Our bank does not offer a business checking account that pays interest. However, we would like to create a checking account that pays monthly interest for a commercial customer that is a property manager. Are there any restrictions we need to be aware of, and would we need to offer this product to other customers? The customer would open separate accounts for the various properties it manages and would be holding funds related to the properties.

We are not aware of any Illinois or federal law prohibiting a bank from offering higher deposit interest rates to a particular business customer, provided that the customer is not a bank insider. The Dodd-Frank Act removed the prohibition on paying interest on ordinary demand deposit accounts held by businesses, and since this commercial customer is not a “director, officer, attorney, or employee” of the bank, we believe you may create an interest-bearing checking account for this customer.

We should note generally that, in the context of lending, when a bank offers preferential terms to one group of customers and not to other customers, there could be the potential for fair lending concerns if some of the latter are in a protected class. However, here we are talking about deposit accounts and not loans. Moreover, your bank is negotiating specific terms with a single customer, not a class of customers. Accordingly, while you always should be sensitive to the unintended consequences of disparate impact on your other customers when offering specific terms for banking services to a select few, we think the likelihood of this situation being scrutinized for disparate impact as being extremely remote.

If you are interested in a general review of disparate impact, the FFIEC Interagency Fair Lending Procedures include a helpful explanation of the disparate impact concept and how institutions can mitigate the risks of a disparate impact finding. Notably, the FFIEC procedures state that a policy resulting in a disparate impact can be justified by a “business necessity,” with documentation of any factors that went into deciding the policy.

For resources related to our guidance, please see:

Federal Reserve Act, 12 USC 376 (“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.”)

FDIC Final Rule, Interest on Deposits, 76 Fed. Reg. 41392 (July 14, 2011) (“Section 627 of the DFA repealed the statutory prohibition against the payment of interest on demand deposits, effective one year from the date of the DFA’s enactment, July 21, 2011.”)

Equal Credit Opportunity Act, 15 USC 1691 (“It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); (2) because all or part of the applicant’s income derives from any public assistance program; or (3) because the applicant has in good faith exercised any right under this chapter.”)

Equal Credit Opportunity Act, 15 USC 1691a(d) (“The term ‘credit’ means the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor.”)

FFIEC Interagency Fair Lending Procedures, page iv (“When a lender applies a racially or otherwise neutral policy or practice equally to all credit applicants, but the policy or practice disproportionately excludes or burdens certain persons on a prohibited basis, the policy or practice is described as having a ‘disparate impact.’ . . . The fact that a policy or practice creates a disparity on a prohibited basis is not alone proof of a violation. When an Agency finds that a lender’s policy or practice has a disparate impact, the next step is to seek to determine whether the policy or practice is justified by ‘business necessity.’ The justification must be manifest and may not be hypothetical or speculative. Factors that may be relevant to the justification could include cost and profitability. Even if a policy or practice that has a disparate impact on a prohibited basis can be justified by business necessity, it still may be found to be in violation if an alternative policy or practice could serve the same purpose with less discriminatory effect.”)