Alert November 23, 2010

FDIC Approves Temporary Unlimited Deposit Insurance Coverage for Noninterest-Bearing Transaction Accounts

The FDIC approved a final rule (the “Final Rule”) implementing Section 343 of the Dodd‑Frank Wall Street Reform and Consumer Protection Act which provides temporary unlimited deposit insurance for noninterest-bearing transaction accounts and requires banks to notify their customers about any changes to the insurance coverage on their accounts.  In the Final Rule, the FDIC creates a new category of deposit insurance for noninterest‑bearing transaction accounts that is separate from, and is in addition to, coverage provided for other bank accounts.  This new category of insurance is similar to the FDIC’s Transaction Account Guarantee Program, which expires December 31, 2010, but differs significantly in the definition of “noninterest-bearing transaction account” in that it includes no interest-bearing accounts and therefore excludes IOLTA and NOW accounts (regardless of the interest rate paid on the account).  The Final Rule includes new disclosures that require banks to (1) post notices in their branches and on their websites about the new program, (2) inform customers with IOLTA and NOW accounts that such accounts will no longer be covered by unlimited deposit insurance upon the expiration of the Transaction Account Guarantee Program, and (3) notify customers of actions that affect the insurance coverage of funds held in noninterest-bearing transaction accounts.  The FDIC pointed out that IOLTAs may, nonetheless, qualify for “pass through” deposit insurance coverage so that each client for whom a law firm holds funds in an IOLTA may be insured up to $250,000 for his or her funds.  The Final Rule is effective on December 31, 2010 and expires on December 31, 2012.