Marketing Dept wants to offer a money market product to a specific geographical neighborhood, with the first stipulation is that you must live there (gated, wealthy, community), and second stipulation is min balance requirement to obtain the interest rate advertised. To complicate further, the minimum balance for this account will earn about double the APY which can be earned on our regular money market. I have drawn a total mental blank on finding the supporting documentation to back my assertion that this is against regulations as the criteria to make the most money is based on where a person lives, not minimum balance requirements, and could be perceived as discriminatory.HELP please!

Might give rise to a violation of Civil Rights claim although there are no specific fair deposit regulations.

I've been under the impression that product requirments could not be tied to living in a specific neighborhood, like this, and particularly when the APY is about double what a non-affluent neighborhood would get with the same minimum balance. Isn't this along the same lines as giving preferential treatment, with higher APY's, to a specific gender, or a specific race? I thought red-lining applied to deposit products as well as lending products.

There are no Federal regulations that specifically address this issue (outside of the Civil Rights Act which I alluded too). That is not to say that there are not State laws that prohibit it. The regulators may look at this practice as a safety and soundness issue (liquidity) or under general unfair or deceptive practices.

If the primary end result is additional deposits (in spite of the price), then marketing should not care where the new depositors live.

A secondary end result might be a foot in the door to the community.

Now that you are willing to pay the % to anyone with the $, marketing needs to let people likely to have that $ available know about your new program. Rather than just putting an ad on the front page of the paper, marketing might do a direct mail campaign to the target market.

Where oh where can we get a list of people with $? Maybe they can use a reverse directory of expensive houses. Oh, what a coincidence. A siginficant number of expensive houses are in the gated community.

Al

So, from your comments, Al and Randy, you both see no problem offering two money market accounts, both requiring the same minimum balance to open, but one pays almost double APY of the other one, and the basis for doing so is a person's street address, which in this case is a very exclusive neighborhood. No regulations addressing this, and I could not find anything in the Civil Rights act, either. Marketing already has a direct mail campaign for this; no problem with getting addresses. Thanks for your replies, even tho they don't make me easy about doing this, as it seems like red-lining for deposits.

In our market, I don't see any other banks advertising a product based on neighborhood; does anyone out there have products like this already, which define what you will earn based on where you live?

Please re-read my post. Back into this. Put the rate on your rate sheet and make it available to anyone with the $.

Then target market to households likely to have the $. If that happens to be the same geography as the gated community, it must be a coincidence.


Al

I understand what you are saying, however, marketing wants to name this account after the neighborhood, so it would only be available for this neighborhood's residents, with proof of address. This is not just creating a new money market that anyone can have by depositing the min balance. The minimum balance for both types of money markets is only $2500.00. We are not talking big bucks here to open, but big rate based on where you live. So, if I live next door to this neighborhood, I cannot get the higher APY, even though I am depositing the same amount.

I think they should name the account the "kick me" account and each member of marketing should wear the "pin" just above the waist on their back.

I hope the person living next door asking for the rate is not a member of a protected class.

Good luck.


Al

IMO

By doing this you are setting yourself up for disaster. Especially if the target neighborhood is only one Race/Ethnicity or is a majority of one Race/Ethnicity, which I would bet that it is. But that is just my opinion. If it was me, I would take this to the appropriate committee for there approval, but keep them informed of the consequences. If they think the gains outweigh the consequences, then so be it, it is their decision.

But I do think there are definite discrimination charges that will be filed and probably you will be on the news or in the paper, but hey thats free advertising.

Thanks for the input, Al and Noah--I wholeheartedly agree with you both. That is why I was looking for some specific regulatory info to back up the premise that this would create the preception of "discrimination"; but there is apparently nothing in the deposit regs which address this, and that is what mgmt wanted to know.

It is really these types of action by banks that breed further regulations. There is a reputation risk here also, I can just see the headlines:

XYZ bank pays double the rate on deposits to gated community.

Film at six.

One other thing, you may want to check your primary regulator's regulations. If you are an OCC bank, and an bank employee, officer or director lives in the gated community, you cannot pay them a higher rate than offered to the general public.

12 USC 376 states that:

"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." (Rather short and to the point.)

That cite from 12 USC 376 applies to state-chartered Fed-member banks, too.