I opened an interest bearing checking account with ING. One of the main reasons was because of Regulation D.

Now that I have shifted all my checking account transactions to ING let me explain why I moved from my credit union. A few months back I received a letter from my credit union telling me that I had violated Regulation D by having more than a certain number of transfers from my savings account. These transfers were actual transfers, from saving to checking, from my saving to husband’s saving, saving to another saving, etc. I nickle and dime my way into savings thus I always had a zero balance in my checking account. I moved money when needed from my savings account.The transfers were always done to pay bills. The interest rate at the my credit union for savings accounts is pitiful. I got maybe a dollar every month. But it didn’t bother me, because the bulk of my savings was earning high interest at a high yielding savings account.  Now I was being told that after a certain number of transfers, my savings account would be locked untill the end of the month. But I could still access the money by making withdrawals from the bank teller if I showed up in person. This is very annoying, because I do all my banking online, and getting to my credit union is a pain in the neck since I live far away from their branches. Plus I had a grudge against the credit union for fining me last year because I didn’t give them my new address in good time when I moved. Since banks don’t like to forward bank statements I got hit with a $30 fine (they wouldn’t budge on removing it). And to add salt to the wound, one month after my move they decided to stop mailing out bank statements and instead have them available online.

Anyway…so back to this Regulation D business.  Here is a good article about it. The article does not make me understand  why I should be punished for my miniscule transfers. 

Below is what the letter from my credit union said to notify me of a Regulation D violation:

Federal regulation requires financial institutions to limit withdrawal transactions on certain accounts. Please be advised that during the month of October you made more than six preauthorized or automatic withdrawals or telephone transfers to another account from your Savings accounts. Your savings accounts include your Regular Savings account, Club accounts, Higher Yield Savings account and your Money Market account.
Effective 2/1/2008, PF Credit Union, in accordance with Regulation D, will no longer permit more than six transactions from your Savings accounts as described above. Once the monthly limit is reached, an automatic monitor will prohibit additional transfers and withdrawals.

The following combinations qualify as Regulation D transactions, and therefore, are limited to six per month. For Money Markets, up to three of these six transactions may be made by check:
Online Banking
Automated Clearing House
Phone requests using audio response system or speaking by telephone with a PFCU Member Service Representative
Fax or email requests
Automatic Transfers

Withdrawals and transfers from your PFCU Savings and Money Market accounts are unlimited when made under the following circumstances:
In person
ATM
by mail
By Teller Phone, Teller Net or fax when requesting a PFCU official check made payable to you and mailed to your address of record with PFCU.
Transfer to a PFCU loan in your name.

Now that I’ve been reading the Secrets of the Temple, I wonder why Regulation D exists at all. The federal reserve which basically controls all money has what’s called a discount window. From what I understand, this is where banks can borrow money to offset any deficits they may encounter on a temporary basis. The primary purpose is to prevent an old run on the bank scenario. Banks and apparently credit unions can also access the discount window. Credit unions are now set to be combined with banks under the same charter soon. Financial institutions are required to maintain a certain amount of money available at all times. The specific amount is based on a ratio set by the agency/governing body that they are controlled by. So my question is: if there is a shortfall and banks can borrow, but the shortfall caused by me moving $5 - $200 dollars between acounts causes a violation of Reg D…isn’t this a bigger problem? I mean its not like I’m moving $10M around every 20 minutes.

So maybe there is some sort of penalty for borrowing from the discount window. Then why is my account locked after 6 transfers? Why isn’t there a fee or some sort? And why is all this invalid once I show up in person to move money around?

ING also has this limitation on how much transfers can be done…but its limited to their online savings account - not their checking account. At the credit union, I was moving money from savings to checking or checking to saving. As far as I can tell…this is just a bookkeeping issue. Debit here, credit there. Also…to use an accounting term, my transactions were immaterial. And my money was not in a money market account where I could be penalized for touching it. But why is there a problem with transferring from savings? Isn’t a savings account a termporary holding account anyway? Are banks promising to sign off on loans based on the numbers currently sitting in savings accounts? I don’t get what Reg D is supposed to do.

So…do you know what the purpose of Reg D is? Have you violated Reg D and received a scary little letter? Please share.