Pub. 10 2020 Issue 2

20 Solemn Farewell to Reg. D’s Convenient Transfer Restrictions E FFECTIVE APRIL 24TH, 2020, THE BOARD of Governors of the Federal Reserve System (“Board”) did away with a longstanding and, in the opinion of some, outdated rule in Regulation D. The Interim Final Rule amended Reg. D by deleting the six convenient transfers and withdrawals restriction that has become synonymous with savings accounts. Additionally, recent guidance has further clarified aspects of the rule change raised by the Interim Final Rule. Because the rule change puts the ball in each depository institution’s court, in terms of whether to continue enforcing transfer restrictions, banks are now left at a crossroads with compliance considerations in proceeding down either path. With the Reg. D restrictions being antiquat- ed for years due to changes in the industry, what precipitated Reg. D’s amendments now? In the Interim Final Rule, the Board noted an “ample reserves regime” monetary policy shift, which led to the Board reducing reserve requirement ratios to zero percent effective March 26th, 2020. As a result of the elimination of reserve requirements on all transaction accounts, the Board stated that the distinction between transaction ac - counts and savings deposit accounts was no longer necessary. Lastly, the Board pointed to disruptions caused by COVID-19, which in turn has caused many depositors to have an urgent need for access to their funds by remote means. Because the Board pointed to recent devel - opments as a basis of the change, as well as its timing amid the COVID-19 pandemic, has led some to question whether the Reg. D changes are permanent or only tempo- rary in order to provide relief during the current crisis. The Interim Final Rule, as currently written, did not indicate that these changes are temporary. Additional - ly, The Federal Reserve Banks (“Banks”) further clarified in a recent FAQ that the Board does not have plans to re-impose transfer limits but may make adjustments to the definition of savings accounts in re- sponse to comments received regarding the Interim Final Rule as well as potentially in the future if warranted. With the question of the Interim Final Rule’s permanency being somewhat clearer, it is worth noting that many changes caused by the rule are indeed clearly explained. For example, the rule explains that enforcement of the changes is not mandatory. Instead, it is completely up to each bank whether to suspend enforcement of the six transfer limit and even provides that a temporary suspension is an option. Additionally, the rule allows a certain amount of flexibility in that a bank that suspends enforcement of the transfer limits can either continue to report these accounts as savings deposits or report them as transaction accounts for purposes of the FR 2900. Further, the rule does not require reclassification or name changes for affected accounts. Because it is up to each bank on whether to sus - pend enforcement of the six transfer limits, one of the most frequent questions we have received is whether notice is required when suspend- ing enforcement — neither the Interim Final Rule nor relevant guidance regarding the Reg. D changes have specifically stated notice is required. Additionally, Regulation DD only re- quires advance notice in certain circumstances in which suspension of transfer limits would not trigger. Even though not specifically required by regulation, providing notice is considered a best practice from a customer relationship and UDAAP perspective when significantly changing the terms of an account, additionally, for those institutions that will be suspending enforcement of the transfer limitations only temporarily, generally Reg. DD would require advance notice when re-implementing the transfer restrictions, as this would adversely affect the consumer. We have heard from many banks that plan to temporarily suspend enforcement of restrictions plan on providing a statement notice informing the customer of the change and indicating the date on which the restrictions will be re-implemented. Another issue presented by the change is whether it is necessary to amend account agreements. While the Interim Final Rule does not specify how account agreements may be amended, the issue of whether they should be amended remains open. If choosing to suspend enforcement of the restrictions, this would arguably lead to a conflict between the depos- itory institutions’ practices and the current By Michael Perez, Associate General Counsel