[Federal Register Volume 59, Number 25 (Monday, February 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2505]
[[Page Unknown]]
[Federal Register: February 7, 1994]
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FEDERAL RESERVE SYSTEM
12 CFR Part 230
[Regulation DD; Docket No. R-0824]
Truth in Savings
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed official staff interpretation.
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SUMMARY: The Board is publishing for comment a proposed official staff
commentary to Regulation DD (Truth in Savings). The commentary applies
and interprets the requirements of Regulation DD and is a substitute
for individual staff interpretations. The proposed commentary
incorporates much of the guidance provided when the regulation was
adopted, and addresses additional questions that have been raised about
the application of its requirements.
DATES: Comments must be received on or before April 1, 1994.
ADDRESSES: Comments should refer to Docket No. R-0824, and may be
mailed to William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, NW.,
Washington, DC 20551. Comments also may be delivered to room B-2222 of
the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the
guard station in the Eccles Building courtyard on 20th Street, NW.
(between Constitution Avenue and C Street) at any time. Comments may be
inspected in Room MP-500 of the Martin Building between 9 a.m. and 5
p.m. weekdays, except as provided in 12 CFR 261.8 of the Board's rules
regarding the availability of information.
FOR FURTHER INFORMATION CONTACT: Jane Ahrens, Kyung Cho, Kurt
Schumacher or Mary Jane Seebach, Staff Attorneys, Division of Consumer
and Community Affairs, Board of Governors of the Federal Reserve
System, at (202) 452-3667 or 452-2412; for the hearing impaired only,
Dorothea Thompson, Telecommunications Device for the Deaf, at (202)
452-3544.
SUPPLEMENTARY INFORMATION:
(1) Background
The purpose of the Truth in Savings Act (12 U.S.C. 4301 et seq.) is
to assist consumers in comparing deposit accounts offered by depository
institutions. The act requires institutions to disclose fees, the
interest rate, the annual percentage yield, and other account terms
whenever a consumer requests the information and before an account is
opened. Fees and other information also must be provided on any
periodic statement the institution sends to the consumer. Rules are set
forth for deposit account advertisements and advance notices to account
holders of adverse changes in terms. The act restricts how institutions
must determine the account balance on which interest is calculated. The
act is implemented by the Board's Regulation DD (12 CFR part 230),
which became effective on June 21, 1993. The regulation authorizes the
issuance of official staff interpretations of the regulation. (See
Appendix D to Regulation DD.)
The Board is publishing a proposed commentary to Regulation DD. The
proposal is designed to provide guidance to depository institutions in
applying the regulation to specific transactions and is a substitute
for individual staff interpretations. The Board contemplates updating
the commentary periodically to address significant questions that
arise. It is expected that this commentary will be adopted in final
form in June 1994 with a six-month time period for optional compliance
until the effective date, estimated in December 1994.
(2) Proposed Commentary
The Federal Register documents containing the regulation that
implemented the act and documents for subsequent amendments set forth a
large amount of supplementary material interpreting the new regulation.
(See final rule published on September 21, 1992 (57 FR 43337),
correction notice published on October 5, 1992 (57 FR 46480), and
amendments published on March 19, 1993 (58 FR 15077).) In large
measure, the proposed commentary incorporates the supplementary
material from those rulemakings, and reflects the views expressed
therein without substantive change. A number of issues that have arisen
since the publication of the regulation have also been addressed.
Proposed interpretations of new issues are noted below.
On December 6, 1993, the Board published a proposal to amend the
regulation's rules for calculating the annual percentage yield for
accounts that pay interest prior to maturity (58 FR 64190). (See also
the notice extending the comment period published on January 13, 1994,
59 FR 1921.) The Board has deferred proposing commentary on provisions
of the regulation affected by the proposal, pending final action by the
Board.
The scope of the discussion that follows is limited so that, for
instance, examples listed in the commentary are not repeated below.
Section 230.1--Authority, Purpose, Coverage, and Effect on State Laws
(c) Coverage
Comment 1(c)-1 clarifies that the scope of the regulation is all
depository institutions (except credit unions) that offer accounts to
residents of a ``state,'' such as accounts held in the United States,
even though funds may be transferred periodically into an account held
at a location outside the United States. An account located outside the
United States is not covered, even if the funds are held by a U.S.
resident.
