With the repeal of Reg Q my institution would like to set up a new product that would allow any type of business (i.e. corporation, LLC) to earn interest. We are getting a warning in our disclosure setup that these types of businesses are not allowed to have a NOW account.

I thought the repeal of Reg Q allowed all types of entities to have a NOW account if the institution should chose?

Eligibility for NOW accounts is determined by Reg D Section 204.130 which is still in full force.

The repeal of Reg Q allows all businesses to have interest bearing checking accounts, but they cannot be NOW accounts.

There are 2 exceptions to the rule that businesses cannot maintain NOW accounts.

First, sole proprietors can maintain NOW accounts since the business is owned by an individual.

Second, any for profit business can maintain a NOW account if it holds the funds as a fiduciary solely for the benefit of persons who are eligible to maintain NOW accounts (e.g., an escrow company can hold escrow funds in a NOW account for the sole benefit of individuals or non-profit entities of the type listed in Section 204.130.)

But if you are setting up a product for businesses, best to just stay away from NOW accounts and set up an interest bearing DDA and not worry about exceptions. Just worry about FDIC insurance.

We set up an interesting bearing account for commercial customers. So far, zero customers have opted for it. The loss of unlimited FDIC insurance is the sticking point. The small amount of interest is not worth the loss of unlimited FDIC insurance coverage.

What KB said. Set up a product, but don't call or classify it as a NOW. Q changed, D didn't.

As is noted above, acceptance may be the issue, but you can have an interest earning account for them.

I think that interest in interest-bearing DDAs will pick up after next year, when the Unlimited Insurance Coverage issue is a thing of the past.

That assumes Congress won't extend unlimited coverage on non-interest bearing (and IOLTA) accounts beyond 12/31/12. Extending unlimited coverage in an election year when the FDIC doesn't charge an extra assessment for unlimited coverage might be too much of a temptation for Congress.

On the fed webinar it was mentioned 12/15/11.

http://www.philadelphiafed.org/bank-reso...2011/121511.pdf

Page 24

Repeal of Regulation Q
– Effective July 21, 2011 – No longer have restrictions on NOW account eligibility
– Section 343 of Dodd-Frank Act provides unlimited deposit insurance for noninterest
bearing accounts through 12/31/2012
– FDIC issued FIL-38-2011: If institutions pay interest, must notify customers
account no longer eligible for unlimited deposit insurance cover

Did someone forger to tell them about Sec. 204.130 Eligibility for NOW Accounts?

That is so silly because in other info they have acknowledged that NOW account restrictions still stand. Sometimes they don't think about the effect of how they word things. Yes, you can have interest bearing business account but no, that has nothing to do with NOW accounts. I missed the webinar but will listen to an archive version as soon as it is posted and may just email them!

The error in their statement was brought up during the Q&A and they acknowledged their mistake - clarifying that the NOW eligibilty requirements remain and the repeal of Regulation Q means that interest may be paid on demand deposit accounts. Hopefully they'll update their materials to reflect that.

Thanks!

They haven't updated them yet. The error still appears on slide 24.