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Prohibiting Benefits for Good (Director) Customers

Is there any problem if we waive wire transfer fees for directors or their related interest? Also, if we pay a higher interest rate on a certificate of a director, is there a problem? The directors are good customers and keep high balances in their deposit accounts. The fee waiver and rate bump are because they are good customers, not because they are directors (all directors are not given the reduced fees and better rate). I hate to penalize a director for being a director.

Answer by Andy Zavoina: As to the interest rate, refer to 12 USC 376, "[Federal Reserve Act, Sec. 22] 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."

Certainly, you can waive fees. These waivers wouldn't be Reg. O violations, but having comparable transactions that show similar waivers for noninsiders removes doubts as to loose ethics and preferential treatment of insiders. Verify there are no problems as this relates to ethics and Sarbanes-Oxley policies you may have.


Answer by John Burnett: The key appears to be that you can only reward a director with a higher rate on a deposit if you would make a similar reward to a similarly-situated depositor who is not a director, officer, attorney or employee of your bank.


Answer by Ken Golliher: And if you say that you would, it is relatively easy for any outside evaluator to check to see if you do. Do not make a claim you cannot defend. Directors are paid to represent the interests of the shareholders and self dealing is not an entitlement.

First published on 10/4/04

First published on 10/04/2004

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