Section 230.2--Definitions
(a) Account
Comment 2(a)-1 provides examples of accounts subject to the
regulation, including the example of a deposit account required as a
condition of obtaining a credit card account (often referred to as a
``secured'' credit card account). The Board believes it is important
for consumers to receive disclosures about the terms, monthly fees, or
other charges that may apply to such accounts, since such information
may not appear on disclosures given to card holders under the Truth in
Lending Act and its implementing Regulation Z (12 CFR part 226).
The proposed comment also includes examples of accounts not subject
to the regulation. The Board's proposed comment narrows the scope of
trust accounts covered by the regulation, a difference from guidance
provided in supplementary material to the September 1992 rulemaking.
The comment provides that trust accounts are not subject to the
regulation with the exception of individual retirement accounts (IRAs)
and simplified employee pension (SEP) accounts. (See proposed
commentary to paragraph 2(h) of this section.) The ``trust'' for which
the account is established is not a natural person, even though the
trustee and beneficiary might be. In addition, the law of trusts
imposes duties and responsibilities upon all trustees that the Board
believes distinguish trust accounts from other accounts held by one
individual for another solely for personal, family or household
purposes. Finally, the Board believes that requiring an institution to
identify both the purpose of the trust and whether the account has been
established by someone in a professional capacity would present an
undue compliance burden, with minimal benefits. The Board requests
comment on whether any accounts established for trusts (other than IRAs
and SEP accounts) should be subject to the regulation, particularly
when both the beneficiary and the trustee are natural persons.
(b) Advertisement
Comment 2(b)-1 provides examples of commercial messages considered
to be advertisements, such as messages on computer screens in bank
lobbies and accompanying printouts. The Board believes these messages
are similar to messages in traditional advertising media such as
televisions and newspapers.
The comment also provides examples of messages not considered to be
advertisements, including direct oral discussions conducted in person--
but not telephone conversations--regarding the negotiation of a
specific account. The Board believes that the purpose of advertising
disclosures--ensuring that prospective customers of consumer accounts
know basic terms about the account--is adequately served by face-to-
face discussions between employees of the institution and consumers
seeking information about accounts. Also, this interpretation is
similar to the approach taken in the Official Staff Commentary to the
Board's Regulation Z (12 CFR part 226, Supp. I, 2(a)(2)-1).
(f) Bonus
Comment 2(f)-1 provides examples of bonuses. The comment also
provides an example of an item that is not considered a bonus for
purposes of the regulation--discount coupons offered by institutions
for use at restaurants and stores.
Comment 2(f)-2 clarifies the application of the de minimis rule
($10 value or less) by defining the calendar year as the time frame for
determining whether the bonus requirements are triggered, to ease
compliance. The comment also provides that institutions must aggregate
per account the value of items contemplated to be given during the
calendar year, even though an item's individual value is less than $10.
Thus, if an institution offers in January to give a consumer an item
valued at $7.00 each calendar quarter during the year if account
balances in a NOW account exceed $10,000 for each calendar quarter, the
bonus rules would be triggered. On the other hand, if the items are
given for opening separate accounts--such as a $7.00 item for renewing
a time account and another for opening a savings account--the value
given for each account remains within the de minimis exception, and the
bonus rules would not be triggered.
Comment 2(f)-3 clarifies that the waiver or reduction of a fee or
absorption of expenses is not a bonus. The Board solicits comment on
this approach.
(h) Consumer
Comment 2(h)-3 clarifies coverage issues for retirement plans. For
example, the proposed comment states that SEP accounts and IRAs are
considered consumer accounts for purposes of the regulation. The Board
believes that although institutions are named as trustees, SEP accounts
and IRAs are equivalent to other accounts opened for consumer purposes.
On the other hand, the proposed comment would exclude from coverage
accounts held in a Keogh plan, which is established by a self-employed
individual. The Board believes Keogh accounts are similar to accounts
held by a sole proprietor, which Congress intended not to cover.
Comment 2(h)-4 provides factors to consider in determining whether
an account is held by an unincorporated nonbusiness association of
natural persons. Associations with paid staff are likely to be more
sophisticated in their investment decisions and are not as likely to
need disclosures. The Board solicits comment on whether the use of
factors is appropriate for providing guidance in this area. In
addition, the Board solicits comment on the proposed factors and on
what additional factors might indicate an account is held by or offered
to an unincorporated association of natural persons.
