VIDEO: Reg D and How it Applies to Reg CC
In this Compliance Clip (video), Adam explains how the recent Reg D changes impact Regulation CC. Specifically, Adam answer this question: Do the recent Reg D changes mean that Reg CC hold rules now apply to savings accounts? Adam gets a bit nerdy as he digs into several definitions (and technical citations) to bring us the answer.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about Regulation D and how it applies to Regulation CC. If you recall, there were some recent changes a few weeks back that Regulation D now includes savings deposits in the definition of transaction accounts. So what ultimately happened was the Federal Reserve eliminated reserve requirements, and they amended and changed Regulation D so that savings accounts are now considered a type of transaction account. Due to this, I’ve received quite a few questions over the last few weeks in regards to how this applies to Regulation CC. So the question we've seen is this, “Do the Reg D changes now make the Reg CC hold rules apply to all savings accounts?”
If you recall, Regulation CC is traditionally applied only to transaction accounts. It is not applied to savings accounts unless your state had a specific requirement that it did, or you, by contract, applied it as an internal policy to your savings accounts. So, traditionally, Reg CC is not applied to savings accounts, only transaction accounts. So the question is now that Regulation D includes savings deposits in the definition of a transaction account, does that mean that Reg CC is going to apply to all of our savings accounts?
The answer to this is actually quite complicated, it's not very easy, but we'll walk through this and we're going to find the answer to this in 229.2(e) of Regulation CC, as well as part of Regulation D. Let's take a look at 229.2(e). 229.2 is the definition section of Regulation CC. You have to understand that all the hold rules say that a hold can be placed on an account. So we're looking at the definition of an account under Regulation CC. The definition of an account is found in 229.2(e) and Regulation CC defines an account, which of course applies to our hold rules because the hold rules talk about an account, and defines an account as a deposit that is a transaction account as described in 204.2(e) of Regulation D. What the definition of an account starts to tell us is that an account is a deposit that is a transaction account as described in 204.2(e) of Regulation D. Well, Regulation D has been amended to now include savings deposits as a transaction account. But, there's a big but here, so we need to take a look at that because the definition of an account under 229.2(e) goes on.
What it does is it specifically explains a few things in this definition. What it goes on to say is that an account does not include savings deposits or accounts described in 204.2(d)(2) even though such accounts permit third party transfers. So 204 is actually Regulation D. 201, 203, 204, A, B, C, D, that's how the numbering system works. So it's actually referencing this section of Regulation D that is 204.2(d)(2). What we have here in the definition of account in Reg CC is an account includes a deposit that is a transaction account, but is not a savings deposit or other account described in 204.2(d)(2) of Regulation D. So we’ve looked at Reg CC, now we need to go on to Regulation D to answer our question.
Let's go to 204.2(d)(2) of Regulation D because this is the section that defines a savings deposit, and it defines a savings deposit as a deposit or account such as an account commonly known as a passbook savings account, a statement savings account, or a money market deposit account that otherwise meets the requirements in this section and for which under the terms of the deposit contract or by practice of the financial institution, the depositor may be permitted or authorized to make transfers or withdrawals to another account, including a transaction account, of the depositor at the same institution or to a third party, regardless of the number of such transfers or withdrawals or the manner in which those transfers or withdrawals are made. Essentially what we have here is at 204.2(d)(2) of Regulation D, we have a specific definition of a savings deposit. Now the Regulation D has been amended and what the Federal Reserve ultimately did is they include savings deposits under the bucket of a transaction account. Basically, a transaction account and then you have a subset of transaction accounts, known as savings deposits. See how that works? We have transaction accounts now include savings deposits, but savings deposits are a subset of transaction accounts. And by definition, Under Regulation CC, that subset of savings deposits is automatically excluded.
I've used this example. I think it's good here, but for example, apples are a type of fruit. If I tell you to collect all types of fruit, except apples, then I don't want you to collect apples, I want you to collect oranges, bananas and everything else. Since Reg CC specifically excludes savings deposits, savings deposits still do not apply to Regulation CC hold rules, even though Regulation D updated the definition to include savings deposits as some type of transaction account because savings deposits are still a subset of a transaction account that are specifically excluded from Regulation CC hold rules.
I hope that makes sense. I know this is a very complicated question because of the way the rules are written. It’s not the easiest to explain, but I hope this makes sense, because these are the citations. We actually have to go into the definition sections of the rules, to see whether or not Reg CC now applies to savings deposits, which of course under Regulation CC on the definition of account, it does not. I hope that makes sense. I hope that this helps you through this whole process and what we have to do given the changes to Regulation D.