Now Account Owned by LLC - Options & Penalties

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Question:

We have a large LLC Customer who has a Now account. It was supposed to be changed when noticed at our last Compliance exam. I hate to bother this very large account, with a low interest rate and move him into a higher rate Money Market Account. What are the options and penalties?

Answer:

The stated penalty in the law is a fine of up to $1,000 per violation for allowing a non-qualified depositor to hold a NOW account. [12 USC 1832(c)) You can offer this customer a combination of a demand deposit account for transactions and a savings account or MMDA for excess funds. If you are geared up for it, you can offer a sweep to and from a non-deposit investment product, such as a Repurchase Agreement, for excess funds.

First published on BankersOnline.com 1/29/07