Questions and Answers

Under Reg D, is there a time frame in which a money market customer can exceed the limits?  For example, a letter was sent in 2005 stating the next time the account exceeds the transaction limitations, the account would be moved to a regular checking account.  The next occurrence of exceeding the limitations occurred January 2008.  Is this sufficient time difference to warn the customer or must the account be closed and moved to a demand deposit account?

Yes.  The definition section of regulation D at 12 CFR 204.2 (d)(2), sets out the requirements for a money market account.  Within this definition is footnote which addresses how to handle depositors who exceed the transfer limits of a money market account.  This footnote speaks in terms of contacting customers who exceed established limits on more than an occasional basis.  Exceeding the limits in 2005 and then again in 2008 would seem to be occasional and wouldn’t trigger any communication from you.  However, if in 2008, if the customer continues to exceed the limits, then you will need to contact the customer.  If the customer still continues to exceed the limits after being contacted, the you will need to close the account or move the funds into a demand deposit account.

Bottom line, it appears the intent behind Regulation D is to control more than occasional incidents of exceeding transfers limits.  The time-frame between 2005 and 2008 seems great enough to warrant starting over with your monitoring in 2008.

See 12 CFR 204(d)(2) footnote 4

In order to ensure that no more than the permitted number of withdrawals or transfers are made, for an account to come within the definition in paragraph (d)(2) of this section, a depository institution must either:

(a) Prevent withdrawals or transfers of funds from this account that are in excess of the limits established by paragraph (d)(2) of this section, or

(b) Adopt procedures to monitor those transfers on an ex post basis and contact customers who exceed the established limits on more than an occasional basis.

For customers who continue to violate those limits after they have been contacted by the depository institution, the depository institution must either close the account and place the funds in another account that the depositor is eligible to maintain, or take away the transfer and draft capacities of the account.

An account that authorizes withdrawals or transfers in excess of the permitted number is a transaction account regardless of whether the authorized number of transactions are actually made. For accounts described in paragraph (d)(2) of this section, the institution at its option may use, on a consistent basis, either the date on the check, draft, or similar item, or the date the item is paid in applying the limits imposed by that section.

(Posted: 01/14/2008)