Answer:
Answer by Mary Beth Guard
The definition that is relevant here is the definition of interest in Regulation Q, rather than the definition in Regulation DD. Reg Q sets forth prohibitions on payment of interest on a DDA. Reg DD is merely a disclosure regulation. It doesn't permit or authorize activity; it simply tells you how and when to disclose it. In Reg Q, under 207.2(d), the term "interest" is defined to mean "any payment to or for the account of any depositor as compensation for the use of funds constituting a deposit. * * *" I think the $100 "bonus" for opening a DDA would fall within the definition of interest on Reg Q and would therefore be prohibited.
If this were not the case, then everyone would simply pay "bonuses" up front and could easily circumvent the prohibition.
Answer:
Answer by Andy Zavoina
You could still run into problems of paying "interest" on a DDA, assuming the noninterest bearing account is a DDA.
Section 217.101 Premiums On Deposits.
(a) Section 19(i) of the Federal Reserve Act and Section 217.3 of Regulation Q prohibits a member bank from paying interest on a demand deposit. Premiums, whether in the form of merchandise, credit, or cash, given by a member bank 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 an existing account;
(2) No more than two premiums per account are given within a 12month period; and
(3) The value of the premium or, in the case, of articles of merchandise, the total cost (including taxes, 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.
First published on BankersOnline.com 5/07/01
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