[Federal Register Volume 63, Number 249 (Tuesday, December 29, 1998)]
[Rules and Regulations]
[Pages 71573-71575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33944]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
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Federal Register / Vol. 63, No. 249 / Tuesday, December 29, 1998 /
Rules and Regulations
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 707
Truth in Savings
AGENCY: National Credit Union Administration (NCUA).
ACTION: Interim final rule with request for comments.
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SUMMARY: NCUA is amending part 707 of its regulations to implement
certain statutory changes in the Truth in Savings Act (TISA). These
amendments: modify the rules governing indoor lobby signs; eliminate
subsequent disclosure requirements for automatically renewable term
share accounts with terms of one month or less; repeal TISA's civil
liability provisions as of September 30, 2001; and permit disclosure of
an annual percentage yield (APY) equal to the contract dividend rate
for term share accounts with maturities greater than one year that do
not compound but require dividend distributions at least annually.
DATES: This rule is effective December 29, 1998. Comments must be
received on or before March 29, 1999.
ADDRESSES: Direct comments to Becky Baker, Secretary of the Board. Mail
or hand-deliver comments to: National Credit Union Administration, 1775
Duke Street, Alexandria, Virginia 22314-3428. You may fax comments to
(703) 518-6319. Please send comments by one method only.
FOR FURTHER INFORMATION CONTACT: Frank S. Kressman, Staff Attorney,
Division of Operations, Office of General Counsel, at the above address
or telephone: (703) 518-6540.
SUPPLEMENTARY INFORMATION:
Background
Part 707 of NCUA's regulations implements TISA. 12 CFR part 707.
The purpose of part 707 and TISA is to assist members in making
meaningful comparisons among share accounts offered by credit unions.
Part 707 requires disclosure of fees, dividend rates, APY, and other
terms concerning share accounts to members at account opening or
whenever a member requests this information. Fees and other information
also must be provided on any periodic statement credit unions send to
their members. TISA requires NCUA to promulgate regulations
substantially similar to those promulgated by the Board of Governors of
the Federal Reserve System (Federal Reserve). 12 U.S.C. 4311(b). In
doing so, NCUA is to take into account the unique nature of credit
unions and the limitations under which they may pay dividends on member
accounts.
The Federal Reserve has issued final rules to implement certain
statutory changes in TISA. One of these rules: expands an exemption
from certain advertising provisions for signs on the interior of a
depository institution; eliminates the requirement that depository
institutions provide disclosures in advance of maturity for
automatically renewable (rollover) accounts with a term of one month or
less; and repeals TISA's civil liability provisions, effective
September 30, 2001. 63 FR 52105 (September 29, 1998). The Federal
Reserve also has promulgated a final rule that permits depository
institutions to disclose an APY equal to the contract interest rate for
time accounts with maturities greater than one year that do not
compound but require interest distributions at least annually. 63 FR
40635 (July 30, 1998). NCUA is issuing final rules that are
substantially similar to the above rules issued by the Federal Reserve.
Interim Final Rule
The NCUA Board is issuing these rules as interim final rules
because there is a strong public interest in having in place consumer
oriented rules that are consistent with those recently promulgated by
the Federal Reserve. Additionally, as discussed above, NCUA is required
to issue rules substantively similar to those of the Federal Reserve
shortly after the Federal Reserve issues its final rules. Accordingly,
for good cause, the Board finds that, pursuant to 5 U.S.C.
553(b)(3)(B), notice and public procedures are impracticable,
unnecessary, and contrary to the public interest; and, pursuant to 5
U.S.C. 553(d)(3), the rules shall be effective immediately and without
30 days advance notice of publication. Although the rules are being
issued as interim final rules and are effective immediately, the NCUA
Board encourages interested parties to submit comments.
Section by Section Analysis
Section 707.4 Account Disclosures
A brief statement has been added to the account disclosure
requirements of Sec. 707.4(b)(6)(iii) for credit unions stating an APY
equal to the contract dividend rate for noncompounding term share
accounts that have a maturity greater than one year and that require
dividend payouts at least annually. The statement alerts members to the
fact that dividends cannot remain in the account. This is intended to
assist members in comparison shopping between accounts with annual
compounding and accounts that do not compound but require dividend
payouts during the account term.
Section 707.5 Subsequent Disclosures
Section 266(a)(3) of TISA requires depository institutions to
provide certain disclosures for rollover accounts at least 30 days
before maturity. The Federal Reserve has determined that the purposes
of TISA would not be served by requiring advance disclosures for
rollover accounts with maturities of one month or less, and has
interpreted one month to include 30 or 31 days. NCUA takes the same
approach in this context, and does not require disclosures to be
provided in advance of maturity for these accounts. Credit unions will
continue to provide disclosures when these accounts are opened.
Accordingly, Sec. 707.5(c) and the corresponding provision in Appendix
C-Official Staff Interpretations, which required disclosure, are
deleted.
