If an account was opened in 1974 and was grandfathered in for earning interest, but they have to close their account and open a new one because of some lost checks, can we still grandfather them in, or should we have opened the account as non-interest bearing last year?

Thanks!

Unless you are located in a select few of the New England states, they most likely were not grandfathered to begin with..... You're in the midwest - right?

Wow, I had no idea it only applied to certain states! Mr. Carey, would you be so kind as to expand a little more on that? I know the reg says it applies to a "nonqualifying entity that previously qualified," however I was still a baby back in 1981, so I'm not sure what was going before then!!

Well, John B. could probably better address this as he is older than me however, it was limited to a number of States that allowed interest bearing accounts prior to the revisions made to Regulation D that created the NOW accounts. The only States that I am aware of that allowed interest bearing accounts prior to 1981 were in the New England area.

I know that the NOW account originated in New England, but I don't know that they are the only grandfathered area.

§204.130 Eligibility for NOW Accounts.(f) Grandfather provision. In order to avoid unduly disrupting account relationships, a NOW account established at a member bank on or before August 31, 1981, that represents funds of a nonqualifying entity that previously qualified to maintain a NOW account may continue to be maintained in a NOW account.

Andy, I know that they were only in the New England states, specifically in Massechussetts and in New Jersey. Those are the only two states that I have ever been able to document. They were not in any other areas of the country when DIDC created the nationwide NOW account structure.

My understanding of the "grandfather" provision is to the effect that if the account was legally maintained as an interest bearing account at the time, then it can remain open. I am positive that it is not just a blanket "pass" for old accounts; to claim it you would have to know what the law that allowed the account to be opened at the time; i.e. when Reg Q ruled deposit accounts with a rigid hand.

I spent 4-5 hours attempting to locate the previous restrictions and the context for another (requiring advance notice of withdrawals) a few years ago, even to the point of submitting a FOIA request. The Fed responded promptly and with some enthusisam, but could not provide me with anything at all. rlcarey's state specific analysis may be entirely correct because the "Consumer Checking Account Equity Act of 1980" (implemented by the DIDC) created the concept of the NOW account at the federal level - it did not exist before.

We are at the mercy of the fading and varied recollections of the ancient ones... John?

As to the original question, if you are not in a position to prove that your customer qualified for the old account under the grandfather provisions, I would not make an argument that the "new" account qualifies.

Post deleted by noctrl02 - One of those days when the brain takes longer to wake up.

"Why would you not just open a NOW account for the customer? "

That's the point that is being discussed. Can this non-qualified entity have a NOW account since they have had one since before 1981 and are they grandfathered??? NOW accounts are interest bearing..........

Well, the Monetary Control .... Act was passed in 1980. Prior to that , NOWs were permitted in New England, New York and New Jersey, if my memory serves (New Jersey is not one of the six New England states). PA may also be included.

Since our question comes from the midWest, I'll have to assume the customer didn't ever qualify, so the grandfather rule isn't available.

By the way, isn't the FDIC the only agency that recognizes that rule? It's time they let it go away.

So saith the ancient one!

Actually, the FDIC Compliance Examination Manual indicates the "Grandfather clause" isn't likely to be accurate for most banks. On page 381 of 696 (pdf document) or page VI-4.3, it states:

NOTE: In some instances, financial institutions may contend
that the “grandfather clause” in Section 204.130(f) of
Regulation D exempts any ineligible NOW accounts opened on
or before August 31, 1981 from violating Part 329. However,
the FDIC does not support this position unless the financial
institution can demonstrate that the depositor was previously
qualified to maintain a NOW account under a state law prior
to August 31, 1981.

Thank you so much guys! I seriously don't think I could do my job without you!!

TYVM