Topic: Deposit Insurance Coverage
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Can we convert a NOW account to an interest bearing demand deposit account?
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Yes, we believe that you can convert a NOW account to an interest bearing demand deposit account. We are not aware of any prohibition on converting from one account type to another (including business accounts in the wake of Dodd-Frank’s elimination of Regulation Q’s prohibition on paying interest on commercial deposit accounts). However, you are…
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We have a large business customer (ABC Group) that would like to open non-interest bearing escrow accounts for its clients without giving us the clients’ W-9 forms. Can we do that? If so, should we use the customer’s tax identification number (TIN) to open the accounts and title the accounts as ABC Group, agent for John Doe Client? Can the customer sign one master signature card for all the escrow accounts?
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Yes, we believe you may open the escrow accounts without requiring the TIN of your customer’s clients. The Customer Identification Program (CIP) rules require the customer’s TIN. Through interagency guidance, the federal banking regulators have clarified that the person establishing the escrow account is the customer for CIP purposes. Consequently, we believe it is appropriate…
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For our portfolio consumer mortgage loans, when borrowers receive insurance claim checks, we deposit the checks into escrow accounts from which we disburse funds directly to repair contractors. How should we set up these accounts? Currently, we set them up as savings accounts under the customer’s name, with our bank listed as the custodian. This creates some issues, because when we search our accounts in response to a subpoena or levy or for unpaid child support data matching, these accounts will be listed under the customer’s name, even though the funds in these accounts technically don’t belong to the customer. Should we instead set up the accounts using our bank’s TIN? Should they be deposit or savings accounts?
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We recommend reviewing your mortgage notes and related documents, which may specify your bank’s obligations as to insurance claim proceeds. For example, the Fannie Mae standard note states that the lender is not required to pay interest on property insurance claim proceeds. If your bank’s mortgage notes or other agreements include similar language, then your…
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We are opening a new branch and have limited room on the outdoor sign that will identify the branch. On the sign, can we shorten our bank name by removing one word – using “XYZ Bank” instead of our full name, which is “XYZ Community Bank”?
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Yes, we believe that you may display a shortened (but still identifiable) version of your bank name on an outdoor sign. In our view, omitting the word “Community” from the bank name should not create customer confusion. State and federal guidances require reasonable steps to avoid customer confusion when a bank uses a name other…
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We have a business customer that operates a farm management limited liability company. The company receives lots of checks payable to its clients that it would like to deposit, so the company wants to open a “for the benefit of” (FBO) account for each client. The clients would have no authority on the accounts, and would sign a limited power of attorney giving the company permission to deposit checks made out to them. Is this compliant with Illinois laws? Also, does the designation “FBO” have any bearing on the account itself?
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We are not aware of any Illinois law that expressly relates to the “FBO” designation for deposit accounts. However, this designation is relatively common, and in similar situations, some banks do choose to add the FBO designation to the account title for various reasons. The FBO designation is relevant in determining whether an account is…
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In late 2012, we posted a notice in our bank lobby that the FDIC’s temporary unlimited coverage for noninterest-bearing transaction account deposits would expire on December 31, 2012, and that effective January 1, 2013, such accounts would no longer be insured by the FDIC as a separate ownership category, but would be insured to the legal maximum of $250,000 for each ownership category. Do we need to keep this notice posted?
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No, we do not believe you need to continue to post the notice. In November 2012, the FDIC urged banks to provide depositors “adequate advance notice in writing” that the temporary unlimited coverage for noninterest-bearing transaction account deposits would expire on December 31, 2012. Notice was not required by a specific law or regulation. The…
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We have two customers, both of which are owned by the same holding company, with separate EINs. If we hold CDs for both corporations, will they be separately insured? We’re concerned that this arrangement does not pass the “independent activity” test.
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If the two corporations are operated for any purpose other than simply to increase deposit insurance, their CDs will be separately insured. The “independent activity” test hinges on whether separate entities are “operated primarily for some purpose other than to increase deposit insurance.” As noted in FDIC Advisory Opinions, the fact that two corporations are…
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We are converting several branches from one bank to a second bank within our holding company. We have already mailed booklets explaining the change to affected customers, and the conversion will take place in about two weeks. Do you see any issues with a television commercial highlighting the branches as part of the second bank if it will start running before the conversion takes place?
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No, we do not believe that running the television commercial before the conversion takes place will create any issues, particularly because the affected customers already have received notification of the branch changes. We do recommend reviewing the Interagency Statement on Branch Names, which provides guidance for banks that are using one or more trade names…
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Is there still a $10 limit on premiums offered when someone opens a deposit account? When do I need to issue a Form 1099?
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We are not aware of any limits on the premiums paid to customers on account opening. There are references to bonuses of $10 or more in the Truth in Savings Act advertising requirements, the FDIC’s deposit insurance regulations, and the IRS Form 1099 requirements, but those provisions do not place any limitations on account opening…