Section 707.8 Advertising
This section requires credit unions that advertise APYs for
accounts to disclose other key account features. It requires a brief
narrative that parallels the account disclosure statement required by
Sec. 707.4(b)(6)(iii). If a credit union states an APY equal to the
contract dividend rate in advertising a noncompounding multi-year
account that requires dividend payments, the
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fact that dividend payouts are mandatory and that dividends cannot
remain in the account must be stated. This disclosure is intended to
assist members in comparison shopping between multi-year accounts that
compound annually and multi-year accounts that do not compound but
require dividend payouts at least annually.
Section 263(a) of TISA provides that a reference to a specific
dividend rate, yield, or rate of earnings in an advertisement triggers
a duty to state certain additional information, including the APY. In
1994, Congress amended section 263(c) of the advertising rules to
provide that, if a rate is displayed on a sign, including a rate board,
designed to be viewed only from the interior of the premises, then the
disclosure requirements of section 263 do not apply. A subsequent
statutory amendment to section 263(c) expands the exemption for signs
on the interior of the premises. Specifically, all signs inside the
premises are exempt from certain advertising disclosures, including
signs that are intended to be viewed from outside the premises.
Accordingly, the reference in Sec. 707.8(e) to signs that face outside
the premises and the corresponding provision in the Appendix C--
Official Staff Interpretations are amended. Any sign posted on the
outside of the premises remains covered by the advertising provisions
unless the sign qualifies for some other exemption, such as the
exemption for electronic media.
The Federal Reserve exempts advertisements made through broadcast
or electronic media from several of the mandatory advertising
disclosures. The Federal Reserve has determined that computer or other
advertisements, such as those posted on the Internet, are not exempt
under the broadcast or electronic media provision. The rationale for
broadcast and electronic media exemptions is that these media have time
or space constraints that make it extremely burdensome to provide the
required disclosures. Advertisements posted on the Internet generally
do not have the same time and space constraints. Such advertisements,
therefore, remain subject to the general advertising rules and must
comply with the requirements of Secs. 707.8(a), (b), (c), and (d).
Section 707.9 Enforcement and Record Retention
Section 271 of TISA, which provides for civil liability for
violations of TISA, has been repealed effective September 30, 2001.
This section reflects the effective date of the repeal.
Appendix A to Part 707--Annual Percentage Yield Calculation
Paragraph E is added to Appendix A, Part I to clarify how APYs may
be determined for noncompounding term share accounts that have a
maturity greater than one year and that pay dividends at least
annually. Two examples are added, including an example calculating the
APY for a stepped-rate account.
Appendix B to Part 707--Model Clauses and Sample Forms
A new model clause is added to describe the effect of dividend
payments on earnings.
Appendix C to Part 707--Official Staff Interpretations
Appendix C has been amended in accordance with the amendments made
to Secs. 707.5 and 707.8 for the reasons discussed above.
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact any proposed regulation may
have on a substantial number of small entities (primarily those under
$1 million in assets). The NCUA has determined and certifies that this
interim rule will not have a significant economic impact on a
substantial number of small credit unions. Accordingly, the NCUA has
determined that a Regulatory Flexibility Analysis is not required.
Paperwork Reduction Act
This interim rule has no net effect on the reporting requirements
in part 707.
Executive Order 12612
Executive Order 12612 requires NCUA to consider the effect of its
actions on state interests. It states that: ``Federal action limiting
the policy-making discretion of the states should be taken only where
constitutional authority for the action is clear and certain, and the
national activity is necessitated by the presence of a problem of
national scope.'' This interim rule will not have a direct effect on
the states, on the relationship between the national government and the
states, or on the distribution of power and responsibilities among the
various levels of government. NCUA has determined that this interim
rule does not constitute a significant regulatory action for purposes
of the executive order.
Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996
(Pub. L. 104-121) provides generally for congressional review of agency
rules. A reporting requirement is triggered in instances where NCUA
issues a final rule as defined by Section 551 of the Administrative
Procedures Act. 5 U.S.C. 551. The Office of Management and Budget has
reviewed this rule and has determined that for purposes of the Small
Business Regulatory Enforcement Fairness Act of 1996 this is not a
major rule.
List of Subjects in 12 CFR Part 707
Advertising, Consumer protection, Credit unions, Reporting and
recordkeeping requirements, Truth in savings.
By the National Credit Union Administration Board on December
17, 1998.
Becky Baker,
Secretary of the Board.
For the reasons set forth above, 12 CFR part 707 is amended as
follows:
PART 707--TRUTH IN SAVINGS
1. The authority citation for part 707 continues to read as
follows:
Authority: 12 U.S.C. 4311.
2. Section 707.4 is amended by adding a sentence at the end of
paragraph (b)(6)(iii) to read as follows:
Sec. 707.4 Account disclosures.
