Skip to content
GeoDataVision
Thread Options Tools
#2305 - 06/12/01 10:25 PM Regulation D, Excessive Transactions
Anonymous
Unregistered

Footnote 5(b) to Reg. D allows after the fact monitoring to ensure transaction compliance. If the customer exceeds the transaction limitations, the bank must either close the account, etc. My experience has been that banks give customers 3 chances, before action is taken. Does anyone know why 3? Reg. D does not spell out that number. Was it an opinion letter?

Return to Top
General Discussion
#2306 - 06/13/01 01:42 AM Re: Regulation D, Excessive Transactions
Andy_Z Offline
10K Club
Andy_Z
Joined: Oct 2000
Posts: 27,502
On the Net
Um, that's the way we've always done it.

The only thing I have found that is concrete is a Board Ruling and Staff Opinion Interpreting the Reg. In addressing Footnote 5 it was stated, "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..." So this says that a single occurance may not require a reclassification.

And 2-342.15 was looking at a scenario of excessive transactions and stated, "The monitoring system would look to consecutive months in which there were transfer violations. After the first month in which there were excess transfers, the institution would send a letter reminding the customer of the transfer limit was exceeded. If excess transfers were made during the next month, the institution would send a letter informing the customer of the violation and stating that continued violation would result in elimination of the transfer capacity or conversion of the account to a checking account. If the depositor exceeded the transfer limit for a third consecutive month, the institution would send a letter informing the customer that the account has been converted to a transaction account."

This was really an example of what not to do as it went on to say that 20 transacions in one month (as an example) would be too many and using a 3-strikes procedure would not be considered effective. I assume (we know why this is dangerous) that if it isn't a case of a real abuse, than this is an effective monitoring tool.

Short of an assumption that this was the thought process or that 3 was a swag, maybe someone active in compliance at the time will elaborate.

------------------
Andy Zavoina
Opinions stated are not necessarily that of my employer.

_________________________
AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

Return to Top
#2307 - 06/13/01 02:53 PM Re: Regulation D, Excessive Transactions
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 39,684
Cape Cod
Sorry to admit that I was "active in compliance" at the time, Andy.

However, one need not look to one's elders to discern the answer. Look to the Regulation! In §204.2(d)(2) we see a definition of savings account (which includes the MMDA) and we can see the specific limit language

quote:

. . .and no more than three of the six such transfers may be made by check, draft, debit card, or similar order made by the depositor and payable to third parties.

And for the historian in you, the MMDA was created by legislation (Garn-St Germaine Act of 1982) that permitted these accounts beginning 12/14/82. At the time, market rates were stratospheric, and customers were fleeing to money market funds for yields higher than banks could pay. Interest rates at banks were in the process of being deregulated (Monetary Control Act of 1980), but not fast enough for some.

One can only guess at the horse-trading that went on to create the MMDA. I can imagine congressional staffers crafting the bill, with their ears being bent by bankers on the one hand who would have liked unlimited check writing on the account (to counter money market fund liquidity), and the Fed on the other hand, who would have been arguing against this to maintain some control over the money supply. If you look at the definition in 204.2(d)(2), you can easily infer it was created, like the camel and the platypus, by committee.

By the way, initially the account had a mandated minimum balance to earn unregulated rates.

_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#2308 - 06/14/01 04:05 AM Re: Regulation D, Excessive Transactions
Andy_Z Offline
10K Club
Andy_Z
Joined: Oct 2000
Posts: 27,502
On the Net
Your quote addresses the number of transactions in a month/statement cycle. I don't see how that influences the 3-strikes and you're out in a rolling 12-month period.

I just knew you would reply and tell us some wonderfully unbelievable story or say they just 3 was a good number.

------------------
Andy Zavoina
Opinions stated are not necessarily that of my employer.

_________________________
AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

Return to Top
#2309 - 06/13/01 05:52 PM Re: Regulation D, Excessive Transactions
Lucy Griffin Offline

Diamond Poster
Lucy Griffin
Joined: Nov 2000
Posts: 1,544
Every regulation has its magic number. With regulation D, the magic number is 3. My bet is that one time, on a dark and stormy day during an examination in a nameless bank, an examiner, when pressed, came up with the number three.

I am not aware of any hard and fast rule. Much depends on the examiner. Much also depends on the reasonableness of the situation, such as a grandmother who has 4 grandchildren with birthdays in the same month. (That would be my mother-in-law and my son would be the 4th grandchild.)

Generally, with repeat violators, I suggest a service-oriented call made by a bank officer who suggests preferable ways to distribute money, such as sweeping once into the checking account and then writing four checks. If you have a granny who just can'tlearn, either document the reason for the problem, or change the account.


Return to Top
#2310 - 06/13/01 06:50 PM Re: Regulation D, Excessive Transactions
Andy_Z Offline
10K Club
Andy_Z
Joined: Oct 2000
Posts: 27,502
On the Net
Nothing will change the fact that I loved my grandmother, but she never used an MMDA check on me.

One thing to watch as you look at excessive transactions is when the item was written. I don't penalize our customers because a merchant held a check and it hit the same month when 3 other checks did. But you have to be consistent in the way you count items.