(p) Passbook Savings Account
Comment 2(p)-1 clarifies that institutions may consider accounts as
``passbook savings,'' even if direct deposits such as social security
payments are made to the account without the use of the passbook. The
proposed comment is consistent with the requirements of Regulation E
(12 CFR 205.9). Accounts that permit other electronic fund transfers--
whether or not called ``passbook''--and thus trigger Regulation E's
requirement to send statements at least quarterly are not passbook
savings accounts, and institutions must comply with the periodic
statement disclosures in Sec. 230.6 of this part.
(t) Tiered-rate Account
Comment 2(t)-1 clarifies that time accounts that pay different
rates based solely on the amount of the initial deposit are not
considered tiered-rate accounts. In this case, advertisements and
account disclosures would not reflect tiered-rate disclosures for the
account.
Section 230.3--General Disclosure Requirements
(b) General
Comment 3(b)-1 provides guidance on the specificity required for
the disclosures of the compounding and crediting frequencies. The Board
believes slight variations in cycles are consistent with the notion of
``monthly'' cycles, which are often not based on an actual calendar
month.
(c) Relation to Regulation E
Comment 3(c)-1 provides examples of disclosures under Regulation E
that also comply with this regulation.
The comment clarifies that an institution may rely on Regulation
E's disclosure rules regarding fees imposed at ATMs and limitations on
the frequency and amount of electronic fund transfers, including
security-related exceptions. But any fees assessed for--or any
limitations placed on the number or amount of--``intra-institutional
transfers'' from other accounts at the institution must be disclosed
under this regulation, even though those transactions are exempt from
Regulation E. (See Sec. 230.4(b) of this part.)
Section 230.4--Account Disclosures
(a) Delivery of Account Disclosures
(a)(1) Account Opening
The regulation requires institutions to provide account disclosures
before an account is opened. Comment 4(a)(1)-1 provides examples of
events that do and do not trigger the delivery of new account
disclosures. Comment 4(a)(1)-1 provides guidance to institutions that
deem an account to be closed, then receive a deposit from the consumer.
The circumstances under which an institution may deem an account closed
is governed by state or other law. However, the Board believes that if
an institution accepts a deposit from a consumer on an account the
institution has deemed to be ``closed'' (such as with a balance of $0)
opening account disclosures are required.
The proposed comment also provides that an account acquired in a
merger or acquisition is not a new account. Comment is solicited on
whether the rules for acquisitions involving the Resolution Trust
Corporation and the Federal Deposit Insurance Corporation should be
distinguished from the rules for other acquisitions, since they may
involve the acquisition of deposits, not accounts.
(a)(2) Requests
Paragraph (a)(2)(i)
Comment 4(a)(2)(i)-3 clarifies that ten business days (a period
consistent with other timing rules for providing disclosure to
consumers that open accounts by telephone, for example) is a reasonable
time for responding to requests for disclosures.
(b) Content of Account Disclosures
Paragraph (b)(1) Rate Information
Paragraph (b)(1)(i) Annual Percentage Yield and Interest Rate
Comment 4(b)(1)(i)-1 provides that no rate or yield other than the
interest rate and annual percentage yield may be stated in account
disclosures, with the exception of a periodic rate corresponding to the
interest rate (since it is easily understood by consumers).
(b)(2) Compounding and Crediting
(b)(2)(i) Frequency
Interpretation of this paragraph is deferred pending the Board's
final action on proposed amendments to Regulation DD.
(b)(2)(ii) Effect of Closing an Account
Proposed comment 4(b)(2)(ii)-1 explains that institutions may
include in their contract specific consumer actions that will be
considered by the institution to be a request to close the account, and
that may result in the nonpayment of accrued but uncredited interest.
(See Sec. 230.7(b) of this part.) The Board solicits comment on this
approach.
(b)(4) Fees
Comments 4(b)(4)-1 through -3 provide guidance for disclosing the
amount of fees that may be assessed in connection with the account and
the conditions under which they may be imposed. The Board believes that
attempting to list in the commentary all fees imposed by institutions
would produce a list that would become both lengthy and outdated.
(b)(5) Transaction Limitations
Comment 4(b)(5)-1 clarifies that institutions need not disclose
their right to require seven-day advance notice for withdrawals from an
account. (See 12 CFR part 204.)
