
1980. The ceiling rate of interest payable on NOW accounts by those
institutions already authorized to offer such accounts will remain at
5 per cent until December 31, 1980. The ceiling rates of interest payable
on all other accounts, including savings accounts subject to automatic
transfers, telephone transfers, preauthorized nonnegotiable transfers,
and savings accounts accessible by automated teller machine, remote
service unit or other electronic device, are not affected by this action
and remain unchanged. The Committee determined not to adopt any of
its original proposals at this time in order to avoid reduction in the
rates of interest on certain accounts, as required by some of the proposals,
and in view of its concern that consideration of increases in the passbook
savings rate should be deferred at this time. The Committee announced
its intent, however, to consider increasing
the passbook savings rate
assoon as feasible and will consider this issue no later than September
30,
1981.
Pursuant to its authority under Title II of Public Law 96
221, 94 Stat. 142 (12 U.S.C. § 3501 et seq.), 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, effective December 31, 1980, the Committee amends Part 1204 (Interest
on Deposits) by adding section 108 as follows:
PART 1204— INTEREST ON DEPOSITS
*
§ 1204.108 —
*
*
*
*
Maximum Rates of Interest Payable by Depository Institutions
on Deposits Subject to Negotiable Orders of Withdrawal
No depository institution subject
to the authorities conferred
by
section 19 (j) of the Federal Reserve Act
(12 U.S.C. § 371(b)), section
18(g) of the Federal Deposit Insurance Act (12 U.S.C. § 1828(g)), or
-3section 5B(a) of the Federal Home Loan Bank Act
shall pay interest at a rate in excess of 5-1/4
any deposit or account subject to negotiable or
of withdrawal that is authorized pursuant to 12
(12 U.S.C. s 1425b(a))
per cent per annum on
transferable orders
U.S.C. § 1832(a).
By order of the Committee, October 9, 1980.
(Signed)
Normand R. V. Bernard
Normand R. V. Bernard
Executive Secretary of the Committee
[SEAL]
TITLE 12— BANKS AND BANKING
CHAPTER XII— DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
[Docket No. D-0013]
PART 1204-—INTEREST ON DEPOSITS
Ceiling Rates of Interest on 14 to 90 Day Time Deposits of Under $100,000
AGENCY:
Depository Institutions Deregulation Committee.
ACTION:
Final rule.
SUMMARY: The Depository Institutions Deregulation Committee ("the Committee”)
has adopted a final rule concerning the ceiling rate of interest payable,
effective October 30, 1980, by banks that are members of the Federal
Reserve System on time deposits of under $100,000 with original maturities
(or notice periods) of 14 to 90 days. The rate established for such
deposits is 5-1/4 per cent. The Committee's action was prompted by
the recent action of the Federal Reserve Board, effective October 30,
1980, shortening the minimum maturity of time deposits at banks that
are members of the Federal Reserve System from 30 to 14 days. In the
event the Federal Deposit Insurance Corporation and the Federal Home
Loan Bank Board take similar action in the future, the ceiling rate
of interest payable on such time deposits will be 5-1/4 per cent for
insured nonmember commercial banks, and 5-1/2 per cent for insured mutual
savings banks and savings and loan associations.
EFFECTIVE DATE:
October 30, 1980.
FOR FURTHER INFORMATION, CONTACT: Rebecca Laird, Senior Associate General
Counsel, Federal Home Loan Bank Board (202/377-6446), Debra Chong, Attorney,
Office of the Comptroller of the Currency (202/447-1632), F. Douglas
Birdzell, Counsel, Federal Deposit Insurance Corporation (202/389-4324),
Margaret Egginton, Attorney, Board of Governors of the Federal Reserve
System (202/452-2489), or Allan Schott, Attorney-Advisor, Treasury Department
(202/566-6798).
