Mr. John M. Hutchison
Capital City Bank
P.O. Box 900
Tallahassee, FL 32302-0900

Dear Mr. Hutchison:

This is in response to your letter of July 25, 1997, to the Board of Governors, which has been referred to me. You asked about the status under the definition of savings account in the Board's Regulation D (12 C.F.R. 204) of certain ACH debits. In particular, you asked about ACH debits that reverse previous deposits of Visa and Mastercard sales drafts, in order to correct errors or dispute sales. These debits would be presented to Capital City Bank through ACH transactions generated by the card systems.

Section 204.2(d)(2) of the Regulation currently defines a savings deposit to include:

A deposit or account . . . that otherwise meets the requirements of section 204.2(d)(1) and from which . . . the depositor is permitted or authorized to make no more than six transfers and withdrawals, or a combination of such transfers and withdrawals, per calendar month . . . by means of a preauthorized or automatic transfer, or telephonic (including data transmission) agreement, order or instruction. . . .

12 C.F.R. 204.2(d)(2).

Staff has opined that chargebacks for debits from savings accounts for checks returned unpaid do not count against the six per month limit.

When a check is returned unpaid to a depository institution that had received the check as a deposit to a savings account and had provided credit for the deposit to its customer, the depository institution may charge the check back to the customer's account and that charge would not count as a transfer and therefore would not count toward the six-transfer limit applicable to savings accounts.

Staff Op. of July 29, 1992 (Federal Reserve Research Service 2-342.21).

As a general matter, staff believes that ACH debits initiated to reverse credits arising out of the collection of credit card sales drafts are analogous to returned checks and should not count toward the six transfer limit. Thus, in your case, to the extent it is the card system reversing credits in payments previously credited to that account in accord with card system rules, staff believes that such debits should not count against the transfer limit. However, without reviewing the nature of each payment, it is not clear that all debits generated by the card system would qualify for this exemption.

I hope this information is helpful to you. Further questions may be addressed to Rick Heyke of my staff (202/452-3688) or to the undersigned.

Very truly yours,

(signed) Oliver Ireland

Oliver Ireland