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FEDERAL RESERVE BANK
OF NEW YORK
r Circular No. 8 9 4 0 1
L
October 23, 1980
J
DEPO SITO R Y INSTITUTIONS DEREGULATION COM M ITTEE
Adoption of Rules Regarding Premiums, Finders Fees, Prepayment
of Interest, and Interest Rate Ceilings on N O W Accounts and
on 14-Day to 90-Day Time Deposits of Under $100,000
To All Commercial Banks, Mutual Savings Banks,
and Savings and Loan Associations in the Second Federal Reserve District:
Following- is the text of a statement issued by the Depository Institutions Deregulation Com
mittee announcing Committee rules, effective December 31, 1980, on the use of premiums, finders
fees, and the prepayment of interest by depository institutions; inviting public comment through
November 17, 1980 on a proposal regarding the phaseout of finders fees; announcing a ceiling rate
of interest payable on negotiable order of withdrawal ( N O W ) accounts of 5 %
percent, effective
December 31, 1980, for all institutions authorized to offer such accounts; and announcing the
establishment of ceiling rates of interest payable on 14-day to 90-day time deposits of under
$100,000, including a ceiling rate of 5 %
percent, effective October 30, 1980, for banks that are
members of the Federal Reserve System:
The Depository Institutions Deregulation Committee issued final rules concerning premiums, finders fees
and prepayment of interest.
The Committee1 also issued rules establishing a ceiling rate of interest payable on Negotiable Order of
Withdrawal (N O W ) 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 Committee 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, i f :
— 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 ship
ping, packaging and handling expenses. Averaging of the prices of various premiums will not be permitted.
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.
Prepayment of interest on deposits of less than $100,000, in either cash or merchandise, will be prohibited.
1 The Committee 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 Committee are the heads of the
following agencies: Board of Governors of the Federal Reserve System, Comptroller of the Currency, Department of the Treas
ury, Federal Deposit Insurance Corporation. Federal Home Loan Bank Board, and National Credit Union Administration.]
(O V E R )
The Committee established a ceiling rate of interest of S% 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
day time accounts at insured non-member commercial banks will be 5^4 percent. At insured mutual savings
banks and savings and loan associations it will be Sl i percent.
/
The Committee established a 5*4 percent ceiling rate of interest on N O W accounts to apply at all types
of depository institutions authorized to issue N O W accounts on December 31. The ceiling rate payable on the
N O W accounts by institutions already authorized to offer them will remain at 5 percent through December 30.
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.
Enclosed is a copy of the text (reprinted from the F ed era l R e g is te r of October 16, 1980) of the
Committee’s rules, and the proposal regarding the phaseout of finders fees. Comments on the pro
posal, which should be submitted by November 17, may be sent to our Consumer Affairs and
Bank Regulations Department; questions regarding the D I D C ’s rules may be directed to the Regu
lations Division of that Department (Tel. No. 2 1 2 -7 9 1 -5 9 1 4 ).
A n th o n y M . Solomon,
President.
Depository Institutions Deregulation Committee
INTEREST ON DEPOSITS
Rules Regarding Ceiling Rates of Interest on 14- to 90-Day Time Deposits
of Under $1 00,0 00 ; Use of Premiums, Finders Fees, and the
Prepayment of Interest; and Ceiling Rate of Interest on N O W Accounts
DEPOSITORY INSTITUTIONS
DEREGULATION COMMITTEE
12CFR Part 1204
[Docket No. D-0G13]
Ceiling Rates of Interest on 14- to 90Day Time Deposits of Under $100,000
October 9,1980.
AGENCY: Depository Institutions
Deregulation Committee.
a c t io n : Final rule.___________________
SUMMARY: The Depository 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 Vi percent. The
Committee’s action was prompted by
the recent action of the Federal Reserve
Board, effective October 30,1980,
shortening the minimum maturity o f 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 o f
interest payable on such time deposits
will be 5 Vi percent for insured
nonmember commercial banks, and 5 V
2
percent 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 o f the
Comptroller o f the Currency (202/4471632), F. Douglas Birdzell. Counsel,
Federal Deposit Insurance Corporation
(202/389-4324), Margaret Egginton,
Attorney, Board o f Governors of the
Federal Reserve System (202/452—
2489),
or Allan Schott, Attorney-Advisor,
Treasury Department (202/566-6798).
