Refer a Friend

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Question:

We are in the process of developing a Refer-a-Friend program whereby we would pay a "commission" to our customers if they referred new business to us. The regulations state that banks are restricted as to how much they can pay as a bonus for new deposit accounts. However, our program will pay the referrer, and not the new depositor/new loan account owner.Does the Regulation Q apply to the referrer? The rules are somewhat cloudy. We know we would have to send the referrer a 1099 at year end, if payments exceeded $600 for the year. What other issues do we need to worry about?

Answer:

Regulation Q doesn’t apply because you’re not paying the new customer for his or her deposit or loan. The regulation has nothing to do with loans, anyhow. As you have said, you are paying the referring party. You should review how you plan to refrain from divulging non-public customer information when paying the incentives (Privacy requirements), and conform to the IRS rules on reporting non-employee compensation (on form 1099-MISC).

First published on BankersOnline.com 8/17/09