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#2169314 - 03/21/18 01:15 PM Special Rates for Special People
Jenny Roberts Offline
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Joined: Feb 2014
Posts: 162
Tennessee
Is it okay for an officer of a bank, at their discretion, to allow a higher rate on a deposit account for a specific customer or customers as long as senior management is okay with it? For example, giving a higher interest rate to a customer that has a larger deposit account.

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#2169318 - 03/21/18 01:28 PM Re: Special Rates for Special People Jenny Roberts
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 79,638
Galveston, TX
There are no fair deposit laws, but it must drive your ALM people nuts. They usually set deposit rates for a reason.
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#2169326 - 03/21/18 01:45 PM Re: Special Rates for Special People rlcarey
Jenny Roberts Offline
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Joined: Feb 2014
Posts: 162
Tennessee
It's the bank president that wants to offer a special checking account rate for certain people so he is part of the ALM group........

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#2169335 - 03/21/18 01:59 PM Re: Special Rates for Special People Jenny Roberts
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 46,844
Bloomington, IN
at their discretion

Any time this is mentioned the hairs on the back of my neck start tingling.

IMHO any pricing variation/exception regardless if for deposits or loans should be based on criteria established by senior management and how the variation/exception should be approved.

It's not uncommon to negotiate higher deposit rates for larger deposits but again there should be criteria for doing so. "At their discretion" is going to eventually get someone in trouble.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2169347 - 03/21/18 02:27 PM Re: Special Rates for Special People Jenny Roberts
Dog Lady Offline
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Joined: Dec 2015
Posts: 74
For a small community bank, people using discretion is common and I think acceptable as long as it's limited. Like Dan said, make sure there's established criteria and procedures for obtaining and documenting approval. Our bank allows officers to approve deposit rate variance, at their discretion, up to X over the stated rate. So it's limited. Plus, Senior Management periodically looks at reports of non-standard/special rates. When rates are adjusted, special rates are re-considered to see if they might start fitting into the standard rate bucket.

Larger banks lose control quickly and more strict criteria and procedures should be established to prevent people from making bad decisions.

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#2169362 - 03/21/18 03:06 PM Re: Special Rates for Special People Jenny Roberts
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 79,638
Galveston, TX
Depending on your regulator, just make sure that these certain people are not related to the bank:

12 U.S. Code ยง 376 - Rate of interest paid to directors, etc.

No member bank shall pay to any director, officer, attorney, or employee a greater rate of interest on the deposits of such director, officer, attorney, or employee than that paid to other depositors on similar deposits with such member bank.
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The opinions expressed here should not be construed to be those of my employer: PPDocs.com

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#2169370 - 03/21/18 03:28 PM Re: Special Rates for Special People rlcarey
Jenny Roberts Offline
100 Club
Joined: Feb 2014
Posts: 162
Tennessee
Thanks everyone!

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#2169518 - 03/22/18 12:03 PM Re: Special Rates for Special People Jenny Roberts
edAudit Offline
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edAudit
Joined: Jul 2008
Posts: 4,781
You are here
While it may (or may not) be legal think of the reputational risk. What would happen if it was on the front page of the local newspaper?
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#2169531 - 03/22/18 01:44 PM Re: Special Rates for Special People Jenny Roberts
Elwood P. Dowd Offline
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Elwood P. Dowd
Joined: Aug 2001
Posts: 21,939
Next to Harvey
In my experience "special people" are the buddies of some bank personnel...

Provide those empowered to set higher rates with objective criteria and a requirement to notify the CEO or CFO whenever they exercise their authority.
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