I was hoping someone could explain to me the statement that is used on some excess transaction notices for savings/MMDAs that states: "The bank will be forced to convert this account to a non-interest bearing status in order to maintain compliance with Federal Regulation D".

I thought the requirement was to 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.

Are we supposed to be changing the account so it doesn't pay interest when the transaction limits are exceeded? Does changing the status of a savings/MMDA to non-interest bearing really comply with Reg D? Wouldn't we have a contract problem, we don't disclose for non-interest bearing savings/MMDAs.

I didn't think that paying interest really had anything to do with the classification of transaction account and non-transaction accounts and monitoring for excess transactions.

Any insight would be appreciated...I'm clearly missing something.

I'm not sure what letters you are referring too, but they are outdated. What I think the letters were trying to convey is that the account would be transferred to a DDA that allows for unlimited transactions. Which prior to the repeal of Regulation Q that action equated to placing them in a non-interest bearing account.

Thanks for your help!...I'll make sure we update the language in our notices and procedures.

I too have seen multiple references to "changing an account to non-interest bearing" in connection with excessive savings transfer activity. In actuality, the bank's options are to close the offending account; take away whatever transfer capability creates the problem (for example, transfers to cover overdrafts in a checking account or debit card use at point of sale or ACH debit access for recurring debits); or convert the account to a transaction account for which the depositor is eligible (DDA for a business that can't have a NOW account; NOW account for individuals, etc.).

But can you convert an account without getting new documents, if the offending customer will likely not sign new account documents? For what it's worth - senior management probably isn't going to close the account.

Answered here:


http://www.bankersonline.com/forum/ubbthreads.php?ubb=showflat&Number=1881303&gonew=1#UNREAD

Got it - Thank you!