Question & Answer

Question: Is imposing fines on customers who conduct excess transactions on MMDAs enough to correct the problem or should the bank take more action?

Answer: Several years ago, in this column, we advised imposing fines on customers who persisted in violating the transaction limits on money market deposit accounts. Our suggestion was to increase the fine each time violations occurred.

If you have logged on to our website, www.BankersOnline.com, you will see that the general consensus now is that imposing fines on MMDA excess transactions is not sufficient. Regulators now hold institutions to stricter standards. The current best practice would be to first impose a penalty with a warning. Some banks also use a stiffer second penalty with a stronger warning.

But at some point - sooner rather than later - you must convert the account to a transaction account or close it altogether. A customer who breaks the contract by writing too many checks or making too many transfers simply may not have the privileges that go with money market deposit accounts.

Each time you open an MMDA, you face the possibility that you have a customer who will conduct excess transactions. So it would be a good idea to make sure your new accounts staff is trained to warn customers about the transaction limits. Disclosures can be used effectively to get this message across.

Copyright © 2000 Compliance Action. Originally appeared in Compliance Action, Vol. 5, No. 13, 11/00