I know ACH transactions count towards the limit of 6 on an MMDA or savings account. If the transactions were simply online transfers, our bank would restrict the customer's ability to make those transfers or request that the account be closed if they have 3 strikes. On ACH transactions, that's not possible. Would we still be in compliance with Reg D if we allow the customer to change their recurring automatic debits from their savings account to their regular checking account? It usually takes at least 1 statement cycle for those companies (e.g. cable, public service, cell phone..) to change the debiting account number and the customer would most likely end up with 4th or 5th strikes on the excess debit reporting. Even if we do allow this, how long do you let it go before you require the account to be closed? We would essentially be taking the customer's word that they changed their debit account; there's no way to prove they did it.

First, if your customer agrees to move those transfers from the MMDA or savings account to the transaction account, and the result is that the customer no longer exceeds the transfer limits, the goal of the rule is reached, with regard to that customer. Examiners are supposed to cite a bank only if customers exceed the limits more than occasionally. There is no regulatory bright line on "occasionally" for your portfolio of savings accounts, but there is one for the individual account -- the so-called "three strike" rule. Even then, regulators encourage a bank to act faster if a customer is blatantly violating the limits.

From what I've heard, examiners generally ease into citing a bank formally. They start with a warning or suggestion that you need to clean things up. If I were an examiner, and saw you work with a customer to get transfers moved over to come from a transaction account, I'd note that as a positive.

And for the record, if you have a recalcitrant customer who won't change direct debits to come out of a transaction account, you can issue and follow through with an ultimatum short of closing the account: "If you don't arrange for your ACH debits to come from your checking account, we will start returning them due to the targeted account not being authorized to accept ACH debits." But by the time you reach that point, I suggest you're probably better off terminating the deposit relationship.

If you are talking consecutive months, the account should really be closed or converted after the third strike as Fed guidance states: "Accounts exceeding the transfer limitations for three consecutive months should be converted to a transactions account." As John stated, some examiners look favorably upon working with customers, but the Fed's staff opinion is that the account should be converted to a transaction account (or closed). The problem is that if you exceed the "occasional" basis for excessive transactions, the account automatically converts (regardless of what you call it) by definition to a transaction account, which can cause you to misreport on your Call Report.

The alternative to closing or converting the account under footnote 4 of 204.2(d) is to "Prevent withdrawals or transfers of funds from this account that are in excess of the limits established by paragraph (d)(2) of this section." Unless you shut off the ability to conduct ACH transactions (which is unlikely, but will depend on your core), I think your only options are to close or covert the account after the third strike.

For more info on the referenced Fed guidance and more info on the three strike rule, take a look at this article: https://www.compliancecohort.com/blog/managing-reg-d-excessive-transactions

Thank you both for your guidance. I appreciate it.

Your regulatory can actually require you to reclass all of your MMDA and/or savings balances (whichever group your monitoring and enforcement efforts are failing in) as transaction accounts, which can make for some hefty call report adjustments (and resulting penalties for misstated reports).

It can also cause you to undercalculate your reserve requirement and result in having to recalculate reserves for a period and pay a penalty for any instance in which your reserves were deficient.

Our core system catches those transactions which exceed the Reg D allowance and places them onto an unposted list. Those transactions are then returned unpaid with ACH return code 20.