Regulation D and Master Accounts

Issue/Inquiry

The Bank is implementing escrow accounts with a master account and sub-accounts, which will be used for lawyers, landlords, etc. The master account will be an interest-bearing savings account. All sub-accounts will be deposited into the master account. A non-interest bearing checking account will be established as the disbursement account.  Are these accounts subject to Regulation D limitations of six withdrawals per statement cycle?

Response Summary

An account meeting the Regulation D definition of a savings account is one that is subject to limitations on the number of withdrawals which can be made during a statement cycle, and for which the depository institution can require seven days’ written notice of intended withdrawal.  No distinction is made between consumer and commercial accounts.

The sub-accounts of the escrow account will not be limited on the number of deposits that can be made from them to the main account, nor will the disbursement checking account be limited on the number of transfers or withdrawals that can be made from it. As a savings account, no more than six transfers can be made from it to the disbursement checking account per calendar month or statement cycle.

Response Detail

Under Regulation D, a “savings deposit” is defined as a deposit or account for which the depository institution may require, at any time, written notice of intended withdrawal of no less than seven days before withdrawal is made. 12 CFR §204.2(d)(1).

The term also means a deposit or account from which the depositor is not permitted or authorized to make more than six transfers and/or withdrawals per calendar month or statement cycle of at least four weeks, to another account of the depositor at the same institution or to a third party by such means as a check, draft, preauthorized or automatic transfer, or telephonic (including data transmission) agreement. Passbook savings accounts, statement savings accounts, and money market accounts are examples of savings deposits. 12 CFR §204.2(d)(2).

No distinction is made between consumer and commercial deposits or accounts. Thus, any account meeting the definition of Regulation D would be a savings account for the purposes of the reserve requirements of the regulation.

The escrow master account is described as an interest-bearing savings account and the sub-accounts and disbursement checking account are presumably demand deposit accounts. Under Regulation D, a “demand deposit” is a deposit or account that is payable on demand or representing funds for which the depository institution does not require at least seven days’ written notice of an intended withdrawal. Demand deposits may be in the form of checking accounts. There are no limits on the number of transfers or withdrawals from a demand deposit account. 12 CFR §204.2(b)(1),(i); FRB Consumer Compliance Handbook, Reg. D – 1,2.

Assuming that the disbursement checking account and sub-accounts are in the nature of demand deposit accounts, there are no limits on the number of deposit transactions that can be made from the sub-accounts accounts to the main account, nor are there restrictions on the number of withdrawals or transfers that can be made from the disbursement checking account. Withdrawals and transfers from the main account, however, are subject to the restrictions of Regulation D.

This means that, if the main account is to be classified as a savings account for the purposes of the reserve requirements of Regulation D, the Bank can allow no more than six transfers from that account to the disbursement checking account during a calendar month or statement cycle.

 

 

This entry was posted on Monday, June 5th, 2017 at 1:34 pm.