The FDIC has proposed a rule to implement provisions of the Dodd-Frank Act to provide depositors at all FDIC-insured institutions temporary, unlimited deposit insurance coverage on noninterest-bearing transaction accounts from December 31, 2010 through December 31, 2012. Under the proposal approved on September 27, the FDIC will create a new, temporary deposit insurance category for noninterest-bearing transaction accounts. The proposed temporary unlimited coverage for noninterest-bearing transaction accounts under the Dodd-Frank Act is similar to the protection for certain transaction accounts under the FDIC’s voluntary Transaction Account Guarantee (TAG) Program, but differs from the TAG Program in three significant ways. First, unlike the TAG program, the Dodd-Frank Act provisions apply coverage to all insured depository institutions. Institutions will not be required to opt-in to obtain coverage provided under the proposed rule. Second, there is no separate FDIC assessment or premium for the insurance of noninterest-bearing transaction accounts under the proposed rule. Third, the proposed rule covers only traditional noninterest-bearing deposits or checking accounts. The Dodd-Frank Act provisions do not include low interest consumer checking accounts (i.e., NOW accounts) or interest on lawyer trust accounts (IOLTAs), which are currently covered under the TAG Program. The FDIC will be accepting comments on the proposed rule through October 15, 2010.

Nutter Notes: The TAG Program will expire at the end of 2010. Starting on January 1, 2011, low-interest consumer checking accounts and IOLTAs will no longer be eligible for the unlimited guarantee. The proposed rule requires insured depository institutions to provide notice and disclosures to ensure that depositors are aware of and understand the types of accounts that will be covered by this temporary deposit insurance coverage. The disclosure requirements in the proposed rule are designed to emphasize the differences in coverage between the current TAG Program and the coverage provided by the Dodd-Frank Act provisions. To comply with the disclosure and notification requirements, each FDIC-insured depository institution must post a notice in its main office, each branch office and, if applicable, on its website. That posting will explain the Dodd-Frank unlimited 2-year coverage for noninterest-bearing transaction accounts and indicate the types of accounts eligible for that coverage. Depository institutions currently participating in the FDIC’s TAG Program must notify customers currently covered by the TAG Program that, beginning January 1, 2011, low-interest checking accounts and IOLTAs no longer will be eligible for the unlimited guarantee. Finally, depository institutions must notify customers individually of any action they take that will affect the deposit insurance coverage of funds held in noninterest-bearing transaction accounts.