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Why Can't Corporations Have NOW Accounts?

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Why can corporations have money market accounts but not NOW accounts?

NOW accounts were started in the 1970s by a savings bank in Massachusetts that found a loophole in state law that allowed it to open savings accounts with check-like access (using Negotiable Orders of Withdrawal - NOWs). At the time, savings banks did not offer checking accounts, and their customer base was almost exclusively made up of consumers. When the accounts proved popular and federal legislation was needed to authorize them outside of Massachusetts and New England, Congress formalized the connection with consumers by restricting their ownership to consumers. Lobbyists convinced Congress to include provisions in the law that would permit NOW ownership by non-profit organizations, and units of domestic government. The Federal Reserve Board later issued Section 204.130 to interpret the law with added specificity.

One of the bank practices that was perceived as a major contributor to the record bank failures of the 1930s was the payment of interest on demand deposits, primarily to businesses. That perception led Congress to ban the payment of interest on demand deposits and played a large role in Congressional thinking when legislation authorizing NOW accounts nationwide was passed in 1980. When Congress dropped the ban on demand deposit interest as part of the Dodd-Frank Act, it left the restrictions on NOW account ownership in place.

First published on 1/14/13

First published on 01/14/2013

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