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Because
depositors have different needs, your financial institution
most likely offers accounts with different features
designed to meet those needs. Depositor customization
aside, some of the account terms you offer are not set
by your institution, but are required by federal law.
One set of rules that can be both confusing and annoying
are the Reg
D transfer limits on savings deposits. This article
will review the transfer restrictions that apply, examine
the monitoring requirements, and consider how to handle
depositors who repeatedly violate the rules.
Transfer
Limit Coverage
The
account transfers limitations under Reg D apply to all
interest or dividend bearing savings deposits such as
passbook savings, statement savings, share accounts,
and money market accounts. Technically, these are accounts
where Reg D requires that institutions reserve the right
to require 7 days written notice prior to a withdrawal.
These accounts are also classified as "nonreservable
accounts" on your call reports. Although you may
call your savings deposits something else for marketing
purposes, names are irrelevant for purposes of Reg D
coverage.
Basic
Rule
According
to Reg D, an accountholder may not make more than six
transfers per month. Out of his or her savings deposit
to another account at your institution or to a third
party. Of those six transfers, no more than three can
be made by check, draft, debit card or similar order.
The term "month" for purposes of Reg D is
not limited to calendar month and includes any 4 week
period or statement cycle of 4 weeks. In complying with
Reg D, the big question is what is considered a "transfer"
under the law. Consider the following.
Transfers that are limited:
- Preauthorized
transfers such as bill payment plans and automatic
debits
- Automatic
transfers such as sweep arrangements
- Telephone
transfers, including facsimile and home computer transactions
Transfers
that are unlimited:
- Transfers
made in person or by messenger
- Transfers
made by mail
- Transfers
made through ATM
- Transfers
by telephone only if a check is mailed to the depositor
- Transfers
to repay loans at the same institution such as prearranged
or automatic internal loan payments, including the
repayment of a loan created by a written overdraft
plan
Monitoring
Responsibilities
Because
certain transfers must be limited for savings types
of accounts, Reg D expects your financial institution
to monitor depositor conduct and make sure depositors
are not exceeding the limits.
There
are two monitoring methods provided for in Reg D. The
"on site" method is where a computer system
is used to track and prevent excessive transfers. The
"ex post" method is where account activity
is reviewed after the fact and if excessive transfers
have occurred, the depositor is put on notice of the
problem. It is important that you understand the method
your financial institution uses to monitor the Reg D
transfer limits.
If
you have a depositor who repeatedly violates the transfer
limits, there steps you should take. First, it is important
to notify the accountholder and make them aware of the
fact that transfer limits on their account have been
exceeded. You may also want to restate the limitations
and make sure the accountholder understands what transactions
are permitted. If there are repeated abuses, you will
need to either to close the account or convert the non-transaction
account to a transaction account.
There
are no clear rules as to where you should draw the line
with regard to a depositor who repeatedly violates the
rules. However, the Federal Reserve Board did issue
an opinion stating that if an account holder violates
the transfer rules more than three months in a year,
the account should probably be changed or closed. From
a policy standpoint, you may want to establish a rule
regarding account closing so that situations involving
excessive transfers are handled uniformly.
If
you plan to convert the account to a transaction account
rather than close the account, there are also a few
issues to consider. From a disclosure perspective, Reg
CC applies to transaction accounts. Therefore, converting
a savings account into a transaction account will require
you to provide the depositor with a funds availability
disclosure. If it is a consumer and account terms and
conditions have changed, you may need to provide a new
or updated Truth in Savings disclosure. Secondly, reserve
requirements apply to transaction accounts but not to
non-transaction accounts, so the conversion may require
you to adjust your reserve requirements and your call
reports for the account. Finally, you will have to consider
what type of entity your customer is. If the customer
is a for-profit corporation, for example, the corporation
will have to convert the account to a non-interest earning
transaction account, because for-profit corporations
cannot hold NOW accounts."
Finally,
it is permissible to charge a fee for excessive transfers,
but the fee cannot take the place of actually notifying
and warning the depositor. Also, make sure that the
fee is disclosed as part of your Truth in Savings disclosure.
Liability
for Non Compliance
So
in the end, what is the big deal? What are the risks
of noncompliance? In terms of liability, there are no
civil or criminal penalties, but examiners do have the
authority to write you up, make you amend call reports,
and require your institution to maintain higher reserves.
Essentially, noncompliance in this area can be a nuisance
and something your examiners will continue to monitor.
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