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#1521964 - 03/15/11 05:41 PM Interest On Demand Deposits & For-Profit Business
bamccull Offline
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bamccull
Joined: Jan 2004
Posts: 50
Hurricane Country
My question is how can the bank pay interest to a For-profit and still comply with the definitions in Regulation D. I am missing something here-It seems to me that we would be paying interest on a transaction account to an entity that Reg D says can’t have an interest bearing transaction account only interest bearing limited transaction accounts.

This is a quote of a Guru Question:


Reg D Change for NOW Account
Answer by John Burnett, BOL Guru
Guru Bio

Question: I was told that there was going to be a change to Reg D where anybody could have a NOW account. Is this true, and when does it affect us until it is in writing?


Answer: On July 27, 2011, the first anniversary of the signing of the Dodd-Frank Act, the prohibitions in the law against paying interest on demand deposits will officially be repealed. At that point, it will be the industry that decides whether a business gets interest on a checking account. Effectively, the end of the prohibition will eliminate the need for NOW or ATS accounts.

However, the eligibility requirements for NOW accounts will not change. Technically, you will be able to pay interest on a demand deposit account (including one held by a for-profit business), but it will not be a NOW account. What's going away are the prohibitions in Regulation Q, not the definitions in Regulation D.

First published on BankersOnline.com 10/04/10; updated 12/20/2010
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#1521994 - 03/15/11 06:26 PM Re: Interest On Demand Deposits & For-Profit Business bamccull
Doug Hendrickson Offline
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You've got to completely separate the two regulations. Reg Q prohibits paying interest on demand deposit accounts. Reg D defines NOW accounts, which because of the 'no less than seven days' restriction are NOT demand deposit accounts and whose eligibility is limited. Because banks will be able to pay interest on Demand Deposit accounts, the need for NOW accounts will presumably diminish, since anyone can get an interest-bearing demand deposit (at least at those banks that offer them).
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#1540050 - 04/25/11 01:29 PM Re: Interest On Demand Deposits & For-Profit Business Doug Hendrickson
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Do you foresee banks be converting their current NOW account to DDAs?

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#1540068 - 04/25/11 01:55 PM Re: Interest On Demand Deposits & For-Profit Business Sugarbaker
Elwood P. Dowd Offline
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Sure, some will reclassify their NOW accounts whether they offer the interest bearing DDA to business entities or not. There is no need to retain the complexity of the long obsolete NOW concept particularly in the current interest rate environment.

Come to think of it though, banks still have the same grace periods, early withdrawal penalties as they did prior to 1985 when those terms were dictated by the government. We're not too big on acting on new found freedoms; the industry motto is "That's the way we've always done it."

Most will probably just sit on their hands.
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#1540085 - 04/25/11 02:24 PM Re: Interest On Demand Deposits & For-Profit Business Elwood P. Dowd
Georgia Plum
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Ken, the transaction account limits will still apply to savings accounts, correct?

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#1540133 - 04/25/11 03:44 PM Re: Interest On Demand Deposits & For-Profit Business
John Burnett Offline
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That rule isn't being affected, GP.
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#1546881 - 05/05/11 07:47 PM Re: Interest On Demand Deposits & For-Profit Business John Burnett
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If banks convert NOWs over to DDAs will the customer have to be notified - all other aspects of the account would stay the same?

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#1546955 - 05/05/11 08:54 PM Re: Interest On Demand Deposits & For-Profit Business Sugarbaker
rlcarey Online
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One term would change, the bank reserving the right to require at least seven days' written notice prior to withdrawal or transfer of any funds in the account.
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#1547082 - 05/06/11 12:17 PM Re: Interest On Demand Deposits & For-Profit Business rlcarey
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Originally Posted By: rlcarey
One term would change, the bank reserving the right to require at least seven days' written notice prior to withdrawal or transfer of any funds in the account.


Would the bank simply send a notice of this change in terms or would all new account disclosures for the new DDA have to be sent as well?

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#1547084 - 05/06/11 12:22 PM Re: Interest On Demand Deposits & For-Profit Business Sugarbaker
rlcarey Online
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A change of terms would do it if all other terms remain the same. Oh, and remember to disclose the interest rate and APY also.
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#1547390 - 05/06/11 03:45 PM Re: Interest On Demand Deposits & For-Profit Business rlcarey
John Burnett Offline
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And, don't forget your FDIC Part 330 §330.16(c)(3) notice if you make the change any time before 12/31/2012.

See the two following posts.
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#1547506 - 05/06/11 05:03 PM Re: Interest On Demand Deposits & For-Profit Business John Burnett
rlcarey Online
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John, they were talking about switching from a NOW account - are they currently under unlimited insurance?
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#1547615 - 05/06/11 06:18 PM Re: Interest On Demand Deposits & For-Profit Business rlcarey
John Burnett Offline
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Ah. The subtleties of the actual question catch up with me! No, the NOW accounts aren't currently under unlimited coverage, and there is not a §330.16(c)(3) notice requirement.
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