Fourth Quarter 2006
 |
 |
MMDAs can be offered with restrictions
Are credit unions allowed to offer Money Market Deposit Accounts (MMDA), and if so, are there any restrictions or requirements we should be aware of before we add this product to our current product list?
The first question can be answered with a resounding yes. Although very few credit unions have offered money market accounts to members, it certainly can be done.
MMDA’s are generally divided into separate tiers based on balances, and then each tier is given an appropriate interest rate. The disclosure and advertising requirements are no different than the requirements for the current products you offer. Specifically, the account disclosure, required by Truth in Savings, must include: 1) rate information, 2) compounding and crediting method, 3) balance information, 4) fees and 5) transaction limitations. If the credit union advertises the money market product, and states an annual percentage yield (APY), the advertisement must also state: 1) each tier’s minimum balance requirement and corresponding APY, 2) the minimum deposit required to open the account, if it is greater than the balance needed to obtain the APY; and 3) effect of fees.
In regard to other restrictions on MMDA’s, yes there is a restriction on transactions out of a money market account, just as there are restrictions on share account withdrawals. Regulation D restricts the number of withdrawals and transfers from a money market account. Credit unions are already required to monitor share accounts for excessive transactions, and the same requirement is in effect for money market accounts. Unlike share accounts, many credit unions are allowing access to money market accounts through check writing, ATM/debit cards and ACH transfers. Therefore, the likelihood of excessive withdrawals is much greater than with a simple share account.
Regulation D restricts certain withdrawals and transfers to a maximum aggregate number of six transactions each month. Of the six transactions, which can include: checks, POS debits, internet banking transfers, telephone-banking transfers, overdraft transfers (from share account to checking account) and ACH debits, no more than three can be any combination of checks and POS debit card transactions. Keep in mind that in-person withdrawals and ATM withdrawals are unlimited. Additionally, internal loan payments from a share account or MMDA are also unlimited.
To the disappointment of many, Regulation D is here to stay, and the outlook of increasing the number of transactions per month is bleak. Therefore credit unions are currently required to incorporate the Regulation D limitations into any non-transaction account offered to members. A question we are commonly asked is whether charging a fee for excessive transfers/withdrawals is allowed. The answer is yes. A credit union may charge a fee for excessive withdrawals to deter members from exceeding the transfer/withdrawal limitation of six. Keep in mind though, merely charging a fee will not appease the regulators, and credit unions that allow members to habitually exceed the six-transfer/withdrawal limitation will be in violation of Regulation D. The regulators will ultimately require the account to be closed, or at the very least, converted to a transaction account.