• Final Amended Rule Extending Transaction Account Guarantee Program
  • September 10, 2009 | Authors: Timothy M. Sullivan; Mark F. Palma; Michael D. Morehead
  • Law Firms: Hinshaw & Culbertson LLP - Chicago Office; Hinshaw & Culbertson LLP - Minneapolis Office; Hinshaw & Culbertson LLP - Chicago Office; Hinshaw & Culbertson LLP - Springfield Office
  • On August 26, 2009, the Federal Deposit Insurance Corporation (FDIC) adopted a Final Rule that extends and modifies the Transaction Account Guarantee Program (TAGP). The TAGP is one of two components of the Temporary Liquidity Guarantee Program (TLGP), which was enacted in November 2008 and provides a temporary full insurance guarantee by the FDIC of funds held in non-interest bearing accounts above the current $250,000 limit. Under the original provision of the TAGP, the FDIC insurance guarantee for non-interest bearing accounts was scheduled to terminate on December 31, 2009. The amended Final Rule now extends the FDIC insurance guarantee for qualifying non-interest bearing accounts until June 30, 2010 and modifies the fees that will be assessed to participating insured depository institutions. The Final Rule becomes effective on October 1, 2009.

    Executive Summary
    Some of the highlights of the amended Final Rule are set forth below.

    General

    • The amended Final Rule will extend the TAGP for an additional six-month period until June 30, 2010
    • The insurance guarantee for qualifying non-interest bearing accounts is in addition to and separate from the coverage provided under the FDIC general deposit insurance regulations
    • Participating insured depository institutions will be required to pay an increased quarterly fee based upon their respective Risk Category rating in a range of between 15 and 25 basis points on their deposits in qualifying non-interest bearing transaction accounts
    • Participating insured depository institutions will be provided a one-time, non-revocable opportunity to opt out of the TAGP

    Participating Insured Depository Institution
    A “participating insured depository institution” is an insured depository institution that previously elected to participate in, or did not previously opt out from on or before December 5, 2008, the current TAGP, and those insured depository institutions that became eligible and were allowed to participate by the FDIC after December 5, 2008. After January 1, 2010, a “participating insured institution” will not include those insured depository institutions that elect to opt out of the TAGP, as provided under the provisions of the amended Final Rule.

    Covered Accounts
    Non-interest bearing transactional accounts that are provided guaranteed insurance coverage under the amended final rule are the same as previously identified under the original TAGP rule A “non-interest bearing transaction account” is a transaction account (that allows for an unlimited number of deposits and withdrawals at any time) with respect to which interest is neither accrued nor paid, and on which the insured depository institution does not reserve the right to require advance notice of an intended withdrawal. This definition encompasses: (i) traditional demand deposit checking accounts that allow for an unlimited number of deposits and withdrawals at any time; and (ii) payment-processing accounts, such as payroll accounts, used by an insured depository institution’s business customers.

    Interest bearing lawyers trust accounts, generally referred to as IOLTA accounts, are deemed to be non-interest bearing accounts covered by the guarantee. NOW accounts that have an interest rate at or below .5 percent will be considered non-interest bearing and be covered by the guarantee provided that the participating eligible entity has committed to keep the rate below .5 percent. Account features (such as fee waivers or fee-reducing credits) do not prevent an account from qualifying under TAGP as long as the account otherwise fits within the definition. The determination of whether an account is non-interest bearing will be based on the account agreement, not whether interest accrues on an account’s deposits.

    Although coverage is intended primarily to apply to business transaction accounts, it applies to all such accounts held by any depositor at the same institution. For example, if a consumer has a $250,000 certificate of deposit and a non-interest bearing checking account for $50,000 (assuming that the depositor has no other funds at the institutions), he or she would be fully insured for $300,000. Coverage of $250,000 will be provided for the certificate of deposit under the FDIC’s deposit insurance coverage. Coverage of the $50,000 checking account would be provided under the TAGP.

    Sweep Accounts
    The FDIC will treat funds in sweep accounts in accordance with its rules and procedures for determining sweep balances at a failed depository institution. Funds which are swept or transferred from a non-interest bearing transaction account to another type of deposit or non-deposit account will be treated as being in the account to which the funds were transferred as of the close of the business day.

