Another community bank is being forced by the FDIC to slash its reward checking rate. First Bank of Clewiston, FL notified its customers of the rate cut and the reason behind it. The bank also posted the letter on its website. Below is a copy of the letter:
As part of their response to the economic downturn, the FDIC has placed interest rate restrictions on many banks preventing them from paying interest on deposit accounts that are significantly higher than the markets they serve. Until recently, this has not been an issue for First Bank, with the exception of our Kasasa Cash deposit account. We have been in continued discussion with the FDIC maintaining that Kasasa Cash is a different type of deposit account and it should only be compared to similar accounts, not to regular interest bearing checking accounts. Unfortunately, our substantial efforts and appeals have been unable to convince the FDIC and we must adjust the rate paid on Kasasa Cash to be in line with other interest bearing checking accounts in the Southwest Florida market. As of March 1st, the rate on Kasasa Cash will be .76%, which is the maximum allowable in our market where some checking accounts are paying as low as .01%. The rate on our Kasasa Saver will remain at .90% and will remain an attractive option for many of our customers.
Although we strongly disagree with the FDIC's directive, we ultimately have no choice but to comply. Please know we, and other community banks in the nation, continue to fight this decision.
We do hope that you will continue to find value in your relationship with First Bank. As always, we will continue to provide you with excellent service and innovative products, all with the personal touch only First Bank can offer!
Currently, First Bank's reward checking account, Kasasa Cash, has a 1.51% APY on balances up to $25,000 if certain monthly requirements are met. The rate had been 2.51% APY before November 2011.
In May 2009 the FDIC issued a final rule "to prevent banks that are less than well capitalized from soliciting deposits at interest rates that significantly exceed prevailing rates." The FDIC has been publishing weekly national deposit rate averages and rate caps that are used to enforce this rule.
The FDIC does not disclose which banks it considers as "less than well capitalized". However, we can make guesses based on public enforcement actions. This FDIC consent order was issued on June 2011 against First Bank. The order does include capital requirements.
Unfortunately, the FDIC has been unfairly forcing banks to cut their reward checking rates since 2009. I first received confirmation of the FDIC rate restrictions affecting a reward checking account in November 2009 when Libertad Bank slashed its reward checking rate. BancVue, the company behind most of the reward checking accounts, has tried to convince the FDIC that reward checking needs to be treated differently than interest checking. You can read their arguments in this April 2009 letter to the FDIC. It's clear that the FDIC has refused to listen to BancVue and the community banks.
Hat tip to reader George who mentioned this First Bank notice in the comments.