Regulation D Transaction Limitations
This was the Special Focus section for the May 2020 Compliance Journal, click here to view the entire edition.
On Tuesday, April 28, 2020, the Board of Governors of the Federal Reserve System (FRB) issued an interim final rule to amend Regulation D to delete the numeric limits on certain kinds of transfers and withdrawals that may be made each month from “savings deposits” (interim final rule or IFR). The interim final rule is effective immediately.
Background
The Federal Reserve Act authorizes FRB to impose reserve requirements on certain types of deposits of depository institutions. Regulation D distinguishes between reservable “transaction accounts” and non-reservable “savings deposits” based on the ease with which the depositor may make transfers or withdrawals from the account. Prior to the interim final rule, Regulation D defined the term “savings deposit” to require, under the terms of the deposit contract or by practice of the depository institution, that the depositor be permitted to make no more than six transfers or withdrawals (in any combination) per calendar month or statement cycle of at least four weeks (six transfer limit).
In January 2019, the Federal Open Market Committee (FOMC) announced its intention to implement monetary policy in an ample reserves regime. Considering that shift, on March 15, 2020, FRB reduced reserve requirement ratios to zero percent effective March 26, 2020, eliminating reserve requirements for all depository institutions. Because of the elimination of reserve requirements on all transaction accounts, the regulatory distinction between reservable “transaction accounts” and non-reservable “savings deposits” is no longer necessary. Thus, FRB issued the IFR to delete the six transfer limit from the definition of “savings deposit.”
Impact of the Change and Considerations for Banks
The IFR allows depository institutions to immediately suspend enforcement of the six transfer limit, but does not require any mandatory changes. Because the six transfer limit was deleted, financial institutions may, but are not required to, permit their customers to make an unlimited number of convenient transfers and withdrawals from their savings deposits.
Many financial institutions have questioned whether the deletion of the six transfer limit is permanent. FRB has stated that, as discussed above, the underlying reason enabling the changes in Regulation D is the FOMC’s choice of monetary policy framework of an ample reserve regime. In such a regime, reserve requirements are not needed. Thus, the distinction made by the transfer limit between reservable and non-reservable accounts is also not necessary. The FOMC’s choice of a monetary policy framework is not a short-term choice. FRB does not have plans to re-impose transfer limits but may make adjustments to the definition of savings accounts in response to comments received on its interim final rule and, in the future, if conditions warrant.
In short, based upon the IFR, and FRB’s clarifying statements above, the deletion of the six transfer limit is indefinite. The interim final rule amends Regulation D with no time limitations. FRB could later re-implement the six transfer limit, but would be required to issue a new rule. As discussed above, FRB currently has no plans to re-implement the six transfer limit.
FRB has answered additional frequently asked questions. Some of the more common questions and answers are provided below:
- May depository institutions continue to report accounts as “savings deposits” on their FR 2900 reports even after they suspend enforcement of the six-transfer limit on those accounts?
Yes. Depository institutions may continue to report these accounts as “savings deposits” on their FR 2900 reports after they suspend enforcement of the six-transfer limit on those accounts. - If a depository institution suspends enforcement of the six-transfer limit on a “savings deposit,” may the depository institution report the account as a “transaction account” rather than as a “savings deposit”?
Yes. If a depository institution suspends enforcement of the six-transfer limit on a “savings deposit,” the depository institution may report that account as a “transaction account” on its FR 2900 reports. A depository institution may instead, if it chooses, continue to report the account as a “savings deposit.” - May depository institutions suspend enforcement of the six-transfer limit on a temporary basis, such as for six months?
Yes. - How did the recent amendments to Reg D impact Reg CC?
Regulation CC provides that an “account” subject to Regulation CC includes accounts described in 12 CFR 204.2(e) (transaction accounts) but excludes accounts described in 12 CFR 204.2(d)(2) (savings deposits). Because Regulation CC continues to exclude accounts described in 12 CFR 204.2(d)(2) from the Reg CC “account” definition, the recent amendments to Regulation D did not result in savings deposits or accounts described in 12 CFR 204.2(d)(2) now being covered by Regulation CC.
In its FAQs, FRB states that the IFR does not specify the manner in which depository institutions that choose to amend their account agreements may do so. Meaning, the IFR, and Regulation D in general, does not require or prescribe how a financial institution must modify its account agreements with respect to the six transaction limitation. However, WBA reminds financial institutions to consider Regulation DD, which implements the Truth in Savings Act.
Regulation DD requires a depository institution to give its consumers 30 calendar days advance notice of any change in a term if the change may reduce the annual percentage yield or adversely affect the consumer. The notice shall include the effective date of the change. If a financial institution decides to remove the six transaction limitation, such a change is positive to the customer and would not require advance notice. Financial institutions might still decide to provide notice of the change from a customer service standpoint, however.
There are other situations that might necessitate advanced notice of a change in terms under Regulation DD. As discussed above, the deletion of the six-month transaction limitation is indefinite. However, financial institutions have the flexibility to choose how to act on that change. Financial institutions could choose to maintain their current policies, procedures, and account agreements, or modify them, and could do so on a temporary basis. For example, a financial institution might decide to permit its customers to make unlimited transactions for a period of six months. At the end of the six-month period, if the financial institution decides to re-implement the six transaction limitation, 30 days advance notice would be required as the change would be adverse to the customer.
Conclusion
FRB’s interim final rule deletes the six transaction limit from Regulation D without further limitation. The amendments are intended to allow depository institution customers more convenient access to their funds and to simplify account administration for depository institutions. The IFR permits, but does not require, depository institutions to suspend enforcement of the six transfer limit. Thus, financial institutions have the flexibility to determine whether, and how, to act upon the deletion of the six transfer limit.
Additional Resources
FRB’s Interim Final Rule
FRB’s Monetary Policy and Reduction of Reserve Requirements
FRB’s FAQ on Reserves
FRB’s FAQ on Savings Deposits
FRB on Reporting Changes
By, Ally Bates