(b)(6) Features of Time Accounts
(b)(6)(i) Time Requirements
Comment 4(b)(6)(i)-1 provides that institutions offering
``callable'' time accounts must state the date or the circumstances
under which the account may be redeemed, in addition to the maturity
date. The Board believes the disclosure is a component of the maturity
date--informing the consumer when the funds in the account may become
available for reinvestment.
(b)(6)(ii) Early Withdrawal Penalties
Comment 4(b)(6)(ii)-2 provides examples of early withdrawal
penalties, and clarifies that early withdrawal penalties include
bonuses that may be reclaimed if funds are withdrawn prior to maturity.
Comment 4(b)(6)(ii)-3 clarifies that institutions are not required
to disclose as early withdrawal penalties potential income taxation
consequences for consumers who withdraw funds held in IRAs or similar
plans.
Section 230.5--Subsequent Disclosures
(a) Change in Terms
Paragraph (a)(1) Advance Notice Required
Comment 5(a)(1)-3 provides guidance on an institution's
responsibilities to provide change in terms notices when account
disclosures reflect that a term may change upon the occurrence of an
event, such as a fee waiver for employees during their employment.
However, the Board believes that a change in terms notice does not
extend to changes in the type of account held. (See proposed commentary
to Sec. 230.4(a)(1) of this part, which clarifies that transferring
funds held in an MMDA to open a NOW account must be treated as the
opening of a new account.)
Paragraph (a)(2)(ii) Check Printing Fees
The regulation's exception to providing a change in terms notice
for increases to check printing charges is based on the consumer's
control over the style and quantity of checks ordered. The Board
solicits comment on other products, if any, that should be similarly
treated.
(b) Notice Before Maturity for Time Accounts Longer Than One Month That
Renew Automatically
Comments 5(b)-1 through -5 address questions about notices that
must be sent for automatically renewing time accounts. Comment 5(b)-1
provides guidance regarding a time account that may, in fact, have a
term longer than the stated maturity date because the maturity date
falls on a weekend or holiday. The Board has received questions asking
whether this delay on a one-year time deposit would make the term
longer than one year (thus requiring the full account disclosures under
paragraph 5(b)(1) of this section prior to renewal rather than the
abbreviated disclosures permitted by paragraph 5(b)(2)). The same issue
arises for time accounts with a stated term of one month that may be
extended beyond 31 days. The Board believes these short extensions due
to the maturity date's falling on a weekend or holiday do not affect
the classification of the account for purposes of the type of
disclosures institutions are required to provide.
Comment 5(b)-2 clarifies that when disclosing the date when the
interest rate and annual percentage yield can be determined,
institutions may use general disclosures of that date if the date is
easily discerned.
The Board has received many questions about ``club accounts.''
Comment 5(b)-4 makes clear that club accounts that otherwise meet the
definition of a time account (Sec. 230.2(u)) must follow the
requirements of this section, even if the consumer withdraws funds at
maturity rather than ``rolling over'' the principal amount for another
term. The proposed comment also clarifies that if the consumer has
previously agreed to make payments into the account for the next club
cycle (for example, by direct deposit or by transfers from another
account), the club account should be treated as an automatically
renewable time account.
Comment 5(b)-5 clarifies disclosure requirements for a changed term
for the subsequent renewal of a rollover time account. If the notice
required by this paragraph has been provided to the consumer about the
renewing time account, institutions may provide new account disclosures
or a disclosure that reflects the consumer's request and the new term.
The regulation states that if disclosures have previously been given
and the terms remain the same, institutions need not provide the
disclosures a second time. (See Sec. 230.4(a) of this part.) Since
consumers receive disclosures about their renewing time account, this
approach provides consumers with essential information and eases
compliance for institutions. The Board requests comment on this
approach.
Paragraph (b)(1) Maturities of Longer Than One Year
Comment 5(b)(1)-1 clarifies that institutions need not highlight
the new terms reflected in the disclosures.
(c) Notice for Time Accounts One Month or Less That Renew Automatically
Institutions have limited disclosure responsibilities for rollover
time accounts with maturities of one month or less. If a term
previously disclosed (other than the interest rate and annual
percentage yield) is changed at renewal, institutions must send a brief
notice describing the change ``within a reasonable time'' after the
renewal of the account. Comment 5(c)-1 provides that 10 calendar days
after the renewal is a reasonable time except for accounts shorter than
10 days, which should receive disclosures before any subsequent
renewal.
