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F E D E R A L R ESERVE BANK OF DALLAS DALLAS, TEXAS 75222 C i r c u l a r No. 76-38 M arch 24, 1976 PROPOSED AMENDMENT TO REGULATION Q P r e a u t h o r i z e d T r a n s f e r s of F u n d s from S a v i n g s A c c o u n ts to C o v e r O v e r d r a f t s TO ALL MEMBER BANKS AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: F o llow ing is t h e t e x t of a s ta t e m e n t i s s u e d o n M a rc h 15, 1976, b y th e B o a rd of G o v e r n o r s of t h e F e d e r a l R e s e r v e S y ste m : T h e B o a rd of G o v e r n o r s o f t h e F e d e r a l R e s e r v e S y s te m to d a y p r o p o s e d fo r c o m m e n t a n a m e n d m e n t to its R e g u l a ti o n Q— I n t e r e s t on D e p o s i t s — to p e r m i t m e m b e r b a n k s to a g r e e to c o v e r o v e r d r a f t s b y t r a n s f e r i n g f u n d s from a c u s t o m e r ' s s a v i n g s a c c o u n t . T h e B o a rd a s k e d f o r co m m en t on its p r o p o s a l t h r o u g h May 14, 1976. T h e B o a rd p r o p o s e d t h e a u to m a tic o v e r d r a f t p r o t e c t i o n s e r v i c e a s a logical o u t g r o w t h o f its r e c e n t a u t h o r i z a t i o n of t r a n s f e r s from s a v i n g s a c c o u n t s u p o n i n s t r u c t i o n s r e c e i v e d from d e p o s i t o r s b y t e l e p h o n e . U n d e r t h e p r o p o s e d a m e n d m e n t d e p o s i t o r s m a i n ta in in g b o th s a v i n g s a n d d e m a n d d e p o s i t a c c o u n t s a t a m e m b e r b a n k w o u ld b e p e r m i t t e d : — To h a v e s p e c i f i e d a m o u n ts o f f u n d s — in $100 m u l t i p l e s — a u t o m a t ic a l ly t r a n s f e r r e d from t h e i r s a v i n g s a c c o u n t s to t h e i r d e m a n d a c c o u n t s in c a s e of a n o v e r d r a f t . — To a u t h o r i z e a n a u to m a tic t r a n s f e r of c e r t a i n a m o u n ts w h e n t h e c u s t o m e r ' s d e m a n d d e p o s i t a c c o u n t falls b elow a c e r t a i n le v e l. — To a u t h o r i z e a t r a n s f e r o u t o f s a v i n g s to t h e b a n k it s e lf in c a s e o f a n o v e r d r a f t . T h e B o a r d p r o p o s e d t h a t w h e n a t r a n s f e r is m a d e from a s a v i n g s a c c o u n t to c o v e r a n o v e r d r a f t in a d e m a n d d e p o s i t a c c o u n t , o r to b r i n g t h e c u s t o m e r ' s d e m a n d a c c o u n t a b o v e a c e r t a i n le v e l, t h e d e p o s i t o r w o u ld b e r e q u i r e d to fo rf e it a n a m o u n t e q u i v a l e n t to n o t le s s t h a n 30 d a y s ' i n t e r e s t This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) - 2 - on t h e a m o u n t o f t h e f u n d s t r a n s f e r r e d . In a d d i t i o n , a s p r e s e n t l y r e q u i r e d , b a n k s w o u ld c o n t i n u e to r e s e r v e t h e r i g h t to im p o se 30 d a y s 1 n o tic e p r i o r to t h e t r a n s f e r of f u n d s from s a v i n g s . F o llow in g is a n e x a m p le of how t h e p r o p o s e d o v e r d r a f t p r o t e c t i o n s e r v ice w o u ld w o r k , w h e r e t h e r e w a s a r e q u i r e d f o r f e i t u r e of 30 d a y s ' i n t e r e s t , a n d a m inim um a u t h o r i z e d t r a n s f e r of $100: — C h e c k i n g B a l a n c e — $600; S a v i n g s B a l a n c e — $ 1,000 . — S a v i n g s I n t e r e s t R ate 5% s im p l e i n t e r e s t p e r a n n u m . — P u r s u a n t to p r e a r r a n g e d a g r e e m e n t , t r a n s f e r s m ay be m a d e in $100 u n i t s to c o v e r c h e c k s . — D ra ft in a m o u n t o f $1,050 d r a w n o n c h e c k i n g a c c o u n t . — $500 w o u ld b e t r a n s f e r r e d from s a v i n g s to c h e c k i n g . — D e p o s ito r w o u ld f o rf e it 30 d a y s ' i n t e r e s t o n th e $500 t r a n s f e r r e d , $ 2 .0 8 . C o m m ents o n th e p r o p o s e d a m e n d m e n t s h o u l d b e d i r e c t e d to t h e S e c r e t a r y , B o a r d of G o v e r n o r s o f t h e F e d e r a l R e s e r v e S y s t e m , W a s h i n g to n , D . C . 20551, to b e r e c e i v e d not l a t e r t h a n May 14, 1976. T h e t e x t of t h e p r o p o s e d a m e n d m e n t is e n c l o s e d . S in ce rely y o u rs , T . W. P la n t F i r s t V ic e P r e s i d e n t E n closure TITLE 12— BAUKS AND BANKING CHAPTER II— FEDERAL RESERVE SYSTEM SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [REG. Q] (Docket No. R-0027) PART 217— INTEREST ON DEPOSITS Withdrawals from Savings Deposits The Board of Governors, pursuant to its authority under § 19 of the Federal Reserve Act to define the terms used in that section and to prescribe rules governing the payment of interest on deposits (12 U.S.C. 461, 371b), proposes to amend Regulation Q to permit member banks to transfer funds from customers' savings