Good Morning,

We do not currently offer sweep accounts to our commercial customers. If we wanted to offer this to our business customers, where do we start in getting something like this going? As far as compliance goes, what do I need to know? Are there certain disclosures/agreements we need to set up? Disclosures required each time there is a sweep? I'm sorry if these are stupid questions, I just want to make sure I have all of my ducks in a row.

Thanks so much!

Hello. It depends on what type of sweep accounts you are looking to offer. If it is a zero balance type of sweep (like an operating account to a payroll account), it is a lot easier. If it is a repurchase sweep type of account, where the funds are transferred out of the bank, then FIL-39-2009 may provide some of the answers you are looking for.

Thank Alison! I believe it is going to be a sweep within the bank such as from an operating account to a payroll account, however, we need to verify that for sure.

So, I finally found out more information regarding the type of sweep account we are looking at. If a customer wants to set up a sweep on a couple of accounts where any funds over a certain amount would be swept to an operating account, are there certain notices/disclosures that need to be provided.

For ex: customer wants an account to stay at a $25,000 balance. If it goes over that amount the additional funds would be swept to an operating account. All accounts are at our financial institution.

Are certain disclosures required and are notices required to be mailed each time a sweep is completed?

Thanks for any help you can provide me!

If they are both deposit accounts, there are no specific notices required.

They are both deposit accounts! Thank you so much Randy. I really appreciate it!

What if it's a sweep between a deposit account and a revolving line of credit? Are there special disclosures required for that?

No - not really. https://www.fdic.gov/news/financial-institution-letters/2009/fil09039a.html

Randy, following up on our comment from this older post. It is your interpretation that sweep disclosures are not applicable to situations where a commercial customer has a line of credit and excess funds from the deposit account are used to pay down the line of credit. In looking at #2 for the link you attached, I'm not sure how to interpret what the FDIC is saying here. It almost seems they are saying these are sweeps that would be covered by the disclosure requirements. Thoughts?

2. Q: What are the most common sweep arrangements covered by the disclosure requirements?
.....

The FDIC also is aware of sweep arrangements that transfer funds into Fed Funds and holding company commercial paper. Another arrangement uses the swept funds to pay down the customer's loan with the depository institution. This type of loan sweep is not an arrangement used to amortize a loan; rather, excess funds in the deposit account are swept daily to pay down the loan balance and the following day the swept funds are made available to the customer's deposit account.

You appear too actually be correct. If you are paying down and advancing a line of credit on a daily or other basis in that manner, disclosures appear to be required.