I got a letter from my bank in the US yesterday which stated they were going to shut down my bank account because I had violated Federal Regulation D. Not only had I violated it this month, but the previous month. My crime? Having more than six transfers in a statement period.

Online Banking

Our bank recently improved their online banking website. It is now very usable, and easy to keep tabs on how our money flows. Consequently I have been using it weekly. I also have an Ameritrade investment account. Since the online banking lets me keep my statements at my finger tips without having to travel to an ATM or a bank, I have been shuffling money to the investment account two or three times a month.

The mortgage also comes from my saving account, it is automatically taken every fortnight. I also shuffle money into the credit card as well to ensure that doesn't inflate and so I don't pay monthly interest on my purchases. All up that is easily more than six transfers in a month. The letter from the bank contained;

We recently mailed a letter to inform you that you have been exceeding the number of allowable withdrawals from the savings account listed above, for more than one statement period. At that time, we informed you that your account would be closed if you continued to make excess withdrawals. As stated in our deposit Agreement and Disclosure, Federal Regulation D limits the number of withdrawals on savings accounts to six per statement period. Federal Regulation D also requires financial institutions to monitor these accounts for compliance.

I didn't see the original letter, but I saw this one, and since my pay is electronically deposited into the account they were going to close - I hit the roof. The bank agreed to keep my savings account open, upon my verbal agreement to stay within six withdrawals a month.

Federal Regulation D

So what is this Federal Regulation D? I found two places online that contained it. One on the SEC website for Regulation D and another that splits it up by section on a private GIO related website. It appeared from my conversation with the bank representative, that it is only for online transfers this regulation covers. I was told if I wanted to go to ATMs or the bank I would be able to do unlimited transfers. Additionally, if I used a checking account, rather than a savings account, there would be no limitation.

The only section of the regulation that I could find that mentioned six transfers was under the "Electronic Code of Federal Regulations", Title 12, Part 204. This contains;

(b) Background. Under Regulation D, 12 CFR 204.2(d)(2), the term "savings deposit" includes a deposit or an account that meets the requirements of § 204.2(d)(1) and from which, under the terms of the deposit contract or by practice of the depository institution, the depositor is permitted or authorized to make up to six transfers or withdrawals per month or statement cycle of at least four weeks. The depository institution may authorize up to three of these six transfers to be made by check, draft, debit card, or similar order drawn by the depositor and payable to third parties. If more than six transfers (or more than three third party transfers by check, etc.) are permitted or authorized per month or statement cycle, the depository institution may not classify the account as a savings deposit. If the depositor, during the period, makes more than six transfers or withdrawals (or more than three third party transfers by check, etc.), the depository institution may, depending upon the facts and circumstances, be required by Regulation D (Footnote 5 at §204.2(d)(2)) to reclassify or close the account.

It appears this is not about a fiscal or physical limitation, it reads as a rule to allow the banks to reclassify a savings account to a checking account if it has more than six transfers. I suspect this regulation was written so banks have government backing on "Slamming" accounts that don't fit what they want.

The letter to me also contained;

Within 10 days from the date of this letter, we will close your savings account and transfer the funds into your existing checking account. If you do not have a checking account in your name, we will open a new checking account and transfer the funds. This change is designed to match your account to the way you actually use it. You will be notified in writing of your savings account and provided with information about the account to which your funds have been transferred.

My phone call to the bank stopped this, but it looks to me like they got government to authorise the banks to slam savings account to checking accounts. The annoying thing is, there are plenty of banks, who I am sure all want my money, but due to this regulation, they are not competing to service me in how I use my money. I use a savings account as the centre of my transferrals. No matter which bank I go to, they all will try and slam me from a savings account into a checking account.

This is a limitation on my economic liberty and a non-competitive practice backed by poor legislation that allows this practice to be uniform across the whole banking industry.

Emailing Congress and the Senate

I am an Australian citizen and cant vote in the US, but my keyboard works no matter what my citizenship or continent I am on. The US House of Representatives has a useful site to write your local representative . I sent Frank Wolf (R), and the state's two Senators, George Allen (R) and John Warner (R) this email;

I recently got a letter from my bank claiming they were going to close down my bank account because I had too many transfers. Apparently I am limited to six in a month due to Federal Regulation D.

This is insane, I over-ran the arbitrary six number as I pay my mortgage twice a month, I pay off the credit twice monthly, I send money to an online investment account (for retirement) twice a month and also use my online banking to pay off the equity loan we have.

These add up to more than six in a month.

The irony is, if I do the same thing over the phone, through the ATM, or even from a checking account there is no limit. I ran over the limit due to using the internet and online banking.

This has to change.

My economic liberty includes me being able to use my money, how I choose, and when I choose. If it is the most efficient for me to pay off my bills and save for my retirement through twelve transfers a month, then that is what it should be.

I urge you to change the legislation in Federal Regulation D, so that this arbitrary restriction no longer applies to online banking.

Thanks.

Unfortunately I sent the email off before looking into the issue more deeply as I was writing this entry. I would have written something different. Either way it is a restriction on my economic liberty, further, it is an anti-competitive regulation that exempts the banking industry from having to compete in the services they offer in savings accounts. It allows the banks to slam a user's savings account to a checking account without their approval.

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