SUPPLEMENTARY in f o r m a t io n : Current
regulations o f the Board o f Governors of
No. 8940]
[Enc. Cir.
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 o f the Monetary Control Act
o f 1980 (Title I o f P. L. 96-221), shortened
the minimum maturity o f time deposits
at member banks from 3d 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 o f the Federal Reserve System,
effective October 30,. 1980, may issue
and pay interest on 14 to 90 day time
deposits o f 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 o f such time
deposits issued to domestic
governmental units, the current ceiling
of 8 percent (the highest rate payable on
any fixed-ceiling category o f 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
x
’ate exists for nongovernmental unit
time deposits of under $100,000 with
original maturities o f less than 30 days.
Accordingly, the Committee has
established a ceiling rate o f interest of
5 Vi percent payable by member banks
on time deposits with original maturities
(or notice periods) o f between 14 and 90
days issued to other than governmental
units in denominations o f less than
$100,000. This is the same ceiling rate of
interest currently payable by member
banks on time deposits o f 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
PRINTED IN NEW YORK, FROM
maturity o f time deposits, the ceiling
rate of interest payable on such time
deposits issued to other than domestic
governmental units will be 5 Vi percent
for insured nonmember commercial
banks, and 5 V percent for insured
2
mutual savings banks and savings and
loan associations. A s in the case of
member banks, the ceiling rate of
interest payable on such time deposits
issued to governmental units would be 8
percent.
In view o f the fact that this act
facilitates implementation o f 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 o f the
notice and public participation
provisions o f 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 90-221, 94 Stat. 142 (12 U.S.C.
§ 3501 et seq.), to prescribe rules
governing the payment o f interest and
dividends on deposits o f 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
§ 1204.112
$ 100,000.
Time deposits of less than
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, at a rate not to exceed 5V4
percent. 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 Vi
percent, and federally insured mutual
savings banks may pay interest on such
time deposits at a rate not to exceed 5‘/2
percent. In the event the Federal Home
Loan Bank Board shortens the minimum
required maturity or notice period of
FED AL R G E , VOL.
ER
E IST R
45, NO. 202
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
e x ceed 0 V2 percent.
By order o f the Committee, October 9. 198h.
Normand R. V. Bernard,
Executive Secretary o f the Committee.
|KR Doc. BO-32127 Filed 10-15-80; 8:45 amj
S IL LIN G CO DE 6 2 1 0 -0 1 -M
12CFR Part 1204
[Docket No. D-0004]
Premiums, Finders Fees, and the
Prepayment of interest
O ctober 9, 1980.
AGENCY: Depository
Institutions
Deregulation Committee.
ACTION: Final rules.
s u m m a r y : The Depository Institutions
Deregulation Committee (“Committee” )
has adopted final rules concerning the
use of premiums, finders fees, and the
prepayment of interest by depository
institutions. 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 twelvemonth 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
from 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 Com mittee also
adopted a rule prohibiting depository
institutions from prepaying interest on
deposits o f less than $100,000 in either
cash or merchandise.
The rules adopted by the Committee
apply to all com m ercial banks, mutual
savings banks, and savings and loan
association s subject to the authorities
conferred by section 19(j) o f the Federal
R eserve A ct, section 18(g) o f the Federal
Deposit Insurance Act, and section 5B(a)
o f the Federal Hom e Loan Bank Act.
EFFECTIVE DATE: D ecem ber 31,1980.
Com m ents on the prop osed phaseout of
finders fees should be received by
N ovem ber 17.1980.
