Limits On Promotional Premiums
Answer by Andy Zavoina, BOL Guru BIO AND CONTACT INFO
Question: We are an advertising agency doing some research for a client of ours, who happens to be a local bank. We are in the creative process, planning a good advertisement and incentive to get the community to open checking accounts with us. We are looking to offer a specific dollar amount to anyone who opens an account. But we know there are some restrictions against that according to Regulation Z. What I need to know is how much can a bank offer as a premium to get someone to open an account? Is there a limit, or specific ratio/number?
Answer: What you are needing to review pertains to deposits so look at Regs. Q and DD.
12 CFR §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 12-month 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.
And be sure to look at bonus disclosure rules under Reg. DD, TISA.
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