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#3146 - 07/23/01 02:59 PM Premiums paid on free checking accounts
Jon D Offline
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Jon D
Joined: Jun 2001
Posts: 53
The Midwest
Management wants to run a print media advertising campaign promoting the banks free checking account. As an incentive, the bank will provide each new customer with a minimum of $25 worth of discount coupons for goods or services at local restaurants, movie theaters or stores. In researching the regulatory concerns surrounding this promotion, I find that the commentary to Reg DD at Sec. 230.2(f)(1) excludes as a bonus the discount coupons for goods or services. However, this being as a demand deposit account this would appear to be a violation of Sec. 217.101 of Reg Q that prohibits a member bank from paying interest on a demand account whether in the form of merchandise, cash or credit if the value of the premium exceeds $10 for deposits of less than $5,000 or $20 deposits of $5,000 or more. Am I on target that the bank cannot run this type of promotion without conflicting with Reg Q unless the amount is for $10 or less?

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General Discussion
#3147 - 07/23/01 03:37 PM Re: Premiums paid on free checking accounts
John Burnett Offline
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John Burnett
Joined: Oct 2000
Posts: 39,700
Cape Cod
A couple of thoughts. First, the exclusion for discount services only applies if you're talking about the bank's own services, such as safe deposit box rental, etc. The coupons you refer to are for other businesses, so the exclusion doesn't apply.

I believe your second statement is correct. But for practical purposes, you really need only worry about businesses, since they cannot have interest-bearing checking.

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#3148 - 07/23/01 06:22 PM Re: Premiums paid on free checking accounts
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 79,651
Galveston, TX
John, if the premiums are offered in connection with opening demand deposit accounts, I believe the Reg Q issues need to be considered. Also, if the premium value is greater than $10, the IRS interest reporting rules also come into play.
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#3149 - 08/13/01 03:41 PM Re: Premiums paid on free checking accounts
Jan94 Offline
Platinum Poster
Joined: Mar 2001
Posts: 828
USA
We have the following situation: bank wants to have a promotion to give away a Palm Pilot (nice gift!) for opening a certain type of checking account. They also want to charge a $150 closing account fee if the account is closed within 90 days. (Normal closing account fee is $10). This appears to be payment of interest under Reg Q, but I'm not sure I understand how this would apply to a non-member bank?

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#3150 - 03/25/02 04:34 PM Re: Premiums paid on free checking accounts
Anonymous
Unregistered

John
Would you please clarify for my simple mind regarding your comment: "First, the exclusion for discount services only applies if you're talking about the bank's own services, such as safe deposit box rental, etc. The coupons you refer to are for other businesses, so the exclusion doesn't apply."

The commentary says items that are not a bonus include discount coupons for goods or services at restaurants or stores. I don't see mention of the banks OWN services. Please help! Thanks

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#3151 - 03/25/02 05:02 PM Re: Premiums paid on free checking accounts
NHBankGuy Offline
Junior Member
NHBankGuy
Joined: Jan 2002
Posts: 35
Manchester, NH
As long as you are not tying the premium to the balance in the dda or the duration of the account, the gift would not appear to be considered interest under Reg Q:

12CFR217.101(b) Notwithstanding paragraph (a) of this section, any premium that is not, directly or indirectly, related to or dependent on the balance in a demand deposit account and the duration of the account balance shall not be considered the payment of interest on a demand deposit account and shall not be subject to the limitations in paragraph (a) of this section."

Under Reg DD, however, this gift would be considered a "bonus", so Reg DD would apply.

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