Topic: Reserve Requirements
-
We issued a certificate of deposit (CD) to two joint owners with a right of survivorship. One of the owners has died, and the surviving owner would like to cash in the CD but has questioned the early withdrawal penalty. Is there any guidance on whether banks can charge early withdrawal penalties in such cases, or is this a matter of bank discretion? We have decided to waive the early withdrawal penalty in cases where there is a single owner with a payable on death provision.
—
by
We are not aware of any guidance on charging early withdrawal penalties after a joint owner of a CD has died and the surviving owner wishes to cash it in. Whether you waive an early withdrawal penalty in this situation is a matter of bank discretion. Early withdrawal penalties for CDs are required by Regulation…
-
We are considering raising early withdrawal penalties on certificates of deposit (CDs) in order to discourage early withdrawals for new accounts. Does Illinois law limit the maximum early withdrawal penalty that we can charge for new CDs? If so, are there different limits for consumer and business accounts?
—
by
No, we do not believe that Illinois law limits the maximum early withdrawal penalty that banks can charge consumers or businesses for new CDs. The Illinois Banking Act generally provides that “[t]he establishment of account service charges and the amounts of the charges not otherwise limited or prescribed by law is a business decision to…
-
Can a money market account be the only account associated with a debit card? Also, would a money market account that has had its transaction limitations removed still be classified as a savings account? We have chosen to remove transaction limitations on such accounts, but we still have a minimum withdrawal amount.
—
by
We are not aware of any law or regulation that would prohibit a money market account from being the only account associated with a debit card. Consequently, whether to offer debit cards for such accounts is a business decision for your bank. For Call Report purposes, whether to report a money market account that has…
-
Can we set a flat fee as a penalty on a certificate of deposit (CD)? For example, for a CD that matures in fewer than twelve months, can we set a penalty as a certain number of months’ interest or a flat fee, whichever is higher?
—
by
We believe that you may set a flat fee as an early withdrawal penalty on a CD, provided that the fee is properly disclosed under Regulation DD. Regulation DD’s Official Interpretations state that “Monetary penalties, such as ‘$10.00’ or ‘seven days’ interest plus accrued but uncredited interest’” are examples of early withdrawal penalties that must…
-
If we have no transfer limits set for our savings and money market accounts, would they now be considered transaction accounts under the new Regulation D changes? Would that raise the reserve requirements on these accounts in the event that reserve requirements are ever reinstated under Regulation D? Are there any other ramifications that could result from this change in categorization?
—
by
We do not believe that your savings and money market accounts would automatically be considered transaction accounts if you suspend enforcement of the six-per-month transaction limitation. Although a recent interim final rule removed the transaction limitation from the definition of “savings deposit” under Regulation D, the interim final rule maintains separate definitions for savings deposits…
-
Although no longer required, we continue to enforce a six-per-month transaction limit for our savings and money market deposit accounts, and our account agreement provides that we reserve the right to require at least seven days written notice before a customer can make a withdrawal from a savings or money market deposit account. Our Truth in Savings Act (TISA) disclosure used to include this reservation of rights language, but we recently discovered that our core provider updated our TISA disclosure to remove the reservation of rights language. Are we required to include the reservation of rights language in our TISA disclosure for savings and money market deposit accounts if we still impose transaction limitations? Do we need to notify existing customers who received the disclosure with the reservation of rights language that we no longer include this language in our new TISA disclosure?
—
by
We do not believe you are required to include the reservation of rights language in your TISA disclosure for savings and money market accounts, and we do not believe you need to notify existing customers that your new TISA disclosure no longer includes this language. Additionally, since your account agreement includes the reservation of rights…
-
We issue Mastercard debit cards and want to know if we can set the purchase limit to zero on some cards, effectively making them ATM cards. We have some customers who only have savings accounts, and if we issue debit cards for these accounts, the customers may use them for purchases and exceed the monthly six-transaction limit.
—
by
We recommend reviewing the terms of your agreement with Mastercard to determine if this is allowable. The publicly available Mastercard Transaction Processing Rules indicate that transaction limits must be set at or above Mastercard’s default limits, which may be found in the Stand-In Processing—Accumulative Global Parameters (Form 041f). Consequently, you may be prohibited from decreasing…
-
When a customer opens an individual retirement account (IRA), should they receive disclosures regarding funds availability and substitute checks under Regulation CC and electronic fund transfers under Regulation E?
—
by
No, we do not believe these disclosures are required for IRAs. Regulation CC governs the availability of funds for transaction accounts and the holds banks can place on checks. Its disclosure requirements related to funds availability and substitute checks do not apply to IRAs, which are excluded from Regulation CC’s definition of a “transaction account.”…
-
We are considering offering an interest-bearing checking account that allows for transfers only to and from a business’s operating account. Check writing, ACH credits and debits, and bill pay will be prohibited. Is R20 the most appropriate ACH return code for outside transactions on this account, even though we would not place a limit on the number of internal transactions between the customer’s accounts? What FRB check return code should we use if external paper checks or remotely created checks are presented for payment?
—
by
Yes, we believe the ACH return code R20 is the most appropriate for an external transfer to or from an account that prohibits external transfers. R20 is the designated ACH return code for payments sent to non-transaction accounts as defined in Regulation D, which includes “an account against which transactions are prohibited or limited.” Even…
-
We were ready to make a loan to a young couple that is purchasing a sanitation company as a stock purchase transaction. They wish to acquire all of the corporation’s stock and will be operating the business. The day before the closing, the seller’s attorney called off the sale — he said that because the two buyers are not accredited investors (which we believe is the case), they are ineligible to purchase the company in a stock sale under federal securities laws. Is it true that only accredited investors can acquire businesses as stock purchases?
—
by
No, we do not believe that an individual acquiring a corporation through a stock purchase needs to be an accredited investor under the federal securities laws, as the corporation’s stock does not meet the definition of a “covered security” in this context. The Securities Act of 1933 requires any security that is sold to either…