In implementing a "refer-a-friend" program where I would pay an existing customer $xx for referring a friend/family member for deposit or loan products, are there any guidelines I need to follow, or am I basically free to do what I want?

My bank wanted to do this at one point, but I advised against it. The concerns that I had for deposit accounts were 1) tax reporting, and 2) privacy concerns resulting from the current customer learning that a relationship has been established by their referral. Referral incentives for loans, especially RESPA loans, seemed to open up a huge can of worms. See this Q&A from bankersonline.com - Customer Referral Rewards Program.

Ok -loans aside. 2 questions:

1. Tax reporting shouldn't be an issue, should it, if I am paying the referring customer (and not the new customer) and assuming that I am not paying over $600 for the year, right?

2. As far as privacy - what about this scenario - I provide customers with a business card of sorts. It has their name pre-printed on it (no account info), and they can give it to family or friends who would then present the card when opening their account. Our existing customers account would be credited the referral bonus (ie: after 90 days)and the statement description of the credit to their account would just say something like "referral bonus", with no reference to the name of the new customer who opened their account.

The program you are proposing is similar to ours except we send a gift cert instead of making a deposit. Keep in mind if you can work with a merchant to only charge you for redeemed gift certs, you could save probably a third of the cost.

My understanding is that what you are saying on tax reporting is correct. Just monitor for excessive referrals that would add up to $600.

As Kelsey states, staff needs to understand referral bonuses cannot be given on mortgage or home equity loans, everything else is fair game.

I think in this scenario privacy is covered b/c you never give out the name of the customer. This is a very valuable marketing tool. I would attribute about 20% of our new DDAs and new investment customers to this program.

Here is a thread where Randy weighed in on the privacy issue:
Previous Thread

One additional thought - if you are not giving the new customer a "Refer A Friend" gift, will they have any incentive to present the business card?

It sounds like your program was thought through much better than what was proposed to me by my bank and you've covered everything.

We have a referral program that consists of a flyer that is given out at the teller windows, statement stuffer, etc.. It has a spot on it where the current customer fills out their name and the potential customer brings in the flyer. Both the current and potential customer (upon opening the account) receive a free gift. It states on the flyer that the potential customer will know that the current customer banks with us and upon receipt of the free gift, the current customer will then know that the potential customer opened an account with us.

I realize that this thread was posted a few months ago, but our bank is still on the fence with this program.

It is my understanding that outside of the privacy concerns that you also cannot have any limitations on how long the new customer's account stays opened etc... Is that accurate as it pertains to this program?
Also I am curious if the gift that is given is more than $25.00?

1) There would be no prohibition against requiring the account remain open for a period of time prior to paying the referral.

2) You can give the whole bank away if you so choose.