Compliance Blog

Posted by Sarah Loats

During a presentation on Reg D at Compliance School, I was discussing the transaction limitations on savings accounts, and mentioned that Footnote 4 provides that you can either prevent excessive transactions or you can monitor them on an ex-post-facto basis. If you monitor them, footnote 4 provides that you should contact members that violate the excessive transaction limitations on “more than an occasional basis”. If they continue to violate the restrictions, then you are to close/reclassify the account, or remove from the account transfer and withdrawal capabilities. This begs the question what does “more than an occasional basis” mean? The Federal Reserve has stated that, in general, if a member exceeds the limitations more than 3 times in a 12 month period, then they have done so on more than occasional basis.

I have since received a few inquiries as to where I found this information. It’s in a Federal Reserve Questions and Answers document that Anthony has linked to previously.

One of Q&As, on page 180, discusses a proposed monitoring plan for money market accounts. Below is an excerpt of the discussion:

Ideally, controls on excess transfers should be sufficiently flexible to address both excess transfers in nonconsecutive months as well as the level of excess transfers in a particular month. Such controls would help depository institutions distinguish inadvertent violations of the transfer limits from abuses of the transfer limits. 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. Nevertheless, a monitoring system that would detect and prevent all excess transfers may be costly to administer. For this reason, the staff has applied a general rule that 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 to 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.