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4000 - Advisory Opinions
Whether ATM Promotion Constitutes Payment of Interest on Demand
Deposits in Violation of 12 C.F.R. §329
FDIC-91-19
March 13, 1991
Jeffrey M. Kopchik, Counsel
This is in response to your letter of February 7, 1991.
It is my understanding from your letter that *** ("***") is a
state-chartered bank which serves numerous rural communities in South
Carolina. ***, as well as most other financial institutions located in
South Carolina, belongs to the Relay automated teller machine
("ATM") network. In an effort to encourage people to utilize a
newly-installed *** ATM which is part of the Relay network, *** would
like to mail a brochure to each household in the relevant geographic
area. This brochure would contain a coupon worth $5 which would be
redeemable at the *** in that community. In order to redeem the coupon,
an individual would be required to use the new ATM to withdraw cash or
check his/her balance five
{{8-16-91 p.4534}}times within a certain six month
period. The individual would then present the coupon along with the
five ATM receipts (all from the same account) at the designated ***
branch in order to receive the $5. *** would distribute a maximum of $5
per account holder. All holders of Relay ATM cards who receive the
brochure would be eligible to cash the coupon, even if they do not
maintain an account with ***.
Your letter points out that some financial institutions which belong
to the Relay ATM network charge their customers a $1 transaction fee
for using a "foreign" ATM. You also point out that *** charges
some of its customers (e.g., those that do not maintain a certain
minimum balance in their account) a $1 transaction fee for using an ***
ATM. In these cases, redemption of the *** coupon would reimburse
customers for the transaction fees they will incur in utilizing the
ATM.
You have inquired as to whether this promotion would constitute the
unlawful paying of interest on demand deposits in violation of Federal
Deposit Insurance Corporation ("FDIC") regulations, Part 329. 12
C.F.R. 329.
Section 329.1(c) of the FDIC's regulations defines interest as
"any payment to or for the account of any depositor as
compensation for the use of funds constituting a deposit. A bank's
absorption of expenses incident to providing a normal banking function
or its forbearance from charging a fee in connection with such a
service is not considered a payment of interest." (Emphasis added)
The interpretive rule contained in section 329.103 describes certain
payments, referred to as "premiums", which are not deemed to be
"interest" as defined in section 329.1(c).
In analyzing the circumstances set forth in your letter, it is
necessary to distinguish between the three different categories of
individuals who would be eligible to cash the coupon: customers of
other banks, *** customers who pay a fee to use the *** ATM and ***
customers who do not pay a fee to use the *** ATM. In the first case,
it is my opinion that $5 paid by *** to the customer of another
financial institution for using an *** ATM does not constitute the
payment of interest on a demand deposit in violation of Part 329.
Simply put, *** cannot pay interest on an account maintained at another
financial institution. Second, with regard to ***'s customers, it is
clear from the facts as described in your letter that the $5 payment to
them is not "compensation for the use of funds constituting a
deposit." Rather, this payment is a permissible promotion designed
to encourage customers to use a newly-installed ATM. For example, in
the case of two *** customers, each with identical accounts and account
balances, whether or not they receive the $5 payment is entirely
dependent on whether or not they utilize the new ATM five times during
the designated period of time. 1
My opinion is based upon the facts recited above. If any of these
facts should change, my opinion may also change. I trust that this
letter is responsive to your
request.
1I should also point out that the $5 payment is well within the
restrictions imposed by section 329.103(a)(3) concerning permissible
premiums. Also, for *** customers who are charged a $1 transaction fee
each time they utilize an ATM, ***'s reimbursement of those fees may
constitute the "absorption of expenses incident to providing a
normal banking function. . ." as described in section 329.1(c). Go Back to Text
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