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FEDERAL RESERVE BANK
OF NEW YORK
n
Circular No. 9274
April 8. 1982
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
Payment of Premiums on Multiple Accounts
To A ll Commercial Banks, Mutual Savings Banks,
and Savings and Loan Associations in the Second
Federal Reserve District, and Others Concerned:
The Depository Institutions Deregulation Committee (DIDC) has adopted as final
an earlier temporary amendment to its rules that prohibited depository institutions
from soliciting multiple accounts from depositors for the purpose of giving more than
one premium at a time to such depositors.
Printed on the reverse side is the text of the amendment, which has been reprinted
from the Federal Register (Docket No. D-00I8). Questions regarding the DIDC’s action
may be directed to our Consumer Affairs and Bank Regulations Department (Tel. No.
212-791-5914).
A nthony M. Solomon.
P
resident.
»
(Over)
DEPOSITORY INSTITUTIONS
DEREGULATION COMMITTEE
12 CFR Part 1204
[D ocket No. 0-0018]
Interest on Oeposits, Premiums,
Finders Fees, and ttie Payment of
Interest
a g e n c y : Depository Institutions
Deregulation Committee
a c t io n : Final rule.
s u m m a r y : The Depository Institutions
Deregulation Committee (‘‘Committee”)
is adopting in final form a temporary
amendment to its rule concerning the
use of premiums by depository
institutions (12 CFR 1204.109). This
temporary amendment of the premium
rule w as published for comment on
February 28.1981 (48 FR 15131): it
prohibits depository institutions from
soliciting the opening of multiple
accounts from a depositor in order to
provide for more than one premium at a
time to such depositor. The purpose of
the rule is to elim inate the
circum vention of the objectives o f the
premium rule by depository institutions
that advertise premium programs in
which lump sum deposits brought in by
a depositor w ould be broken up by the
institution and placed in multiple
accounts for the purpose of enabling the
institution to give a premium for each
accou n t
EFFEC TIV E DATE: April 15. 1982.
FOR FURTHER INFORMATION CONTACT:
Rebecca Laird. Senior A ssociate
General Counsel. Federal Home Loan
Bank Board (202/377-8446), David
A nsell, Attorney, Office of the
Comptroller of the Currency (202/4471880), F. Douglas Birdzell, Counsel,
Federal Deposit Insurance Corporation
(202/389-4281), Veryl V. Miles,
Attorney, Board of Governors of the
Federal R eserve System (202/452-3811),
or Allan Schott. Attorney-Advisor,
Treasury Department (202/566-6798).
SUPPLEM ENTARY INFORMATION: The
Com m ittee’s rule concerning the use of
premiums (12 CFR 1204.109), effective
D ecem ber 31,1980. provides that
premiums, whether in the form of
m erchandise, credit or cash, will not be
regarded as a payment of interest if: (1)
The premium is given to a depositor
only w hen a new account is opened, an
existing account is renewed, or funds
are added to an existing account: (2) no
more than two premiums p e r a c c o u n t
are given in any 12-month period: and
(3) the value of the premium, or. if
merchandise is given, its total cost to the
institution, is no more than $10 for
deposits of less than $5,000 or $20 for
deposits of $5,000 or more. After the rule
w as adopted, an increasing number of
depository institution^ advertised
programs in whicn t lump sum brought
in by a depositor could be broken up by
the institution and placed in multiple
accounts for the purpose of enabling the
institution to give a premium for each
account. These programs made it
possible for the depository institutions
to provide more premiums than would
otherwise be permitted if the funds had
been placed in one account. These
programs had the capacity for
undermining and circumventing the
objectives of the Committee in adopting
the rule.
In its efforts to curtail the practice of
opening multiple accounts for a
depositor in order to receive multiple
premiums and to clarify its original
intent in adopting the premium rule, the
Committee adopted a temporary
amendment, effective February 28.1981,
prohibiting depository institutions from
soliciting or promoting deposits from
customers oq the basis that the funds
would be divided into more than one
account by the institution for the
purpose of providing more than two
premiums per deposit within a 12-month
period. The Committee also asked for
public comm ents by April 1.1981, on the
temporary amendment and on
alternative methods to deal with this
problem on a permanent basis.
The Committee received 215
comments: 92 commentators were in
favor o f the amendment and 29 w ere in
opposition to the am endm ent The
remaining 94 commentators did not
express definitive positions in favor of
the amendment or in opposition to the
am endm ent Their comm ents were
included in the specific comments
considered by the Committee regarding
alternative methods to achieve
com pliance with the premium rule and
general comments made regarding
premiums.
Many of the commentators in favor of
the temporary am endm ent also
expressed the opinion that it w ould not
be sufficient in curtailing the opening of
multiple accounts by those depositors
who are aw are that multiple premiums
can be obtained by opening multiple
accounts. Others in favor of the
amendment indicated that such an
amendment w as not objectionable, so
long as it did not prohibit depository
institutions from giving multiple
premiums if the depositor independently
decides to open multiple accounts.
* With respect to the request for
alternative methods of preventing the
circumvention of premiums rules, 73
institutions suggested that premiums be
banned completely. Another alternative
recommended by 53 institutions w as
that premiums be permitted on a per
depositor/per household basis instead
of a per account basis. In addition to the
recommendation that premiums be
permitted on a per depositor/per
household basis, 41 institutions pointed
out that this alternative would be too
costly and too difficult to monitor and
administer. Several of these institutions
also expressed the opinion that this
alternative would create depositor
disloyalty, prompting depositors to
deposit their funds at several different
depository institutions in order to obtain
additional premiums. It was also
suggested that premiums be limited to
branch openings, bank openings,
anniversaries, mergers and
consolidations: 20 institutions
recommended this alternative.
Based upon the comments received
and the Committee s experience with
the temporary rule, the Committee <
concluded that the final adoption of the
rule would be the most effective means
of curtailing the circumvention of the
premiumrule and would enable
depository institutions to provide
premiums to customers in the manner
the Committee intended. With respect fo
the alternatives suggested by the
commentators to prevent further abuses
of the objectives of the premium rule,
the Committee believes that making the
temporary rule permanent would be
more effective in advancing its
objectives. This is based on the view
that adoption of a per depositor/per
household rule would be both a
financial and administrative burden for
depository institutions to implement and
would not directly address the
immediate problem of soliciting the
opening of multiple accounts by
depository institutions.
PART 1204—INTEREST ON DEPOSIT
Pursuant to its authority under the
Depository Institutions Deregulation Act
(12 U.S.C. 3501 et seq.), the Committee
amends Part 1204 (Interest on Deposits)
by adding the following sentence to
S
1204.100(a):
{ 1204. 1
M Prem ium s not ooheM ered
paym ent of Interest.
(a) * * * A depository institution is
not permitted directly or indirectly to
solicit or promote deposits from
customers on the basis that the funds
will be divided into more than one
account by the institution for the
purpose of providing more than two
premiums per deposit within a 12-month
period.
t
•
*
e
#
By order of the Committee.
Steven Skancke,
Executive Secretary.
March 9,1982.
P R IN T E D IN N E W YORK. FROM F E D E R A L R E G I S T E R . V O L 47. NO. 51
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