The FDIC has approved a final rule to implement provisions of the Dodd-Frank Act to provide temporary unlimited coverage for noninterest-bearing transaction accounts. The final rule adopted on November 9 provides that separate, unlimited coverage for qualifying accounts will become effective on December 31, 2010, and will end on December 31, 2012. As of the effective date, all funds held in noninterest-bearing transaction accounts will be fully insured, without limit. This coverage is separate from, and in addition to, the coverage provided to depositors for other accounts at an insured depository institution. The final rule includes notice and disclosure requirements that all insured depository institutions must implement by December 31, 2010. Insured depository institutions will be required to post a prescribed notice in their main office, each branch and, if applicable, on their Web site. In addition, any institution that currently participates in the Transaction Account Guarantee Program must notify NOW (negotiable order of withdrawal) account depositors and IOLTA (Interest on Lawyer Trust Accounts) depositors that, beginning January 1, 2011, those accounts no longer will be eligible for unlimited protection. Institutions must also notify customers individually of any action they take that affects the deposit insurance coverage of funds held in noninterest-bearing transaction accounts.
Notes: The FDIC’s current Transaction Account Guarantee Program expires December 31, 2010. The new temporary provision for unlimited coverage of deposit insurance for noninterest-bearing transaction accounts is similar to the Transaction Account Guarantee Program but differs significantly in the definition of “noninterest-bearing transaction account.” The Transaction Account Guarantee Program includes low-interest NOW and IOLTA accounts. Noninterest-bearing accounts, as defined in the Dodd-Frank Act, include only traditional, noninterest-bearing demand deposit accounts that allow for an unlimited number of transfers and withdrawals at any time, whether held by a business, individual or other type of depositor. The final rule expressly states that NOW and IOLTA accounts are not covered under the Dodd-Frank Act definition of noninterest-bearing transaction accounts and do not qualify for temporary unlimited coverage. Under the Transaction Account Guarantee Program, institutions could choose whether to participate in the additional coverage, but the Dodd-Frank Act does not permit institutions to opt-out of the new coverage for noninterest-bearing transaction accounts. The FDIC will not charge a separate assessment for the insurance of noninterest-bearing transaction accounts required by the Dodd-Frank Act. The FDIC had imposed a separate assessment on institutions that participated in the Transaction Account Guarantee Program.