(d) Notice Before Maturity for Time Accounts Longer Than One Year That
Do Not Renew Automatically
Comment 5(d)-1 clarifies that institutions need not provide new
account disclosures when funds are subsequently transferred following
the maturity of a nonrollover time account, unless a new account is
established. The Board solicits comments on how institutions treat
funds held in a nonrollover time account following maturity, and
whether new account disclosures are appropriate in cases where funds
remain with institutions. For example, is a check sent to the consumer
automatically, or within a certain number of days of maturity? Are
funds transferred to an account, and if so, how long are the funds
typically held in that account?
Section 230.6--Periodic Statement Disclosures
(a) General Rule
Comment 6(a)-2 provides guidance to institutions when quarterly
periodic statements are normally sent for the account but a consumer's
electronic fund transfer triggers the institution's duty under
Regulation E to send a statement that month. Institutions need not
treat interim monthly statements as periodic statements subject to the
requirements of this regulation; if they choose not to do so, they must
provide the disclosures (such as the interest earned and annual
percentage yield earned) on subsequent quarterly statements.
Comment 6(a)-3 clarifies that institutions may include limited
account information for one account (an MMDA, for example) on the
periodic statement of another account. However, disclosing interest or
rate information would trigger the duty to state the annual percentage
yield and other disclosure requirements on that statement.
Comment 6(a)-4 provides guidance on additional information that may
appear on periodic statements.
Paragraph (a)(3) Fees Imposed
Comment 6(a)(3)-2 provides examples of similar types of fees that
can be grouped together if they are disclosed with the same name or
description. It also makes clear that all other account fees, including
those related to electronic services that are not fund transfers, must
be disclosed in accordance with Sec. 230.6 of this part.
Comment 6(a)(3)-4 clarifies that institutions may comply with the
requirements of Regulation E for disclosing electronic funds transfer
fees on periodic statements.
Paragraph (a)(4) Length of Period
Comment 6(a)(4)-2 provides that if a consumer opens or closes an
account during a period, the annual percentage yield earned and the
other disclosures for the consumer's account must reflect only those
days the account was open, such as when a consumer changes from an
interest-bearing account to a noninterest-bearing account in the middle
of a period.
(b) Special Rule for Average Daily Balance Method
When an institution uses the average daily balance method for
monthly periods and provides a quarterly statement, the literal
language of the regulation suggests that institutions should provide
three interest figures with three corresponding annual percentage yield
earned figures. Comment 6(b)-3 would permit institutions to show either
separate figures for each month or a figure for the whole quarter. The
Board believes consumers may receive more useful information if
institutions provide one interest figure and one corresponding annual
percentage yield earned figure for the period.
Section 230.7--Payment of Interest
(a) Permissible Methods
Comment 7(a)-5 clarifies that the regulation does not require
institutions to pay interest after a time account matures and provides
examples to illustrate the rule.
Comment 7(a)-6 addresses ``dormant'' accounts. The Board solicits
comment on whether an institution should or should not be permitted to
withhold the payment of interest for dormant accounts. (See comment
7(b)-4, regarding the forfeiture of accrued but uncredited interest for
dormant accounts.) The Board also solicits comment on whether providing
further guidance on the definition of a dormant account would be
preferable to reliance on state or other law. And, if a uniform time
period were to be adopted, what period of time would be appropriate to
consider an account dormant?
Paragraph (a)(2) Determination of Minimum Balance to Earn Interest
Comment 7(a)(2)-5 clarifies that when a consumer's account has a
negative balance, institutions must use zero, and not a negative
number, to determine the balance on which the institution pays interest
and whether any minimum balance requirement has been met. The Board
believes that the regulation prohibits institutions from using negative
balance amounts for these purposes, regardless of whether a daily
balance or an average daily balance requirement method is used. (See
commentary to Appendix A, Part II, which prohibits the use of negative
balances for calculating the interest figure for the annual percentage
yield earned.)
Comment 7(a)(2)-6 clarifies that for club accounts, such as
``holiday'' and ``vacation'' clubs, institutions cannot impose a
minimum balance that could result in the nonpayment of interest for the
entire club period. The Board believes a minimum balance that requires
consumers to make the total number of payments or dollar amounts
required under the club plan at the maturity of the account is
tantamount to the ending balance method of calculating interest--a
balance calculation method not permitted under the regulation.
