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#168381 - 03/11/04 12:05 AM Monitoring Reg D Violations
Anonymous
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I seem to remember that there was an opinion (possibly one titled Opinion 2-342.17 Savings Deposits - Monitoring Transfers from MMDA's) in which an institution may continue to consider an account an MMDA even if there are excess transfers so long as those excess transfers are not the result of an attempt to evade the transfer limit, and if the excess transfers occur in not more than three months during any 12-month period. Would you please help me locate this citation? Your assistance would be greatly appreciated.

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#168382 - 03/11/04 07:53 PM Re: Monitoring Reg D Violations
John Burnett Offline
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Your citation was exactly the right one. It comes from the Federal Reserve Regualtory Service, and I quote it below:

Quote:

A bank proposes to compile monthly reports of customers who had excessive money market deposit account transactions the previous month, notify customers by letter regarding those excessive transfers, and close any account if the transfer limits were violated during four consecutive months.



These procedures would not result in compliance with the six-transfer limit on MMDAs. Footnote 5, referred to in footnote 6 of section 204.2(d)(2)(ii), requires institutions to monitor transfers and contact customers who exceed the limits more than occasionally.



Footnote 5 provides that the rule limiting transfers need not be applied mechanically, but it does not change the fundamental requirement that a depository institution may not permit or authorize more than six transfers from an MMDA per month. Thus, if the circumstances warrant, an institution may not be required to close or reclassify an MMDA in the event of an occasional excess transfer from the account. As the staff stated in its opinion at 2-342.15, enforcement procedures that focus on excess transfers in consecutive months and that ignore excess transfers in any particular month would not be sufficient to prevent excess transfers from MMDAs, and would therefore fail to meet the monitoring requirements of Regulation D.



Ideally, controls on excess transfers should be sufficiently flexible to address both excess transfers in nonconsecutive months as well as the level of excess transfers in a particular month. Such controls would help depository institutions distinguish inadvertent violations of the transfer limits from abuses of the transfer limits. Thus, when a customer ignores the transfer limits applicable to an MMDA, the depository institution should take steps to close the account more quickly than it would an account from which the depositor inadvertently, and occasionally, exceeds the transfer limits by a single transfer. Nevertheless, a monitoring system that would detect and prevent all excess transfers may be costly to administer. For this reason, the staff has applied a general rule that an institution may continue to consider an account an MMDA even if there are excess transfers so long as those excess transfers are not the result of an attempt to evade the transfer limits, and if the excess transfers occur in not more than three months during any 12-month period. This working rule is not absolute, however, and the facts and circumstances must be considered in each case.



The proposed standards for monitoring MMDAs would not adequately prevent excess transfers. They do not take into account the number of excess transfers in an MMDA in any one month; a large number may be evidence of an intent to evade the transfer limits. Further, the standards would permit excess transfers in four consecutive months. Therefore, the proposed standards could result in violations of the transfer restrictions on MMDAs. STAFF OP. of Feb. 15, 1990.





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#168383 - 03/12/04 02:52 PM Re: Monitoring Reg D Violations
AnnRoy Offline
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John, after speaking to other bank auditors/COs in my geographic location, I'm finding that savings accounts are not being monitored for excess transactions..we permit 6 w/d per month and charge $1 for each add'l w/d. The comments I rec'd when inquiring why regular savings deposits are not being monitored is - "we never thought about monitoring those accounts" or " the examiners/3rd party auditor doesn't inquire/review this during their visits".
I know these accounts in addition to MMDAs should be monitored, right? Am I losing it??? TGIF!!!!!

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#168384 - 03/12/04 05:45 PM Re: Monitoring Reg D Violations
Andy_Z Offline
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Traditional savings accounts were not monitored because the customer wasn't give access means which were limited, in the past. There were no 3rd party transactions. They had to go to a teller or ATM and they couldn't POS funds out. When you allow access via a manner that is limited, you do have to monitor as these are all savings accounts by definition.
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#168385 - 03/12/04 08:31 PM Re: Monitoring Reg D Violations
John Burnett Offline
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Banks are now giving customers unprecendented EFT access to their statement savings accounts. Home banking and telephone transfers; ACH debits. Some use the savings account to cover overdrafts in DDA accounts.

There has always been a transaction limit on traditional savings accounts. In fact, it used to be three per month until the Fed liberalized the rule and combined savings and MMDA limits into one rule. But you are correct in noting that many banks have not been monitoring savings account debits. And examiners have not been as zealous in the past about monitoring programs on regualr savings.

