IBA Compliance Connection

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We have a customer who would like to convert his business checking account into an interest-bearing account. Is this possible? Also, are businesses still prohibited from earning interest in a NOW account?

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Yes, we believe that you can convert a business checking account into an interest-bearing demand deposit account. The Dodd-Frank Act eliminated Regulation Q’s prohibition on paying interest on commercial deposit accounts, and we are not aware of any prohibition on converting from one account type to another.

However, for-profit businesses generally are prohibited from opening NOW accounts, since they do not meet the criteria for NOW account eligibility. The rules governing the types of entities were not amended by the Dodd-Frank Act, and they limit NOW account customers to individuals, nonprofit organizations, governmental units, funds held in a fiduciary capacity, and certain nonqualifying entities that opened their accounts before August 31, 1981.

Thus, while you may convert a business checking account into an interest-bearing demand deposit account, you likely cannot convert it into a NOW account unless your customer meets the specified criteria.

For resources related to our guidance, please see:

  • Final Rule, 76 Fed. Reg. 41392, 41392 (July 14, 2011) (“The FDIC is issuing a final rule amending its regulations to reflect section 627 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the DFA), repealing the prohibition against the payment of interest on demand deposit accounts effective July 21, 2011.”)
  • Regulation DD, 12 CFR 1030.4(a)(1)(i) (“A depository institution shall provide account disclosures to a consumer before an account is opened or a service is provided, whichever is earlier. An institution is deemed to have provided a service when a fee required to be disclosed is assessed. Except as provided in paragraph (a)(1)(ii) of this section, if the consumer is not present at the institution when the account is opened or the service is provided and has not already received the disclosures, the institution shall mail or deliver the disclosures no later than 10 business days after the account is opened or the service is provided, whichever is earlier.”)