We have a commercial customer with a savings and checking account wanting to set up a sweep account. Funds will be swept from the savings to the checking daily to cover checks as they are presented.
Are these transfers limited to 6 per month under Reg D???

Yes. That's why we are often compelled to utilize repo arrangements for our commercial customers.

They aren't just limited to 6..they are purely not allowed. This arrangement is called an ATS or ATF account and not allowed for anything other than consumer accounts. (An ATS is allowed for payment of a loan with the same bank, however)

We have a commercial sweep account that is set up with a deposit account and a money market account. Does the limit of six apply to it and what is purely not allowed about.

Commercial interest bearing accounts cannot automatically 'sweep' to a dda. By doing so, you have in effect created a demand deposit account out of the interest-bearing account. (see 12USC371a). Probably one of the best interpretations available on this (that I know of) is "Banker's Systems, Laws and Regs affecting Deposit Accounts". A DDA to DDA can sweep, but not a Business MMDA or Savings/Time Deposit. In addition, this same set-up cannot be used for overdraft protection. This is prohibited by Reg D seperately from the limit of 6 withdrawals.

That is exactly how I was trained how we operated for many years; however, in the past 2-3 years there seems to have been a change in that interpretation. Look at this Q&A from the Wolters Kluwer site. It mirrors recent answers from our regulators on the topic. I am now totally confused.

Question: Can a corporate business have a sweep account?

Answer: A sweep account typically is an arrangement whereby funds are transferred from an interest-bearing account to a checking account as needed to cover checks or maintain a specified balance in the checking account. One of the purposes of such an arrangement is to allow interest to be paid on the funds in the interest-bearing account which could not be paid if all the funds were kept in the checking account. There is no rule prohibiting a corporate business from having such a sweep account. However, such a sweep of funds from the interest-bearing account to the checking account is a preauthorized transfer, and Reg. D prohibits preauthorized (and certain other) transfers to six per month. Thus, a corporate business sweep account cannot have more than six sweeps a month. A number of bills have been proposed over the past several years to greatly increase the number of sweeps available to corporate businesses, but none have passed. (posted 6/20/05)

Try getting the FED to buy that answer, especially since they went to the trouble of putting in the "daily CD" scenario in the reg at 204.134. (not exactly the same thing, but close)

We're a large bank and every single time the FED comes in for compliance, no matter what the red flag flavor of the moment is...they invariably hit on NOW and ATS accounts. If it's anything more than a loan payment...you gotta get rid of it.

The business could, however, handle the sweep themselves through internet banking, for instance, so long as they don't exceed the maximum per month limits.

what if the money market account is through a third party and all the money is put into one account and some from a third party comes and transfers money every day in person

In person transfers are not limited. They would not be considered under 'automatic transfers' limits.

Most commercial sweeps are from non-deposit accounts such as repurchase agreements or off-balance-sheet accounts held by third parties like brokers. They are not from FDIC insured interest-earning accounts.

Some one trying to sell you something so you can keep the deposits on your books???? The Fed has time and time again opined that any technique employed solely to evade the transfer limitations that do not have other legitimate business purposes are not allowed. Believe me - almost every combination of tricks have been tried and the Fed says no every time. If someone is trying to sell you this process - ask them for their opinion letter from the Fed saying it is OK.

Randy, you sound like me preaching that sermon...but do me a favor and take a look at http://www.ther.com and see what you think...they've been doing this a very long time and even American Banker has published articles about their business...it's making me go hummm..maybe I'm missing something here.

I had one client that looked at them but never did get all the details. I suggested that they request from Reserve Funds their letter from the FED that said their program was OK. Just because 75 banks in the nation use them, doesn't necessarily make it right. Last I heard they were not able to do that.

I think their product is something like this and as I said, if the sole purpose is to avoid the transaction limitation and pay interest on demand deposits -the FED is going to nix it:

2-345.25

TRANSACTION ACCOUNTS-- Transfers from Demand Accounts for Investment Purposes

A bank proposes to provide a service to customers that would involve coordination among the bank, its customers, and an independent trust company organized under state law. Each customer would authorize the bank to transfer the amount above a predetermined level in its demand account to a pooled demand account maintained by the trust company at the bank. At the direction of the customer, the trust company would then place those funds in a variety of investments, including a money market account at the bank and professionally managed money funds. The customer would deal directly with the trust company on all issues involving the invested funds. The bank would not be involved with the funds other than to facilitate the transfer of funds between accounts as directed by the customer or the trust company.

Demand-account overdrafts are not anticipated, but if an overdraft did occur, the bank would inform the trust company, which would transfer funds to the customer's account to cover the overdraft.

This trust arrangement is, in effect, substantially similar to an arrangement described in interpretation 12 CFR 204.134 (at 2-287), in which the Board indicated that the arrangement in which customers maintain checking accounts and have excess funds from those accounts swept into commingled time deposits was an arrangement that--

[S]ubstitutes time deposit balances for transaction accounts balances with no practical restrictions on the depositors' access to their funds, and serves no business purpose other than to allow the payment of higher interest through the avoidance of reserve requirements. As the time deposits may be used to provide funds indirectly for the purposes of making payments or transfers to third persons, the Board has determined that the time deposits should be considered to be transaction accounts for purposes of Regulation D.

The staff believes that this interpretation applies to the proposed trust arrangement. STAFF OP. of July 16, 1992.

Authority: 12 CFR 204.2(d)(2), 204.2(e), and 204.134.

See also 2-342.13 and 2-345.23.

Thanks Randy, that's my reasoning as well...based primarily on 204.134.

Looking for updated guidance on this question. Our financial is looking to start offering this to our business customers and I cannot find any recent guidance on this. I understand the 6 withdrawal limitations are no longer an issues (at least for now). I am curious if there are any other limitations or areas of concern.

Why bother - just pay interest on the demand account - why go through all the hoops of a sweep? Much has changed since 2007.

Good question, I am still in the learning phase of what exactly it entails.