I am being told by our core processor that the requirement for notifying customers of excessive withdrawals on money market accouunts include sending notification to the customer after they have had excessive withdrawals within a month or statement cycle two different times. The notices we have been originating through our processor are sent after three times. I am not aware that the reg requires the notice to be sent at any particular time, just that it must be sent as advisement. Can you direct me where to find clarification?

First, the limits apply not only the MMDAs but also to other savings accounts.

Second, the regulation doesn't impose the notice requirement. It imposes a requirement that you either prevent the infractions or monitor on an ex-post basis and correct the depositor's behavior or take other action to correct the problem (shutting off transfer access or suspending debit card use, closing the account, denying ACH debit use, transferring or changing the account to one that doesn't have the limits, etc.)

There developed over time and through a series of "what if we did this or that" queries of the Federal Reserve Board staff twenty years or more ago a "rule of thumb" that has been referred to as a "three strikes" rule. The bank monitors activity and for each month in which limits are exceeded contact is made reminding the customer of the nature of the account and the restrictions on activity. Typically, written notices are used, but there is nothing that requires a writing (writings are easier to document). Each such contact is typically more emphatic in tone, and the second contact usually warns that a third infraction will result in action by the bank (see informal list of possibilities above). The third contact within a rolling twelve month period results in action.

The Fed Staff did add a zinger -- if the bank determines that a customer has quickly exceeded the transfer limits early in a statement period, it should not wait until the end of the period to contact the customer. It should make contact promptly, with the goal of correcting the customer's behavior sooner. [So some examiners will say that it's not enough to only review activity at the end of the statement cycle; there ought to be system reports run daily that call attention to such customers.] In some banks, if it's clear at the outset the customer isn't going to follow the rules (15 checks from an MMDA in ten days, for example), the bank either gets assurance from the customer that the limits will be adhered to going forward or shuts down the transfer ability promptly, without waiting for the second and third infraction in the rolling 12-month period. To continue the baseball analogy, that might be called the "flying out on the first pitch."