Reg Q On Its Way Out...
Posted by Anthony Demangone
The Federal Reserve has issued a proposal to repeal Regulation Q.   What is Regulation Q?  It is the source of many a wild-goose chase, especially for compliance officers who move into federal credit unions from banks.  Let me explain.
Regulation Q, in its current form, generally prohibits banks that are members of the Federal Reserve System from paying interest on their demand accounts. Â As you might expect, Regulation Q is a complicated regulation in that it doesn't apply to many things that look like a demand account. Â But you'll still hear comments like the following:
- I'm pretty sure we can't pay dividends on business accounts?
- I'm pretty sure we can't pay dividends on checking accounts?Â
- I'm pretty sure we can't pay dividends on business checking accounts.Â
The Fed's proposal will erase Regulation Q. Â But it doesn't change anything for us. Â
Federal credit unions clearly have the right to pay dividends on member share draft accounts. Read this NCUA legal opinion for all the gory details.Â
I will say this, though. Â The eventual repeal of Regulation Q might have an affect on how banks structure or market their transaction accounts. Â And that could change things in your local market, or it might generate questions from members who read articles or columns about the changes in your local newspaper.
***
 