Just what exactly should I be looking for in terms of violations if a bank uses artificial attempts to avoid limitations of excess transactions? I've read where linking a savings/MMDA for preauthorized transfers of funds is considered a No-No, but I need something a little more specific if you can help me. Thanks

The best criticism you could offer is "Why in the Sam Hill are we still doing this?"

As you note, this mechanism was established to subvert the restrictions on NOW account eligibility; i.e. to offer corporations, LLC's, etc. an interest bearing account. Since July, 2011 your bank has had the ability to offer an interest bearing DDA to corporations, LLC's, etc. You don't have to offer it to all businesses; you can just offer it to the clients you are doing "sweeps" for.

It would eliminate an antiquated compliance trap...

So, if we're doing sweeps, that's ok to link the accounts?

That's one big leap you took, whoknows! Are you faster than a speeding bullet, too?

The transaction limits found in Regulation D section 204.2(d)(2) remain applicable to savings accounts, which includes money market deposit accounts (MMDAs). So setting up a savings or MMDA account as the account from which funds will be swept is going to cause problems unless the sweep agreement and practice limit the number of transfers (including the sweeps and other limited transfers) to six per month.

There is an old FRB staff opinion (for which I haven't got a citation) that said that it would be considered a violation of Regulation D to facilitate a customer's excessive transfers from savings accounts by establishing multiple such accounts for that sole purpose.

Thank you John. I read about the excessive transfers also, and that's what got me wondering. So using a savings account as a sweep to a checking account could be a problem if it was excessive also? I think I'm getting confused if it only applies to savings sweeping to MMDAs,but now I'm wondering if linking checking accounts and savings accounts could be an excess problem?

From savings or MMDA to any other account. Lots of banks, for example, set up "overdraft protection" that automatically pulls funds from a savings or MMDA account to cover ODs in a transaction account. Those transfers are counted against the monthly limit for the savings or MMDA account.

I see. The scenario I was reading about was a bit different, something about setting up five MMAs and one DDA. All the excess cash is swept into the MMA #1 at the end of the first business day of the first month. For the next five business days, that MMA is used to fund the demand deposit account's cash needs. The 6th preauthorized transfer from that MMA goes into MMA #2, and moves all remaining funds from MMA1 to MMA2. MMA2 is the funding source for the DDA for the next week using five transfers. Transfer #6 is a transfer of all remaining funds from MMA2 to MMA3, and so on. So, none of the MMAs has more than 6 pre-authorized transfers in any month. So, I should have used DDA instead of savings accounts in my initial post. But, your information is good, and very helpful to another area I'm looking at-

And I would submit that the scenario as you describe it would be considered a violation because it's an obvious attempt to circumvent the restrictions in 204.2(d)(2).

whoknows, if you will refer to the below link, you will see similar examples of this 'no-no'.

http://www.bankersonline.com/regs/204/204-133.html

As Ken suggested above...since you can now pay interest on a business checking account, you can legitimately offer back/forth transfers without this Reg D rule that is still in place, even though Q went by the way of the dinosaurs.

Thank you RRJoker and John. I think it all finally got through my thick skull, and I appreciate your teachings!

One last try: If you convert the ineligible customer's non interest bearing DDA to an interest bearing DDA (something you could not do when the sweep was set up) you can close the savings account.

A sweep account is like an appendix, you don't really need it any more, but if you still have it then it can cause you problems.