ADDRESS: Interested parties are invited
to submit written comments on the
proposed phaseout o f 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 o f the
Committee’s Rules Regarding
Availability o f 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 (202/4471632), 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
2
depository institutions to attract
deposits. M any o f these respondents
favored strengthening existing
regulations as an alternative to the
proposal. A majority o f com m enters
favored the finders fees proposals, and
the proposals to prohibit the prepayment
o f interest and to require that interest be
paid in cash.
Premiums
The rules of the Board o f Governors of
the Federal Reserve System (“ Federal
Reserve” ), Federal Deposit Insurance
Corporation ("FDIC” ), and Federal
Home Loan Bank Board (“ FHLBB")
currently limit the cost o f premiums to
$5 for deposits of less than $5,000 and
$10 for deposits o f $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
o f 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 o f 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 institutions to
continue to offer depositors a premium
at the time o f 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 o f $5,000
or more. All costs associated with a
premium, including its costs 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 o f a
premium program, that the institution’s
program complies with these
requirements and that no portion o f 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
o f the merchandise (including shipping,
warehousing, handling and packaging
costs) would not be regarded as a
premium. An executive officer o f 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 o f 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 o f 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 o f
$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 o f the services
o f 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 o f finders
fees and the consideration that finders
fees may, in some cases, be used to
circumvent interest rates 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
o f interest to the depositor for purposes
o f 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 o f 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
3
required to demonstrate that finders fees
have accounted for a significant share of
its outstanding domestic smalldenomination (under $100,000) time and
savings deposits over a meaningful
period o f 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 o f 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 o f 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 o f domestic smalldenomination 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 o f the amount o f domestic smalldenomination 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
small-denomination time deposit on
which a finders fee .had been paid and
that is renewed will be included in the
amount o f 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.
Maxi-
1981:
Mar. 3 1 ............................................................................
June 3 0 ............................................................................
Sept. 3 0 ...........................................................................
Dec. 3 1 ............................................................................
1982:
Mar. 3 1 ............................................................................
June 3 0 ............................................................................
Sept. 3 0 ...........................................................................
90
80
70
60
50
35
20
“
Quarter ending
Maxi
mum
percent
age'
Dec. 31.
1983:
Mar. 3 1 .
1 Maximum percentage of maturing finders fee deposits
permitted to be raised through the continued use of finders
fees.
Specific comments are requested on:
(1) the minimum proportion o f 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 the phaseout period
should be imposed and, if so, what types
o f limitations or restrictions; (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 o f 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 o f 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 o f enforcing deposit
interest rate ceilings. In view o f these
considerations, the Committee has
adopted a rule prohibiting the
prepayment o f 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
o f finders fees offered pursuant to the
requirements o f 12 CFR § 1204.110. The
Committee has determined not to adopt
its proposal to require that interest be
paid only in the form o f 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
o f determining compliance with interest
rate ceiling limitations, the cost o f any
merchandise given in lieu of cash
interest must include the total cost o f the
merchandise. An executive officer o f 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 o f 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 sections
1204.109, 1204.110, and 1204.111 as
follows:
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.
(b) Certifications required by
paragraph (a) must contain the following
language:
PART 1204—INTEREST ON DEPOSITS
(Signature)
(1) (For use with premium programs.)
I ,--------------------------------- , (name and title of
certifying officer and institution) do hereby
certify, to the best o f my knowledge and
belief, that the total cost(s) o f the premium(s)
offered by this institution during a premium
program to be conducted fro m -------------------(date) t o --------------------, (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 o f $5,000 or more. I further
certify that the costs o f premium items have
not been averaged, that no portion o f 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.
Sec.
1204.109 Premiums not considered payment
of interest.
1204.110 Finders fees.
1204.111 Prepayment o f interest and
payment o f interest in merchandise.
