Updates to Regulation D Impact Financial Institutions

April 30, 2020 | Article

By Linda Albrecht and Diane Wolfe

The Federal Reserve recently reduced the reserve requirement ratio to zero percent. This was an answer to COVID-19’s impact on financial institutions and the way they serve customers. Now the Federal Reserve has issued further guidance when it comes to Regulation D.

What Changes Were Made to Regulation D?
When the Federal Reserve eliminated reserve requirements, they stated there was no longer a distinction between transaction accounts and savings deposits for reserve requirement purposes. However, there continued to be a distinction between the two when filing the Report of Transaction Accounts, Other Deposits and Vault Cash (FR 2900).

To help customers affected by these circumstances, the Fed’s short-term solution was to allow customers to exceed the monthly six-transfer limitation on savings deposits. Despite allowing unlimited transactions in these accounts, they would still need to be reported as savings deposits for FR 2900 purposes.

What exactly does the elimination of reserve requirements mean?

On April 24, 2020, the Federal Reserve Board announced further changes to Regulation D. An interim final rule was published which allows financial institutions to immediately suspend enforcement of the monthly six-transfer limitation and allow customers to make unlimited transfers and withdrawals from their savings accounts.

All types of savings deposits are affected by the interim final rule: passbook savings, statement savings and money market deposit accounts (MMDAs).

Suspension of Enforcement Not Required
The interim final rule permits financial institutions to suspend the enforcement of the monthly six-transfer limitation but does not require it. A financial institution can opt to suspend the enforcement of the limitation temporarily as well (e.g. six months).

If the financial institution decides to no longer enforce the transfer limitations, the change would be considered beneficial to the customer. A change in terms notice should be sent within 30 days of the effective date of the change.

How to Report These Changes
If the financial institution chooses to eliminate the monthly six-transfer limitation, they can choose how to report these accounts on the FR 2900. They can continue to report them as savings deposits or convert them to transaction accounts.

Amending Account Agreements and Disclosures
The interim final rule does not specify how financial institutions should amend their account agreements. If the financial institution decides to amend their account agreements to remove the contractual obligation of enforcing the six-transaction limitation, it is up to the financial institution to decide how to implement the change.

Further, the “reservation of right” was not removed from the definition of a savings deposit. The account agreement for a savings account must still contain the verbiage that the financial institution reserves the right to require seven days’ advance written notice of an intended withdrawal (even though this is rarely enforced).

Financial institutions need not remove the word “savings” from any account titles affected by the change in transaction limits.

However, if the financial institution eliminates the transaction limits, affected Truth in Savings disclosures should be updated to remove the limitation for new accounts opened.

Charges for Exceeding Transaction Limits
Financial institutions currently charging customers who exceed transaction limits can continue to do so according to previously disclosed terms even though transaction limits are no longer enforced. The regulation does not prohibit or require excessive transfer fees.

Ensure Your Financial Institution is in Compliance
COVID-19 continues to change the landscape for financial institutions. Understanding how this, and other guidance, impacts your financial organization and its compliance practice will be critical.

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