The department has been asked for its opinion of the legality of an arrangement whereby, pursuant to an agreement among a savings bank, its depositors and the corporate employer of the depositors, some of the depositors have instructed the corporate employer to deposit all or part of their salaries into checking accounts which they maintain with the savings bank. The department has concluded that this arrangement is authorized by the Banking Law.

The authority for a savings bank to accept deposits of all or a part of a depositor's salary from his corporate employer into the depositor's checking account is found in section 234.1 of the Banking Law as supplemented by section 234.23. Subdivision one of section 234 authorizes savings banks “to receive and repay deposits, including demand deposits.” It also authorizes savings banks to “exercise all such incidental powers as shall be necessary to conduct the business of a savings bank.” Subdivision 23 of section 234 authorizes savings banks “to have and exercise all other powers necessary or appropriate in conducting the business of the savings bank.” While the incidental powers authorized by subdivision 23 relate to the general conduct of the business of a savings bank (including the receipt of demand deposits), the incidental powers authorized in subdivision one relate specifically to the receipt of deposits, including demand deposits. Thus, it is clear that the Banking Law now authorizes savings banks to perform those operations associated with the receipt of demand deposits including the making of an arrangement for the direct deposit of salaries into the checking accounts of their depositors.

The Banking Law does impose certain restrictions upon the acceptance of checking accounts by savings banks, including a prohibition of the imposition of charges for maintaining these accounts or for honoring checks drawn on them as well as prohibition of the maintenance of checking accounts for corporate depositors. Neither section 234.1 nor any other section of the Banking Law, however, appears to impose limitations on the method or the mechanics by which deposits are made into checking accounts which are otherwise lawfully maintained.

In connection with this issue, a question has been raised about the meaning of the language added to section 238.5 by chapter 225 of the Laws of 1976, the chapter which authorized savings banks to accept demand deposits. Section 238.5 provides, as follows:

“A savings bank may accept deposits, other than demand deposits and deposits held pursuant to subdivision one-a of section two hundred thirty-four of this chapter, from an employer or an employee group, to be credited to the individual accounts of the members of a group of employees having a common employer, without the issuance of a passbook in connection therewith, and may pay to any one of the members of such group, or to his authorized agent, in person, the whole or any part of such deposits credited to his account together with the dividends credited thereon, without requiring the production of a passbook.”

It is the department's opinion that the exclusion of demand deposits from the authority granted by section 238.5 was not intended to and in fact did not prohibit savings banks from accepting payroll funds from employers for deposit into the checking accounts maintained by their employees at a savings bank. Until 1947, all savings bank accounts required a passbook because section 238.3 required that all interest credited and withdrawals charged be entered in the passbook. In 1947, section 238.5 was added to create an exception from the strict passbook rule of section 238.3 by permitting savings banks to maintain no-passbook (savings) accounts for the purpose of receiving from employers of savings bank depositors direct deposits of all or a part of the depositors' wages. Only in 1965, with the addition of section 238.6 were savings banks granted general authority to accept no-passbook accounts. Even then, however, savings banks were still restricted to the acceptance of savings deposits.

Section 238.5 is but one of a series of restrictions which the Banking Law had imposed upon savings accounts. Each of these restrictions was amended by chapter 225 of the Laws of 1976 to make it clear that its limitation did not apply to demand accounts. For example, section 238.2—the requirement of 60 days' notice prior to withdrawal—and section 238.4—dividend crediting provisions—were amended to exclude demand accounts from their restraints. Section 238.5 was amended in the same fashion. The purpose of the amendment, then, was not to prohibit direct deposit of payroll funds by employers into their employees' checking accounts, but rather to make it clear that section 238.5 applies only to savings deposits.