§ 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 ai\ advertising or
promotional expense rather than a
payment o f 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 o f articles of
merchandise, the total cost (including
shipping, warehousing, packaging, and
handling costs) does not exceed $10 for
deposits o f less than $5,000 or $20 for
deposits o f $5,000 or more. The costs of
premiums may not be averaged. Prior to
the beginning o f a premium program, an
executive officer of the depository
institution must certify that the total
cost o f a premium, including shipping,
warehousing, packaging, and handling
costs, does not exceed the applicable
$10/$20 limitations and that no portion
o f the total cost of any premium has
(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) (For use with self-liquidating programs.)
1
, ----------------------------------------------------------------------------------------------------------
(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 -----------------(date) t o -------------------(date), including the
wholesale cost, shipping, warehousing,
packaging and handling costs. I further certify
that the costs of items have not been
averaged, that no portion of the cost o f any
item has been attributed to development,
advertising, promotional, or other expenses,
and that this program com plies in all respects
with the requirements o f 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.
§ 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.
§ 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 § 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.
(b) Certifications required by
paragraph (a) must contain the following
language:
I ,--------------------------------- (name and title of
certifying officer and institution), do hereby
certify, to the best of my knowledge and
belief, that the total cost(s) o f merchandise
offered by this institution in lieu o f cash
interest during a program conducted from
-------------- -— (date) t o ------------------- (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 o f 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
o f any item has been attributed to
development, advertising, promotional, or
other expenses, and that this program
complies in all respects with the
requirements o f 12 CFR § 1204.111.
(Signature)
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.
By order o f the Committee, October 9,1980.
Normand R. V. Bernard,
E xecutive Secretary o f the Committee.
|KR Doc. 80*32128 Filed 10-15-80: 8:45 am]
BILLING CO DE 6 2 1 0 -0 1 -M
12 CFR Part 1204
[Docket No. D-0011]
Maximum Rate of Interest Payable on
Negotiable Order of Withdrawal
Accounts
October 9, 1980.
AGENCY: Depository Institutions
Deregulation Committee.
Final rule.
a c t io n :
SUMMARY: The Depository Institutions
Deregulation Committee (“ Committee” )
has adopted a final rule concerning the
ceiling rate of interest payable on
negotiable order of withdrawal
(“ N O W ") accounts. Effective December
31,1980, the ceiling rate o f interest
payable on NOW accounts will be 5X
A
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 19(j) of the Federal
Reserve Act, section 18(g) o f the Federal
Deposit Insurance Act, and section 5B(a)
o f 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 (202/4471632), F. Douglas Birdzell, Counsel,
Federal Deposit Insurance Corporation
(202/389-4324), John Harry Jorgenson,
Attorney, Board of Governors o f 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
o f 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
(Date)
5
on proposed rules concerning the
maximum rate o f 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 o f monetary
policy, the Committee also proposed to
establish a ceiling rate on transaction
accounts that was below the ceiling rate
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 Vi per cent, 5 V per cent,
2
or a ceiling higher than 5 V per cent.
2
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 o f interest payable on NOW
accounts for all depository institutions
authorized to offer such accounts will be
5 Vi per cent effective December 31,1980.
The ceiling rate of interest payble 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 o f interest
on certain accounts, as required by
some o f the proposals, and in view o f its
concern that consideration o f 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 as soon 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 31,1986, the
Committee amends Part 1204 (Interest
on Deposits) by adding 1204.108 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)
o f the Federal Reserve Act (12 U.S.C.
§ 371(b)f, section 18(g) of the Federal
Deposit Insurance Act (12 U.S.C.
§ 1828(g)), or section 5B(a) of the Federal
6
Home Loan Bank Act (12 U.S.C.
§ 1425b(a)) shall pay interest at a rate in
excess o f 5 Vi per cent per annum on any
deposit or account subject to negotiable
or transferable orders of withdrawal
that is authorized pursuant to 12 U.S.C.
§ 1832(a).
By order of the Committee, O ctober 9,1980.
Normand R. V. Bernard,
E xecutive Secretary o f the Committee.
IFR Doc. 80-32129 Filed 10-15-80; 8:45 am)
B ILLIN G CO DE 6 2 1 0 -0 1 -M
@FedFRASER