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sf/~ (, 7 6 / 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) 2 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.