* * * * *
(b) * * *
(6) * * *
(iii) * * * For accounts with a stated maturity greater than one
year that do not compound dividends on an annual or more frequent
basis, that require dividend payouts at least annually, and that
disclose an APY determined in accordance with section E of appendix A
of this part, a statement that dividends cannot remain on account and
that payout of dividends is mandatory.
* * * * *
Sec. 707.5 [Amended]
3. Section 707.5 is amended by removing paragraph (c) and
redesignating paragraph (d) as new paragraph (c).
4. Section 707.8 is amended as follows:
a. Add a new paragraph (c)(6)(iii) to read as set forth below; and
b. Revise paragraph (e)(2)(i) to read as set forth below.
Sec. 707.8 Advertising.
* * * * *
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(c) * * *
(6) * * *
(iii) Required dividend payouts. For noncompounding term share
accounts with a stated maturity greater than one year that do not
compound dividends on an annual or more frequent basis, that require
dividend payouts at least annually, and that disclose an APY determined
in accordance with section E of appendix A of this part, a statement
that dividends cannot remain on account and that payout of dividends is
mandatory.
* * * * *
(e) Exemption for certain advertisements. * * *
(2) Indoors signs. (i) Signs inside the premises of a credit union
(or the premises of a share or deposit broker) are not subject to
paragraphs (b), (c), (d) or (e)(1) of this section.
* * * * *
5. Section 707.9 is amended by revising paragraph (b) to read as
follows:
Sec. 707.9 Enforcement and record retention.
* * * * *
(b) Civil liability. Section 271 of TISA (12 U.S.C. 4310) contains
the provisions relating to civil liability for failure to comply with
the requirements of TISA and this part; Section 271 is repealed
effective September 30, 2001.
* * * * *
6. Appendix A to part 707 is amended as follows:
a. Revise the third sentence in the introductory text to Part I to
read as set forth below;
b. Revise the first sentence of the introductory text to Part I, A.
General Rules to read as set forth below; and
c. A new section E is added to Part I and reads as set forth below.
Appendix A to Part 707--Annual Percentage Yield Calculation
* * * * *
Part I. Annual Percentage Yield for Account Disclosures and Advertising
Purposes
* * * Special rules apply to accounts with tiered and stepped
dividend rates, and to certain term share accounts with a stated
maturity greater than one year.
A. General Rules
Except as provided in Part I. E. of this appendix, the annual
percentage yield shall be calculated by the formula shown below. * *
*
* * * * *
E. Term Share Accounts with a Stated Maturity Greater than One Year
that Pay Dividends At Least Annually
1. For term share accounts with a stated maturity greater than
one year, that do not compound dividends on an annual or more
frequent basis, and that require the member to withdraw dividends at
least annually, the annual percentage yield may be disclosed as
equal to the dividend rate.
Example
If a credit union offers a $1,000 two-year term share account
that does not compound and that pays out dividends semi-annually by
check or transfer at a 6.00% dividend rate, the annual percentage
yield may be disclosed as 6.00%.
2. For term share accounts covered by this paragraph that are
also stepped-rate accounts, the annual percentage yield may be
disclosed as equal to the composite dividend rate.
Example
(1) If a credit union offers a $1,000 three-year term share
account that does not compound and that pays out dividends annually
by check or transfer at a 5.00% dividend rate for the first year,
6.00% dividend rate for the second year, and 7.00% dividend rate for
the third year, the credit union may compute the composite dividend
rate and APY as follows:
(a) Multiply each dividend rate by the number of days it will be
in effect;
(b) Add these figures together; and
(c) Divide by the total number of days in the term.
(2) Applied to the example, the products of the dividend rates
and days the rates are in effect are (5.00% x 365 days) 1825,
(6.00% x 365 days) 2190, and (7.00% x 365) 2555, respectively. The
sum of these products, 6570, is divided by 1095, the total number of
days in the term. The composite dividend rate and APY are both
6.00%.
* * * * *
7. Appendix B to part 707 is amended by adding a new paragraph
(I)(v) under B-1 Model Clauses For Account Disclosures and reads as
follows:
Appendix B to Part 707--Model Clauses and Sample Forms
* * * * *
B-1 Model Clauses for Account Disclosures
* * * * *
(I) * * *
(V) Required dividend distribution.
This account requires the distribution of dividends and does not
allow dividends to remain in the account.
* * * * *
Appendix C to Part 707 [Amended]
8. Appendix C to part 707 is amended as follows:
a. Remove paragraph (c)1. under Section 707.5 and redesignate
paragraph (d)1. under Section 707.5 as new paragraph (c)1.
b. Remove paragraph (e)(2)(i)2. under Section 707.8.
[FR Doc. 98-33944 Filed 12-28-98; 8:45 am]
BILLING CODE 7535-01-P
