Deposit Insurance Notice Requirement on Demand Deposit Account Interest

6/9/2011

By Fran Sponsler, CRCM, CAMS, CCBCO

On May 25, 2011, the Federal Deposit Insurance Corporation issued a Financial Institution Letter, FIL-38-2011, which outlines a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act that will allow an insured depository institution to pay interest on demand deposit accounts (DDAs) beginning July 21, 2011. Under a separate section of the Dodd-Frank Act, the FDIC provides unlimited deposit insurance for non-interest bearing transaction account through December 31, 2012.

The intent of FIL-38-2011 is to inform insured financial institutions (IDIs) that if on or after July 21, 2011, the institution begins paying interest on DDAs, the IDI must notify affected customers that the account will no longer be eligible for unlimited deposit insurance coverage as a non-interest bearing account.

Statement of Applicability to Institutions under $1 Billion in Total Assets: This FIL applies to all FDIC-insured institutions, including community banks.

Highlights of the FIL:

• Section 343 of the Dodd-Frank Act provides unlimited insurance coverage for non-interest bearing transaction account at all IDIs from December 31, 2010 through December 31, 2012.
• Section 627 of the Dodd-Frank Act permits IDIs to pay interest on DDAs beginning on July 21, 2011.
• If on or after July 21, 2011, an IDI modifies the terms of a DDA so that the account pays interest, the IDI must notify affected customers that the account will no longer be eligible for unlimited deposit insurance coverage as a non-interest bearing transaction account.
• This notice requirement does not apply to DDAs modified after December 31, 2012. As of January 1, 2013, non-interest bearing transaction accounts are insured subject to the standard maximum deposit insurance amount of $250,000.

For more information FIL-38-2011 visit: http://www.fdic.gov/news/news/financial/2011/fil11038.html