6/9/08

Karl Leslie Senior and Lead Attorney for Deposit, Wolters Kluwer Financial Services

Some financial institutions offer an account known as a “Rewards” checking account. These accounts typically provide for the payment of interest based on certain conditions and are set up in a non-traditional tier-like manner. The “tiers” generally pay higher-than-market interest rates when certain transaction levels or conditions are met. For example, the higher rate may be paid if a certain number of debit card transactions are made or if the account owner uses an automated bill pay service.

Last year, through the Supervisory Compliance Advisory and Notification System (SCANS), the FDIC issued a bulletin (Bulletin Number: CHIRO-05-2007) warning about certain practices with regards to these types of accounts. Specifically, the FDIC said that, while financial institutions can pay a higher rate of interest for meeting these types of transaction requirements, they “may not completely eliminate the payment of interest on interest bearing accounts for not meeting these specific requirements.” In other words, some rate of interest must still be paid even if the transaction requirements are not met. To do otherwise would be a violation of Regulation DD, the bulletin concluded. The bulletin provided similar warnings for requiring transactions to be of a specified dollar amount ($100 or more, for example).

The bulletin goes on to state that examiners have cited violations of Regulation DD for failure to comply with the above restrictions. As a result, financial institutions offering these types of accounts may want to review their programs to ensure they are complying with Truth in Savings.

The Practical Guide to Bank Compliance can help you research and answer your Truth in Savings compliance questions.

Stay current on the latest compliance updates with the ComplianceHeadquarters site alert email.