Does the repeal of Reg Q mean banks will be able to offer now accounts to businesses?

No - you will be able to offer interest bearing DDA accounts. The repeal of Regulation Q has no bearing on NOW accounts.

Sounds like I was totally confused. Banks can now offer all demand deposit accounts as interest bearing for both individuals and businesses, but businesses still can not have now accounts. Is this right? Please point me to good resource, as my IT systems people are working on this.

Correct. Reg D stays pretty much "as is" (I think there was talk about moving the definition of interest into it). Reg Q disappears. The reg cites on BOL are some of the best sources of reference...this one also has the FR citation:


http://www.bankersonline.com/regs/217/217.html

Thanks Doug.

Not sure why we will have to make the distinction though - they're the same accounts for all intents and purposes.

All accept the reservation of the seven day notice regarding the right of withdrawal and the ownership limitations and the FDIC unlimited insurance coverage.

Will most institutions create a new product - a business checking account that earns interest?

I'm guessing (since I'm not privy to the discussions) that we will keep our non-interest bearing personal checking accounts, non-interest bearing business checking accounts and NOW accounts; and that we will create a separate interest-bearing account for businesses. This would preserve all existing account structures and limitations, and provide an opportunity for businesses to earn interest on their checking account subject to certain account balance restrictions.

What happens from there is anyone's guess.

On the FDIC website it states that MM and NOW accounts are not eligible for the temporary unlimited coverage.

That being said, I think the only distinctions would be the ownership limitations and the seven day notice regarding the right of withdrawal.

They are not the same accounts. They are allowed under different laws, different insurance, reserves, ownership restrictions. Dodd-Frank did not touch NOW Accounts, money market accounts, etc. It just allowed a new type of account...plain DDA with interest, which opened it up to businesses.

So basically, do NOT take your NOW account agreement and use it for the business interest checking. The big change? Eliminate the right to reserve 7 days advance notice for withdrawals.

Both NOW and Business interest checking are NOT eligible for the unlimited deposit insurance.

It is my understand that the reserves for NOW Accounts are the same as for demand deposit - just that NOWs were a loophole around Reg. Q but only for certain "preferred" groups of depositors - i.e. those less likely to cause wild swings in balances.

So the differences between your typical NOW Account Agreement and Business Interest Checking? Let's see:
BICs will NOT have a reservation for a 7 day advance notice for withdrawals. (I'm not crying big tears over that....)
BICs will need to have a Reg. GG disclosure.
BICs should have a more robust account agreement similar to your non-interest bearing checking business account agreements - check with legal counsel.

IMHO - It's probably a product that you want to develop and keep handy the next time one of your business Money Market account holders violates the 6 transfer rule for the third time.

Having said all of that - I can just imagine the audit and/or exam "big findings" where some poor fool left in the 7 day advance notice requirement for a Business Interest Checking Account. OhEmGoat - Reg D. VIO!

And over here is another angel dancing on top of a pin.

Our forms vendor is not changing the terms and conditions for the signature card by removing the 7 day notice clause, or providing a new disclosure for the Business Interest Checking. Here is what we are planning to do:

Current Commercial NOW (sole Prop, non profits, and gov't entities) accounts will be provided a notice that the 7 day clause is no longer valid effective 7-21.

Any current business checking account customers wanting the interest instead of the unlimited FDIC insurance will be coded as Commercial Business Interest Checking (no 7 day notice in their T & C).

A new customer opening a business interest checking account will receive the old NOW T & C and a homemade 7 day notice no longer valid disclosure.

This procedure will be easier for New Accounts since will not have to try and determine if the business qualifies for a NOW account. Also, Business Interest Checking is now open to all businesses. Plus the current NOWs and the Bus Int Ckg will all have the same account type code.

Any problems that I have not thought about?

NOW accounts are not going away. Therefore, unless your current commercial NOW accounts are being converted to some other type of account, the 7 day clause is still valid. You should not "commingle" the current NOWS and the Business Interest Checking as they are still separate types of accounts.

Walters Kluwer terms and conditions states we MAY impose a 7 day notice of wihthdrawal. They only utilize one disclosure for all types of accounts. Would this work?

WK stated that will not be providing a separate disclosure for the Business Interest Checking. They only provide one Terms and Conditions for all accounts. So individuals and business who open regular checking accounts also get the "we may require not less than 7 days notice in writing before each withdrawal from an interest - bearing account other than a time deposit ..."

Per FIL-38-2011 we need to notify our accountholders in writing that their insurance coverage will change should they elect to move from a non-interest bearing account to an interest-bearing account...has anyone come up with a notice that they are willing to share?

The Regulation (12 CFR Part 330, §330.16(c)(3)) and the FIL don't exactly say that. They say that if “an IDI modifies the terms of a DDA so that the account may pay interest, the IDI must notify affected customers that the account no longer will be eligible for unlimited deposit insurance coverage as a noninterest-bearing transaction account.”

I don't see that requirement as applicable to instances in which a depositor asks to move to an interest-bearing account from a demand deposit account (although I do believe the depositor should be informed of the effect on any temporary unlimited deposit insurance).

Instead, I see the requirement as addressing situations in which an IDI decides unilaterally to change the terms of its demand deposit accounts (or a subgroup of them) so as to allow them to earn interest. The notice would then become in integral part of whatever "Change in Terms" notice the bank sends to announce the change.

If your bank were to send its business DDA customers an announcement that you were offering an interest-bearing DDA, I'd expect to see information about the effect on deposit insurance as part of that announcement, even if you left the decision up to the depositor.

Simplified version: If the customer takes the initiative, I think an oral notice or discussion about the effect on insurance would suffice. If the bank initiates the action or promotes it, I think the notice should be delivered in writing.

We have a simple account disclosure-type form for business accounts. The Insurance language is a part of the disclosure for an interest-bearing business account. Therefore, if someone comes in to change their account, it will be on the new disclosure.

Is there a difference in reserve requirements between NOW accounts and interest bearing DDA accounts? If not, wouldn't it just make sense to get rid of all NOW accounts and convert them to interest bearing DDAs to avoid the restrictions and eliminate the compliance risk associated with NOW accounts?

Additionally, IMO it would be wise to provide a notice about the impact on insurance coverage if switching an existing DDA to an interest bearing account type without closing it and opening a new account. Even though the customer would be initiating the change in this case, since the bank in actually changing the account in a way that impacts coverage (albeit at the customer's request), a regulatory could easily argue that the disclosure would be required.

A related topic that I haven't really seen discussed...

With the abolition of Reg Q, the restrictions on offering premiums go out the window as well. Has anyone heard of any banks planning on using this as a marketing ploy to attract large depositors (ie offering electronics or other high-end items for opening a new account)?

Just curious....

A related topic that I haven't really seen discussed...

With the abolition of Reg Q, the restrictions on offering premiums go out the window as well. Has anyone heard of any banks planning on using this as a marketing ploy to attract large depositors (ie offering electronics or other high-end items for opening a new account)?

Just curious....

But if the premium is large enough to be considered interest by the IRS, does the account lose its unlimited FDIC coverage?

There is not a difference in the reserve requirements for demand deposits and NOW accounts - they are both treated as transaction accounts. We are classifying our NOW accounts as DDA accounts as of 7-21-11. What will change is the NOW account balance will move from one line on the FR-2900 to another (from A.2. to A.1.c.)