Three Strikes Rule for Excessive Transactions
by John Burnett, BOL Guru Guru BIOS
Question: Reg D Excessive transactions pertaining to a MMDA: Does the regulation state "not to exceed three of twelve months with excessive transactions"?
Answer: No. The regulation itself does not describe anything other than the limits on transfer activity.
What has evolved from a series of pointed inquiries to the Fed staff over the years followed by a series of published opinion letters (available in the Federal Reserve Regulatory Service) is an accepted industry practice that uses what some have termed a "three strike" approach. In very broad terms, this means a series of three progressively more emphatic interactions (letters, calls, discussions, reminders, whatever the bank gets to work and can document) that result in cancellation of transfer capability or otherwise forcing a "cure" if the customer persists in exceeding the limits more than occasionally. Regulators seem to have agreed that anything more than three instances in a rolling twelve month period is "more than occasional." There is also agreement that banks need to react more quickly than at cycle end if a customer exceeds the limits mid-cycle.
[Editors Note: As of 7/2/09, the separate limit of three per month for checks, POS debit card transactions, etc., has been eliminated, and those transactions are now only subject to the 6/month limit that applies to other restricted transfers and withdrawals.]
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