(b) Compounding and Crediting Policies
Comment 7(b)-3 clarifies that institutions may, by agreement with
the consumer, specify circumstances in which the institution deems an
account to be closed by the consumer. If an account is closed by the
consumer, Regulation DD does not require an institution to pay accrued
but uncredited interest, as long as this fact is disclosed. (See
Sec. 230.4(b)(2)(ii).) For example, institutions may provide in a
checking account agreement that by writing a check which reduces the
account balance to $0, a consumer is deemed to have closed an account,
or that the account will be deemed closed if no activity occurs within
60 days of that transaction. (See proposed comment 230.4(a)(1)-1, which
requires institutions to treat the acceptance of a deposit subsequently
made by the consumer to that account as the opening of a new account.)
Section 230.8--Advertising
(a) Misleading or Inaccurate Advertisements
In response to concerns expressed about the potential for
misleading or inaccurate advertising on indoor signs, comment 8(a)-2
provides guidance regarding time accounts and tiered-rate accounts. The
Board solicits comment on the approach taken.
The regulation prohibits institutions from using the terms ``free''
or ``no cost'' (or terms of similar meaning) to advertise accounts or
account services if ``maintenance and activity fees'' can be imposed.
The Board has received many questions about which fees trigger the
prohibition. The Board believes that it is not possible to identify by
name all fees that trigger this limitation. (See discussion for
proposed comment 4(b)(4)-1.) Instead, comments 8(a)-3 through -7
provide general principles institutions may use, regardless of what a
fee may be named. The Board solicits comment on the proposed approach
to provide guidance in this area.
In defining the scope of ``maintenance and activity'' fees, comment
8(a)-3 addresses advertisements for ``free'' accounts with optional
electronic services such as home banking. The Board believes many
consumers consider electronic services such as ATM access to be an
integral part of their accounts. Therefore, in its September 1992
rulemaking, the Board stated that institutions could not advertise an
account as ``free'' if a fee is imposed for transactions at ATMs owned
by the institution. Some institutions have questioned this approach
arguing that ATM access is provided only upon a consumer's request and
that consumers will receive information--including the cost of ATM
access--before obtaining the service. The Board solicits comment on
this approach.
The Board believes consumers are not mislead by advertisements for
``free'' accounts, if certain electronic services, such as home banking
services, are available for a fee. The Board believes that (unlike ATM
access) consumers do not have a reasonable expectation that services
such as home banking would be included as part of an account advertised
as free. Of course, if optional features that impose fees are
advertised with a free account, the advertisement must make clear that
charges are assessed for the optional feature. The Board solicits
comment on this approach, and requests comment on whether ATM services
should be distinguished from other optional electronic services, and
whether consumers would be mislead by an advertisement for an account
that is described as ``free'' even though the institution may charge
for ATM activity at ATMs owned by the institution.
Comment 8(a)-4 specifies that the term ``fees waived'' is similar
to the terms ``free'' or ``no cost'' for the purposes of this section.
(b) Permissible Rates
The Board has received many questions about advertising accounts
for which institutions offer a number of versions (certificates of
deposits, for example). Comment 8(b)-3 clarifies that institutions may
state an annual percentage yield for each version of an account.
Alternatively, the proposed comment would permit institutions to state
a representative example as long as the advertisement makes clear that,
for instance, the advertised yield is for a time account with a 30-day
maturity and does not apply to all time accounts. Similarly, the
comment illustrates that institutions could advertise selected versions
of time accounts. The Board solicits comment on this approach, which
the Board believes would effectively minimize compliance burdens for
institutions while still providing meaningful information to consumers.
(c) When Additional Disclosures are Required
The regulation requires institutions to disclose additional
information when the annual percentage yield is advertised. Comment
8(c)-1 provides examples of information that does and does not trigger
the additional disclosures. In response to questions about the effect
of advertising a ``bonus'' rate, the proposed comment illustrates that
stating ``bonus rates are available'' does not trigger additional
disclosures. However, stating a ``bonus rate of 1%'' over an
institution's current interest rate for one-year certificates of
deposit is equivalent to stating an interest rate.
