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(a) Section 19(i) of the
Federal Reserve Act and Sec. 217.3 of Regulation Q prohibits a member
bank from paying interest on a demand deposit. Premiums, whether in
the form of merchandise, credit, or cash, given by a member bank to a
depositor will be regarded as an advertising or promotional expense
rather than a payment of interest if:
1) The premium is given to a depositor only at the time of
the opening of a new account or an addition to, or renewal of, an
existing account;
2) No more than two premiums per account are given within a
12-month period; and
(3) The value of the premium or, in the case, of articles of
merchandise, the total cost (including taxes, shipping, warehousing,
packaging, and handling costs) does not exceed $10 for deposits of
less than $5,000 or $20 for deposits of $5,000 or more.
The costs of premiums may not be averaged. The member bank should
retain sufficient supporting documentation showing that the total cost
of a premium, including shipping, warehousing, packaging, and handling
costs, does not exceed the applicable $10/$20 limitations and that no
portion of the total cost of any premium has been attributed to
development, advertising, promotional, or other expenses. A member
bank is not permitted directly or indirectly to solicit or promote
deposits from customers on the basis that the funds will be divided
into more than one account by the institution for the purpose of
providing more than two premiums per deposit within a 12-month period.
(b) Notwithstanding paragraph (a) of this section, any premium that is
not, directly or indirectly, related to or dependent on the balance in
a demand deposit account and the duration of the account balance shall
not be considered the payment of interest on a demand deposit account
and shall not be subject to the limitations in paragraph (a) of this
section.
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