SUPPLEMENTARY INFORMATION: Current regulations of the Board of Governors
of the Federal Reserve System ("Federal Reserve"), the Federal Deposit
Insurance Corporation ("FDIC") and the Federal Home Loan Bank Board
("FHLBB") establish 30 days as the minimum maturity for time deposits
that may be issued by depository institutions subject to their respective
jurisdictions. The Federal Reserve, in amending its Regulation D (12
CFR Part 204) to implement the reserve requirement provisions of the Monetary
Control Act of 1980 (Title I of p. L. 96-221), shortened the minimum
maturity of time deposits at member banks from 30 to 14 days, effective
October 30, 1980.
(The Federal Reserve will adopt conforming technical
amendments to its Regulation Q (12 CFR Part 217) that also will be effective
October 30, 1980). Under the Federal Reserve's new rule, banks that
are members of the Federal Reserve System, effective October 30, 1980,
may issue and pay interest on 14 to 90 day time deposits of over $100,000
at any rate since time deposits issued in such denominations are not
subject to interest rate limitations.
The new maturity also applies to time deposits under $100,000
issued by member banks. In the case of such time deposits issued to
domestic governmental units, the current ceiling of 8 per cent (the
highest rate payable on any fixed-ceiling category of time deposit by
any federally insured commercial bank, mutual savings bank, or savings
and loan association) will apply to new 14 to 90 day accounts (see 12
CFR 217.7(d)). However, no ceiling rate exists for nongovernmental
unit time deposits of under $100,000 with original maturities of less
than 30 days. Accordingly, the Committee has established a ceiling
rate of interest of 5-1/4 per cent payable by member banks on time deposits
with original maturities (or notice periods) of between 14 and 90 days
issued to other than governmental units in denominations of less than
$100,000. This is the same ceiling rate of interest currently payable
by member banks on time deposits of under $100,000 with original maturities
(or notice periods) of 30 to 90 days. In the event that the FDIC and
FHLBB also authorize a reduction to 14 days in the minimum maturity
of time deposits, the ceiling rate of interest payable on such time
deposits issued to other than domestic governmental units will be 5-1/4
per cent for insured nonmember commercial banks, and 5-1/2 per cent
for insured mutual savings banks and savings and loan associations.
As in the case of member banks, the ceiling rate of interest payable
on such time deposits issued to governmental units would be 8 per cent.
In view of the fact that this action facilitates implementation
of an action taken by the Board of Governors of the Federal Reserve
System on which public comment already has been received, the Committee
finds that application of the notice and public participation provisions
of 5 U.S.C. § 553 to this action is unnecessary and would be contrary
to the public interest. Therefore, pursuant to its authority under
Title II of Public Law 96-221, 94 Stat. 142 (12 U.S.C. § 3501 et seq.),
to prescribe rules governing the payment of interest and dividends on
deposits of federally insured commercial banks, mutual savings banks
and savings and loan associations, the Committee amends Part 1204 (Interest
on Deposits), effective October 30, 1980, by adding section 112 as follows:
PART 1204— INTEREST ON DEPOSITS
*
*
*
*
*
S 1204.112— Time Deposits of Less than $100,000.
Depository institutions that are members of the Federal
Reserve System may pay interest on any time deposit with an original
maturity or notice period of 14 days or more, but less than 90 days,
-3at a rate not to exceed 5-1/4 per cent. In the event the Federal Deposit
Insurance Corporation shortens the minimum required maturity or notice
period of time deposits to 14 days, federally insured commercial banks
that are not members of the Federal Reserve System also may pay interest
on such time deposits at a rate not to exceed 5-1/4 per cent, and federally
insured mutual savings banks may pay interest on such time deposits
at a rate not to exceed 5-1/2 per cent. In the event the Federal Home
Loan Bank Board shortens the minimum required maturity or notice period
of time deposits to 14 days, institutions insured by the Federal Savings
and Loan Insurance Corporation may pay interest on such time deposits
at a rate not to exceed 5-1/2 per cent.
By order of the Committee, October 9, 1980.
(Signed)
Normand R. V. Bernard
Normand R. V. Bernard
Executive Secretary of the Committee
[SEAL]
@FedFRASER