Financial institutions have carefully crafted a monetary system with every element distinctly described. What exactly is the definition of a merchant account? Here is a guide on this topic.

Federal Reserve System Rules

In 1913, the Federal Reserve (Fed) took over effective management of the United States economy from the Treasury Department. Thereafter, the Fed controlled interest rates, administered member banks and encouraged Congress to pass relevant financial laws. The Federal Reserve Note is known colloquially as the United States Dollar.

The Federal Reserve System has divided the United States into twelve districts, each with its own Governor. When the Governors assemble as the Board of Governors, they make legally-binding decisions. Day-to-day operations of the system are directed by the Fed Chairman.

What is the definition of account?

The Fed Board of Governors has defined a bank transaction account in Section 229.2(a) of Regulation CC as a bank deposit where frequent deposits, withdrawals and transfers are allowed by negotiable or transferable instrument. An account can also be accessed from an automatic teller machine (ATM). An account may include any of the following:

  • Demand deposit
  • Negotiable order of withdrawal
  • Share draft
  • Automatic transfer

An account does not refer to accounts owned by banks or institutions as defined in Section 229.2, paragraphs (e)(1) through (e)(6). It does not include accounts directly or indirectly owned by the United States Treasury. Any terms not defined in Regulation CC, have “the meanings set forth in the Uniform Commercial Code (UCC).”

Why is this definition important?

The owner of a merchant account should know his legal rights under the law and within the parameters of the Federal Reserve System. In Cyprus, when banks ran out of money, they started to claim the funds of their customer’s accounts. Banking professionals call this “rehypothecation.” The banks started to assert that a bank account was actually an investment into the bank, like a stock. Technically, these seizures were illegal because the merchant account belongs to the individual – for the sake of functions, such as credit card processing.

Accounts are established by agreements between merchants and financial institutions. New technology for credit card processing must ensure that the original account definitions continue to be upheld. Unless specified, owners must continue to have access to their accounts, under the law.



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