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We had an account that had a Reg D violation in 2011, with excessive withdrawals too many times within that year. We should have switched him to a checking account but just left it as a savings account not earning any interest. We did notify him by mail for each violation and at the 4th violation we indicated what would be now happening to his account. Now that the Regulation D changed regarding the excessive withdrawals should we start paying him interest and provide him with a letter indicating he will be receiving interest again on his account.
This is a great question! So sorry that you missed catching this account when the 2020 update to Reg D was implemented. Although the regulatory change happened on April 24, 2020, the change made to address pandemic conditions was never reversed. The current version of Reg D does not restrict withdrawals from savings accounts. Because a long period of time has passed since the regulatory change, we would recommend your actions to match one of the below choices:
1. You could close the existing account, and move the funds to a new account that earns interest. You can communicate that you have done this as a courtesy because in a recent routine review, you noticed that the account was not an interest-bearing account. This is probably the “cleanest” way to avoid concerns regarding the longer delay in your awareness of the rule change, and action on the rule change.
2. You could restore interest payments to the existing account, not pay any retroactive interest, and advise the customer you have restored interest payments now that the temporary change that happened during Covid have been made permanent.
3. You could restore interest payments to the existing account and provide a retroactive interest credit to the customer to avoid any potential concerns. If doing this, you should notify the customer of the action you took, explain that you became aware of this issue in a recent routine account review, and have corrected the issue as well as calculated and applied the retroactive interest, with apologies for the oversight.
All of the above would be within technical compliance. Your choice is likely to depend on the difficulties and financial impacts of each potential choice, relative to the account history and customer relationship.
We hope this set of choices has been helpful to taking action on this challenge.
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