    Funds swept from a non-interest bearing transaction account to a non-interest bearing savings account will be treated as being in a non-interest bearing transaction account and will be guaranteed under the TAGP. If cash in a non-interest bearing deposit account is swept into an interest bearing account during the day (before the close of business), the funds in the interest bearing account will not be insured.

    If the institution uses sweep arrangements or takes other actions that result in funds in a non-interest bearing transaction account being transferred to or reclassified as an interest bearing account or a non-transaction account, this must be disclosed to affected customers and they must be advised in writing that such actions will void the transaction account guarantee. The FDIC has not provided sample disclosures for sweep accounts because these arrangements vary widely between institutions. But the disclosure is required to be accurate, clear and in writing.

    Opt-Out Option
    An insured depository institution that is currently participating in the TAGP may elect to opt out of the TAGP. The election to opt out will become effective on January 1, 2010. The process of opting out from the TAGP will require the insured depository institution to submit an e-mail message to [email protected] indicating the election to opt out from the TAGP no later than 11:59 p.m. Eastern Standard Time on November 2, 2009. The e-mail transmission must include a subject line that includes the phrase “TLGP Election to Opt Out – Cert Number _____.”

    The opt out e-mail must also include: the institution’s name, complete full address and FDIC Certificate Number; the identification of an institution contact party, including his or her complete name, phone number and e-mail address; a statement that the institution is electing to opt out from the extended TAGP effective on January 1, 2010; and a statement that the institution will post a prominent notice in each office and branch and on its website that advises that funds held in non-interest bearing accounts will no longer be guaranteed in full under the TAGP, but will continue to be insured up to the general $250,000 insurance limit. The Final Rule includes a sample disclosure statement that may be used.

    Once made, the decision by an institution to opt out from the TAGP will be final and non-revocable. Similarly, the decision to continue to participate in the TAGP through June 30, 2010, will be final and non-revocable after November 2, 2009.

    Increased Assessment
    Under the current TAGP, participating depository institutions are required to pay assessed fees in the amount of 10 basis points for all deposits held in non-interest bearing accounts above the general $250,000 FDIC insurance limit. A participating insured depository institution that elects to continue participation in the TAGP after January 1, 2010, will be subject to an increase in the TAGP assessed fees.

    The increased fee for participation in the TAGP after January 1, 2010, will be calculated and assessed on a quarterly basis. Those participating insured depository institutions that have been assigned to Risk Category I will be charged an annualized fee of 15 basis points on their deposits in non-interest bearing transaction accounts for that particular quarter. For those participating institutions that have been assigned to Risk Category II, the fee will be 20 basis points on their deposits in non-interest bearing transaction accounts. Institutions that are assigned to Risk Categories III and IV will be assessed an annualized fee of 25 basis points on their deposits in non-interest bearing transaction accounts.

    The FDIC will continue to collect the assessed fees quarterly in the same manner as conducted under the original TAGP rules. The assessed fees will continue to apply only to those amounts that exceed the existing deposit insurance limit of $250,000.

    Participation Disclosure Statement
    Insured depository institutions that elect to continue participation in the TAGP will be required to continue to post a prominent notice in each of their banking locations. If such an institution offers internet deposit services on its website, the institution must advise depositors that it is participating in the TAGP and that funds held in non-interest-berating transaction accounts are guaranteed in full by the FDIC. A sample of an acceptable disclosure statement is available on the FDIC’s website.

    Non-Participation Disclosure Statement
    Insured depository institutions that previously elected not to participate in the TAGP prior to December 5, 2008, are also required to continue to post a prominent notice in each of their banking locations. If such an institution offers internet deposit services on its website, the institution must advise depositors that it is not participating in the TAGP and that funds held in non-interest bearing transaction accounts are not guaranteed in full by the FDIC, but that the funds are insured up to the maximum insurance limit of $250,000 as provided under the general FDIC insurance regulations. A sample of an acceptable non-participation disclosure statement is available at the FDIC’s website.