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F e d e r a l R e s e r v e Ba n k

of

N ew

10045

Y o r k , N .Y.

AREA

COOE

212

N ew Yo r k

7 3 2 -5 7 0 0

J u l y 12, 1971

REGUL A T I O N Q
Deposits of Rent-Security M o n e y

To M e m b e r Banks in the Second
Federal Reserve District located in New Jersey:

As you know, chapter 223 of New Jersey Laws of 1971; effective
June 21, 1971, requires a landlord to deposit a tenant's rent-security money
in an interest-bearing account in a banking organization insured b y an agency
of the Federal Government whenever the m o n e y so deposited or advanced is for
the use or rental of premises used for dwelling purposes (except owner-occupied
premises with not more than two rental units); the new law also entitles the
landlord so depositing a tenant's rent-security money to receive as a d m i n i s ­
tration expenses a sum equivalent to one percent per a nnum upon the security
money so deposited.

This law has resulted in numerous inquiries as to w h ether

section 217.1(e) of Regulation Q would permit a landlord w hich is a corporation
or other business organization operated for profit to deposit such rent-security
mo n e y in a savings account.
Section 217.1(e) defines a "savings deposit" to m e a n a deposit which
consists of funds deposited to the credit of one or more individuals, or of a
corporation, association, or other organization operated p r i marily for religious,
philanthropic, charitable, educational, fraternal, or other similar purposes and
not operated for profit; or in w h ich the entire be n e f i c i a l interest is held by
one or more individuals or b y such a corporation, association, or other
organization.




( Over)

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The Board of Governors of the Federal Reserve System has taken the
p osition that a mem b e r ba n k m a y accept a savings deposit from a corporation or
other organization operated for profit if eligible persons possess the "entire
benef i c i a l interest" in the principal of the deposit.

Accordingly, since

interest earned on a deposit becomes part of the principal only at the time it
is credited to the account to which it relates, a memb e r b a n k m a y accept a
savings deposit from a corporate landlord if (l) the entire beneficial interest
in the principal is owned b y eligible persons, as set forth in section 217.1(e)
of the Regulation, and (2) the landlord's fee for administration expenses is
paid from interest earned on the deposit that has not b e e n credited to the
account to w h i c h it relates.
Should particular rent-security

m o n e y not qualify under the above

criteria for deposit in a savings deposit, a time deposit, open account m a y well
provide a satisfactory substitute.
If y o u have any questions with respect to the matters covered herein,
please contact our Ba n k Reports and Analysis Department (telephone number 212732-5700, extension 487).




Alfred Hayes,
President.