Our bank is considering allowing check writing capabilities on a customer's money market account. Obviously there are Reg. D transaction limit implications, but my question is: Would this then be considered a NOW account, with the associated restrictions on eligibility???

No.

An emphatic No!

But (he hastens to add), you can run into the eligibility problem via the back door if you fail to adequately monitor and restrict transfer and check activity from the account. If you are found to be lax in this area, your regulator could argue that you are paying interest on transaction accounts, which have the NOW eligibility restrictions.

MMA's are time deposits designed to be able to allow a limited number of withdrawals, and still pay interest (in contrast to a CD, which does not allow withdrawals for the most part). NOW's are transaction accounts that can be owned by only certain borrowers, and pay interest. Therefore, the two are completely different, and easy to mix up. Allowing the regulatory-approved withdrawals on an MMA doesn't change it into a NOW account.

We have always issued checks on MMDAs. I thought this was a common practice. The checkbooks themselves are smaller though as fewer checks are anticipated.

We allow check writing on MMDA's as well .... and we painstakingly monitor the activity in each and every one with a report that comes out at the end of each month.

We actually don't have too many problems with excess checks--account sweeps represent the bulk of our excess activity headaches.

Make sure you understand what triggers excess activity on your system. With some systems it is trancode driven from the document and with others it is driven by teller system codes. There are also probably a million other ways. You will need to be able to separate true exceptions from teller or customer documentation errors.

I recommend utilizing a special form for in-person MMA withdrawals with a trancode which identifies the item as such. Tellers should be trained to utilize the withdrawal form, rather than a check, to insure it does not count as a check toward your limit of three. Many times when I research an account that appears to be exceeding the withdrawal limits, I find it was not truly an exception. It's usually an in-person withdrawal using the wrong form.

lglover, I disagree. MMDA's are more like savings accounts but with limited checkwriting ability. Yes.......they are a pain to monitor.

I agree - MMA's are like savings accounts with limited check-writing. They're both time deposits. But the original question was whether or not allowing the check writing would make the account into a NOW - I was just trying to show the difference in NOW's and MMA's. Hope I didn't confuse anyone!

OK, let's sort through this.

1. MMD accounts are, in fact, savings accounts.
2. Savings accounts (and MMD accounts) are not time accounts. Time accounts have a definite maturity, and include CD accounts and club accounts.
3. If you fail to restrict transfer activity from your savings or MMD accounts, you could be required to reclassify all such accounts as transaction accounts.
4. the reclassification makes the accounts the equivalent of NOW accounts, and any unqualified customers could land you a Reg. Q penalty for paying interest on a transaction account for which the customer is not qualified.

See, that's why John has five stars!

John, you've summed up the issue! I was trying to show the contrast between time accounts (MMA's) and transaction (NOW) accounts - you nailed it.

BUT - MMA's are definitely savings accounts according to Reg D 204.2(d)(1), but savings accounts are time deposits (see 204.2(c)(1)(ii), "Time deposit means - ...(ii) savings deposit").

All savings accounts are time deposits, but not all time deposits are savings accounts.

And they told me Regulation D was no fun!

lglover, I'm confused. Because right above the citation you provide, in section 204.2(c)(1)(i) it states:

"A time deposit from which partial early withdrawals are permitted must impose additional early withdrawal penalties of at least seven days' simple interest on amounts withdrawn within six days after each partial withdrawal. If such additional early withdrawal penalties are not imposed, the account ceases to be a time deposit. The account may become a savings deposit if it meets the requirements for a saving deposit; otherwise it becomes a transaction account."

The emphasized part of that seems to say that a savings account is not necessarily a time deposit.

Isn't Reg D just your favorite Reg of all time?!??! I guess my best answer is the one I give loan officers who don't like what the law says - "I didn't write it, I'm just reading it to you!!"

Seriously, I've always considered deposits in two categories - time and transaction. That broad category allows you to get your reserve calculations going. After that - there are many subcategories under each main heading. CD's and IRA's are one type, savings are another, MMA's are savings, etc. I haven't dwelt too much on the confusion that (i) and (ii) cause.

I looked for some guidance on the inconsistency, but couldn't find anything. Maybe someone else has some insight to share?