accounts to customers' demand deposit or other deposit accounts or directly to the bank itself where the depositor's demand deposit balance is insufficient to permit payment of checks or drafts. Under existing regulations, such transfers are prohibited, and, therefore, member banks generally return such items through the check clearing system. The proposed amendment would require that transfer of credit be made pursuant to a written agreement between a member bank and its depositor that authorizes the transfer. This agreement would require that transfers be made in multiples of $100 or more and that the depositor forfeit an amount equivalent to no less than 30 days' interest at the savings rate on the funds transferred. -2The Board's proposal is made in recognition of the increasing cost incurred by consumers, banks, merchants, and other businessmen as a result of checks and drafts returned by banks for insufficient funds. Because of the special handling procedures required to process customer overdrafts, many banks impose a substantial charge to their customers for checks and drafts that must be returned because of insufficient funds. The presence of return items also has a substantial effect upon the speed and efficiency of the check clearing operations of the Federal Reserve System. As a result, the Federal Reserve System incurs a substantial expense in the handling of these returned checks and drafts. The Board's proposed amendment is intended to present an alternative to the existing practice of returning checks and drafts drawn on insufficient funds. The Board believes that the proposed amendment represents a reasonable accommodation that may be offered by member banks to their depositors. As proposed, member banks could agree, in writing, with depositors that, in the event there are insufficient funds in the depositor's demand deposit account (or other deposit account) to cover checks that have been presented to the bank for payment or in the event that the balance in the depositor's demand deposit account falls below a certain specified amount, the bank will transfer funds in multiples of $100 or more from the depositor's savings account to the customer's demand deposit account. This amendment would require -3 - that the depositor forfeit an amount equivalent to no less than 30 days' interest on the funds withdrawn and transferred from the savings account. The proposed amendment also provides that funds may be transferred directly to the bank itself from the depositor's savings account to cover overdrafts. Member banks would continue to be required to reserve the right to impose a 30-day notice period on intended withdrawals of savings deposits as presently required in § 217.1(c) of Regulation Q. The Board is interested in receiving public comment on whether some other minimum interest forfeiture would be appropriate and whether transfers of minimum denominations different from the proposed $100 would be appropriate. This proposal would not affect existing arrangements whereby a thrift institution has agreed with its customer to transfer funds automatically or otherwise to the customer's demand deposit at a com mercial bank in accordance with a preauthorized agreement. Interested persons are invited to submit their views or arguments. Any such material should be submitted in writing to the Secretary, Board of Governors of the Federal Reserve System, Washington, D.C. 20551, to be received not later than May 14, 1976. submitted should include the docket number R-0027. All material Such material will be made available for inspection and copying upon request, except as provided in § 261.6(a) of the of Information. Board' 55 Rules Regarding Availability ,4- Pur suant to its authority under § 19 of the Federal Reserve Act (12 U.S.C. 461, 371b), the Board of Governors proposes to amend § 217.5(c) of Regulation Q (12 CFR 217.5(c)) as follows: 5 217.5— WITHDRAWAL OF SAVINGS DEPOSITS * (c) * * * * Manner of payment of savings deposits (2) Withdrawals may be permitted by a member bank to be made from a savings deposit, through payment to the bank itself or through transfer of credit to a demand or other deposit account of the same depositor pursuant to a written agreement between a member bank and its depositor that authorizes such payments or transfers in order to cover checks or drafts drawn by the depositor upon the bank; provided that such payments or transfers are made in multiples of no less than $100 and that the depositor shall forfeit an amount equivalent to no less than 30 days' interest on the amount of funds withdrawn and transferred from a savings deposit in a manner described in this subparagraph. •* it h * * By order of the Board of Governors, March 15, 1976. (Signed) Theodore E. Allison Theodore E. Allison Secretary of the Board
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