I also urge the officer's that make these follow-up calls to remind the customer that the operative words are "third party". They can come into one of our convenient locations and write checks to cash.

------------------
Andy Zavoina
Opinions stated are not necessarily that of my employer.

_________________________
AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

Return to Top
#2311 - 06/15/01 12:05 PM Re: Regulation D, Excessive Transactions
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 39,684
Cape Cod
I must have been asleep when I offered my earlier comments. I confused the "3 checks per month" rule with the "3 strikes, you're out" rule of thumb.

Another version of the genesis of the "3 strikes" guideline hinges on the ambiguity in the footnote. Lucy and I have a CO colleague who, like many of us, was frustrated by a lack of direction in the rules. Having successfully suppressed the ancient wisdom "Don't ask the question if you can't deal with the answer," he wrote his friendly Fed and asked, "What would constitute a monitoring and enforcement program that would be effective enough to comply with the regulation?"

Our CO then proceeded to suggest plans that he thought would be effective enough to comply with the rule. Each time, his friend at the Fed would come back with "That's good, but it's not enough, because it doesn't [fill in the blank]." Many of the Fed's utterances on the topic in FRRS suggest that this is how the rule of thumb evolved.

Most examiners now have accepted the "3 strikes" guidelines, with some of their own twists added. Probably your best path is one that adopts the "3 strikes" guidelines to your bank's unique situations, and strives to enforce a consistency in application. Keeping your customer service people on board with the program will be a challenge.

_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#2312 - 06/15/01 01:10 PM Re: Regulation D, Excessive Transactions
Lucy Griffin Offline

Diamond Poster
Lucy Griffin
Joined: Nov 2000
Posts: 1,544
Sidebar: I have received input from a Threads reader, Tom Quinn, that we look at FRB letter 2-342-17 for some helpful advice. That letter specifically authorizes the bank to evaluate the customer's intentions in deciding what to do. Thus, the grandmother whose grandchildren all cash their checks in the same month (or actually have birthdays in the same month) is a customer you can tolerate while the customer who regularly writes 7 checks a month must be stopped.

In the 4th paragraph of that letter, the FRB staff states: "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."

While this still provides a hazy test, it does give the bank some leeway to protect customes who intend to follow the rules, but something happens...

Tom also suggests that the MMDA rules get applied to both statement savings and MMDAs, thus adding to confusion.


Return to Top
#2313 - 08/01/01 11:58 AM Re: Regulation D, Excessive Transactions
Anonymous
Unregistered

The 3 Strikes and Your Out Rule is also in Opinion Letter 2-342.17. In the bottom of the second to last paragraph it goes on to say "…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 toe 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."

Return to Top
#2314 - 02/07/02 10:03 PM Re: Regulation D, Excessive Transactions
Anonymous
Unregistered

Does any one know how long a customer must wait to open a new MMDA after you closed one due to excessive transactions?

Return to Top
#2315 - 02/07/02 10:12 PM Re: Regulation D, Excessive Transactions
Andy_Z Offline
10K Club
Andy_Z
Joined: Oct 2000
Posts: 27,502
On the Net
I have asked this question of regulators and was told there is no magic date. The question is, do you want to go round and round again on excessive transaction violations.

If the customer is rehabilitated, give it a try. Otherwise, is it cost effective?

------------------
Andy Zavoina
Opinions stated are not necessarily that of my employer.

_________________________
AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

Return to Top
#2316 - 11/21/03 03:43 PM Re: Regulation D, Excessive Transactions
Fred GBOF Offline
New Poster
Fred GBOF
Joined: Nov 2003
Posts: 21
Florida
Where can I find 2-342.15 online?

Return to Top
#2317 - 11/21/03 04:21 PM Re: Regulation D, Excessive Transactions
RVFlyboy Offline
Power Poster
RVFlyboy
Joined: Oct 2000
Posts: 5,980
Soaring over Georgia
Fred, it seems to me you mentioned somewhere else on the forums that you are new to compliance. One thing you will find - today's compliance officer certainly has vast amounts of information and resources available online to help with the job - far more than we ever dreamed of when I first started in compliance 17 years ago. However, everything is not online. I don't know whether the referenced FRB opinion letter would be or not. You should consider supplementing your online free resources with a comprehensive regulatory tool. These are available from several sources, most notably is the CCH Banking Library. The CCH product is available in either CD-ROM or Internet versions, but the Internet version does require a subscription. These have many of the types of documents like this archived and retrievable. You might also consider the FRB Regulatory Service if you don't already have that. It is a paper document (actually several books) that is updated periodically and has most of the issuances from the FRB.
_________________________
Jim Bedsole, CRCM, CBA, CFSA, CAFP
My posts - my opinions

Return to Top
#2093747 - 08/17/16 04:28 PM Re: Regulation D, Excessive Transactions Anonymous
The OG Zaibatsu Offline
Diamond Poster
The OG Zaibatsu
Joined: Dec 2007
Posts: 1,697
Texas
Thisi s a very old thread, but someone asked for 2-342.15 online. You can find the language from it here on page 16: http://www.occ.treas.gov/publications/publications-by-type/comptrollers-handbook/depserv.pdf
_________________________
Only two things that money can't buy, that's true love & homegrown tomatoes

Return to Top