But, as Bob Dylan used to croak -- The Times, They are a-Changin' !
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#168386 - 03/12/04 10:18 PM Re: Monitoring Reg D Violations
AnnRoy Offline
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That's exactly what I'm talking about.....3rd party transactions & etc. Customers are literally using their savings accounts like a transaction account now. But will this be on the examiner's hot items list this year?
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#168387 - 03/12/04 10:38 PM Re: Monitoring Reg D Violations
Andy_Z Offline
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Quote:

But will this be on the examiner's hot items list this year?





Probably not, unless a lot of banks are doing it wrong and not checking themselves.
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AndyZ CRCM
My opinions are not necessarily my employers.
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Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

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#168388 - 03/12/04 11:02 PM Re: Monitoring Reg D Violations
Elwood P. Dowd Offline
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Quote:

In fact, it used to be three per month until the Fed liberalized the rule and combined savings and MMDA limits into one rule.




John, you're showing your age again. Some of your readers were in junior high when that was the rule.
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#168389 - 03/14/04 04:19 PM Re: Monitoring Reg D Violations
Richard Insley Online
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AnnRoy- Since we're drawing on the wisdom of the 60's (oxymoron?), I'll offer the sage advice of the robot from Lost in Space--"Danger, Will Robinson! Danger!"

Failure to discipline SDA or MMDA abusers can lead to a horrible enforcement action against your bank.

I speak from a near-death experience whereby examiners found numerous instances (6 legal pages full of names) where my MMDA customers had exceeded the 3/6 limits (in spite of assurances from the servicing manager that everything was under control.)

Rather than a slap on the wrist and stern admonition to crack the whip and get these customers in line, the Fed examiners informed me that they were considering reclassification of my entire MMDA portfolio ($250 mil) for reserve requirements. This lethal blow would have jumped my reserve requirements from 0% to 10% and I was told that I would be required to post retroactive reserves and pay penalties for the preceeding two years.

Even at today's rates, when you compute the cost of 2 years' interest on $25 mil. you can see that the outcome will not look good on your final performance evaluation.
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#168390 - 03/14/04 06:54 PM Re: Monitoring Reg D Violations
John Burnett Offline
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I just got through (last night) teaching a class on Reg. D at the ABA Compliance School in Indianapolis. One of the discussion points was exactly what Richard has pointed out (I added this to my presentation after Richard told me about his "near death" experience).

In the illustration, a bank had $100 million in MMDA balances that got retroactively reclassified as transaction accounts for two years. The long and short of it was a $650,000 penalty.

Not exactly "chump change"!!!

Bankers need to rethink the facility they may be giving their savings customers to spend from their savings accounts. Do it now, before the regulators make you, and you'll save yourselves a lot of aggravation and monetary grief.
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#168391 - 03/16/04 03:54 AM Re: Monitoring Reg D Violations
Anonymous
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In order to avoid the excess transactions violations on savings accounts, could we just reserve for them on the same basis as a transaction account. It would cost the bank some for the higher reserve requirement, but the customer would be able to use his savings account as needed and would never know about the reserve requirement.

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#168392 - 03/16/04 01:44 PM Re: Monitoring Reg D Violations
Pale Rider Offline
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What difference is it to the customer that there is a reserve requirement on an account ? The difference is to your bank, not the customer. Are you willing to pay interest to the customer, pay reserve requirements, and accept regulatory violations for treating savings accounts as demand deposits ? Please post the name of your bank so we can all move our accounts there.
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#168393 - 03/16/04 02:14 PM Re: Monitoring Reg D Violations
rlcarey Online
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As I mentioned in my other post, I think you could do it, as long as the accounts followed "all" the rules for transaction accounts. I think that it would eventually be cost prohibitive if you tried to stay competitive in the market place. Why do you think there higher interest rates paid on savings vs NOW accounts???
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#168394 - 03/16/04 03:09 PM Re: Monitoring Reg D Violations
captain morgan Offline
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I know some of the larger banks in my area allow excessive transfers within the savings account. They even charge the customer for breaking a Federal law?? Must be some good marketing!!Anyway 2 years ago we had a Fed Compliance exam and had 4 accounts that exceeded the transfer requirements. Did I get a lecture from the examiner....he stated an account should never exceed 3 times within one year. So 2 strikes their out.(moved to a tranactional account0

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#168395 - 03/16/04 06:59 PM Re: Monitoring Reg D Violations
JMB Offline
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Michigan
We know that reclassification is the ultimate penalty - but does anyone know of a documented case where the examiners did the reclassificaiton?

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#168396 - 03/18/04 08:13 PM Re: Monitoring Reg D Violations
Andy_Z Offline
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Reserving a savings account like a transaction account may be a bad idea. David Dickinson's webinar next week may answer many of the questions above.
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My opinions are not necessarily my employers.
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Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

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