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Reg O: Waive Service Charge for Excess Withdrawals

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Is it a violation of Reg O to waive the service charge for excess withdrawals on a money market account owned by an executive officer? The excess withdrawals were inadvertent, not a practice.

Normally deposits are not impacted by Reg. O which largely addresses preferential loan treatments. But if an examiner were to stretch this they could say that the fee waivers increased the interest and that violated 12 U.S.C. Sec. 376 Rate of interest paid to directors, etc. I wouldn't necessarily agree with that, but I could see it happening.

Sec. 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.

While I think on a very isolated basis it may be OK, you would be showing preferential treatment and that doesn't look good. I would only view this as reasonable if you could show that similar waivers have been done on non-insiders. And this would not relieve you of any Reg. D limitations if this happens again and again in a 12-month period.

First published on 08/29/05

First published on 08/29/2005

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