The Federal Reserve recently issued a series of FAQs regarding their announcement on March 15, 2020 of the elimination of reserve requirements. This announcement has resulted in many questions regarding the transaction restrictions on savings accounts under Regulation D. Specifically, many banks are seeing an increase of restricted transactions on Savings accounts due to customers following stay-at-home orders. The question bankers often have is this: Do we still need to follow Regulation D’s restrictions on Savings accounts, or can we allow customers to exceed those restrictions?
Fortunately, the Federal Reserve has provided guidance to financial institutions, which many comes down to this: the restrictions are still in place, but financial institutions can convert applicable accounts to transaction accounts.
Specifically, the following FAQs provide guidance regarding savings account transaction restrictions:
7. Are there changes to the six convenient transfer limit on savings deposits associated with the elimination of reserve requirements?
No, but the distinction between savings deposits and transaction accounts no longer has significance for reserve requirements purposes. The six convenient transfer limit in Regulation D distinguishes savings deposits from transaction accounts. This distinction was essential during the time when transaction accounts were subject to reserve requirements but savings deposits were not. As announced (Off-site) on March 15, 2020, Board reduced reserve requirement ratios on transaction accounts to zero percent, effective March 26, 2020. Accordingly, there is no longer any significance for reserve requirements purposes to the distinction between savings deposits and transaction accounts: neither one is subject to reserve requirements. However, the six convenient transfer limit still applies to any account that a depository institution classifies as a “savings deposit” for purposes of the depository institution’s FR 2900 deposit reports.
8. Are depository institutions required under Regulation D to offer accounts that are characterized as “savings deposits” for deposit reporting purposes?
No, there is no regulatory requirement that a depository institution offer, or continue to offer, accounts that meet the regulatory definition of “savings deposits.” Depository institutions are free to continue to offer accounts that meet the regulatory definition of “savings deposit” accounts, that is, accounts subject to the six convenient transfer limit. Depository institutions are not required to offer such accounts, however. If depository institutions choose to continue to offer accounts that meet the regulatory definition of “savings deposits,” then depository institutions must enforce the six convenient transfer limit in Regulation D applicable to “savings deposits.” Depository institutions are free to allow an unlimited number of convenient transfers from an account, even an account that has been previously classified for deposit reporting purposes as a “savings deposit,” provided that the institution reports the account as a “transaction account.”
The Federal Reserve understands that the process of correctly classifying accounts that offer more than six convenient transfers as transaction accounts on the FR 2900 report may take time, and each Reserve Bank will work with reporting banks to support their efforts to accurately report on the FR 2900 on a time line that makes sense relative to the current situation.
9. Are depository institutions permitted to reclassify accounts as “transaction accounts” that are currently classified as “savings deposits” for deposit reporting purposes?
Yes, provided that they are not prohibited under their existing account agreements with their savings deposit customers from doing so. Depository institutions should review their account agreements with their savings deposit customers to ensure that reclassifying such accounts as “transaction accounts” would not be prohibited by those agreements. Depository institutions may wish to amend any savings deposit account agreements that contain terms prohibiting reclassifying such accounts as “transaction accounts.”
The Federal Reserve understands that the process of correctly classifying accounts that offer more than six convenient transfers as transaction accounts on the FR 2900 report may take time, and each Reserve Bank will work with reporting banks to support their efforts to accurately report on the FR 2900 on a timeline that makes sense relative to the current situation.
10. Are depository institutions required to reclassify accounts as “transaction accounts” that are currently classified as “savings deposits” for deposit reporting purposes?
No.
11. Are depository institutions that reclassify their savings deposits as transaction accounts required to notify those customers that their savings deposits are being reclassified as transaction accounts?
Depository institutions should review their account agreements with their savings deposit customers to determine whether there is a contractual obligation for the depository institution to notify customers of changes in terms. The reclassification of an account from a savings deposit account to a transaction account would mean that the depository institution would no longer have to enforce the six convenient transfer limit on such an account. Notifying the customer that the six convenient transfer limit no longer applied to such an account would be prudent, especially under circumstances like those currently prevailing where many customers require greater access to their funds and the physical offices of their financial institutions may be closed.
12. Are depository institutions required to pay different rates of interest on accounts classified as “savings deposits” than they pay on accounts classified as “transaction accounts”?
No.
13. Are there any special rules about transfers from savings deposits that apply in light of the coronavirus situation?
Customers may be experiencing greater needs to have convenient access to their savings deposits in light of the coronavirus outbreak, which may cause many financial institutions to close their branches and other physical locations. As a result, the Federal Reserve encourages banks to work with customers. One way to do so would be for the bank to allow customers to have more than six convenient transfers on their accounts, and for the bank to report such accounts as transaction accounts on the FR 2900. As noted above, banks will need to ensure that their account agreements with their customers are consistent with reclassifying such accounts as “transaction accounts.” See FAQ No. [9, “Are depository institutions permitted to reclassify accounts as “transaction accounts” that are currently classified as “savings deposits” for deposit reporting purposes?”].
14. Can banks immediately allow customers to make more than six convenient transfers per month from their savings deposits and then report those accounts as “transaction accounts” later on the FR 2900?
Yes. As stated above, banks should work with their local Reserve Banks to support their efforts to accurately report on the FR 2900 on a timeline that makes sense relative to the current situation.
15. Are banks required to charge their customers fees for violating the six transfer limit?
No. Regulation D does not require or prohibit the charging of fees by banks to customers that exceed the transfer limits.
16. Do banks that charge their customers fees for violating the transfer limits have to pay those fees to the Federal Reserve?
These fees are bank fees, and are not government fees or taxes. Banks that charge such fees do not send them to the Federal Reserve.
The Federal Reserve Guidance regarding Regulation D can be found here: https://www.frbservices.org/resources/central-bank/faq/reserve-account-admin-app.html#collapsea7