Paragraph (c)(2) Time Annual Percentage Yield Is Offered
Comment 8(c)(2)-1 clarifies the regulation's disclosure
requirements for advertisements that state an annual percentage yield
as of a specified ``recent'' date. The proposed comment provides that
when an advertisement is published, the specified ``recent date'' must
be recent in relation to the publication frequency of the media used
for the advertisement (taking into account established production
deadlines for the media involved). For example, annual percentage
yields as of the printing date of a brochure printed once for a deposit
account promotion that will run for six months would be considered
``recent,'' even though rates may be expected to change during the six-
month period. Annual percentage yields published in a daily newspaper
or broadcast on television must be ``recent'' as of the daily
publishing or broadcasting deadline date, even though the
advertisements may appear less frequently (such as once a month). The
Board solicits comment on this approach.
Paragraph (c)(6) Features of Time Accounts
Paragraph (c)(6)(i) Time Requirements
Comment 8(c)(6)(i)-1 addresses questions regarding ``club''
accounts in which there is a fixed maturity date but the term of the
account may vary, depending on when the account is opened. The proposed
comment provides that institutions adequately disclose the term of the
account by stating the established maturity date and the fact that the
actual term may vary.
Appendix A--Annual Percentage Yield Calculation
Part I. Annual Percentage Yield for Account Disclosures and Advertising
Purposes
With one exception, the interpretation of Appendix A, Part 1 is
deferred pending the Board's final action on proposed amendments to
Regulation DD. Proposed comment app. A.I.-1 clarifies rounding rules
which may be used in calculating interest and the annual percentage
yield. The Board believes that rounding to five decimals results in a
more precise figure and is in accordance with industry practices. The
Board requests comment on whether further guidance on rounding
principles would be appropriate.
Part II. Annual Percentage Yield Earned for Periodic Statements
Comment app. A.II.A-1 clarifies when institutions should or should
not include accrued but uncredited interest in the balances used to
calculate the annual percentage yield earned. The Board believes that
it would be misleading to include accrued interest in the balance
figure when statements are sent less frequently than interest is
credited.
When periodic statements are issued more frequently than interest
is credited, accrued interest would be included in the balance figure
in succeeding statements. This is necessary so that the beginning
balance can properly reflect the principal on which interest will
accrue for the succeeding statement period. The Board solicits comment
on these calculation principles.
Comment app. A.II.A.-2 clarifies rounding rules for calculating
interest earned and the annual percentage yield earned. The Board
believes flexibility in rounding is appropriate when statements are
sent more frequently than interest is compounded and credited, since
the interest earned figure does not reflect the amount which will
actually be paid by an institution.
B. Special Formula for Use Where Periodic Statements Are Sent More
Often Than the Period for Which Interest Is Compounded
Comment app. A.II.B.-1 provides guidance to institutions that issue
quarterly periodic statements but are required by Regulation E to send
a monthly statement during the quarter. (See proposed comment 230.6(a)-
2, which discusses an institution's option to comply with the
disclosure requirements for such monthly statements.) The comment
clarifies that institutions complying with Sec. 230.6 for monthly
statements triggered by Regulation E must use the special formula in
part II.B. of this appendix. Institutions could use this formula for a
quarterly statement whether or not a monthly statement is triggered by
Regulation E during the quarter. The Board believes such a rule would
significantly reduce compliance burdens for institutions. However, in
some cases, the use of the special formula may result in an understated
annual percentage yield earned. The Board solicits comment on whether
the purposes of the act are best served by this approach.
Comment app. A.II.B.-2 clarifies that the special formula requires
institutions to use the actual number of days in the compounding period
in calculating the annual percentage yield earned. In the supplementary
material that accompanied the March 19, 1993 amendments to the
regulation (58 FR 15077), the calculation used average numbers of days
in the compounding period to calculate the annual percentage yield
earned for a statement period. The Board believes that using actual
days in a compounding period is more appropriate and corresponds to the
annual percentage yield earned for a specific consumer's account. The
Board solicits comment on the proposed comment.
(3) Form of Comment Letters
Comment letters should refer to Docket No. R-0824, and, when
possible, should use a standard typeface with a type size of 10 or 12
characters per inch. This will enable the Board to convert the text
into machine-readable form through electronic scanning, and will
facilitate automated retrieval of comments for review. Comments may
also be submitted on 3\1/2\ inch or 5\1/4\ inch computer diskettes in
any IBM-compatible DOS-based format, if accompanied by an original
document in paper form.
List of Subjects in 12 CFR Part 230
Advertising, Banks, Banking, Consumer protection, Deposit accounts,
Interest, Interest rates, Truth in savings.
For the reasons set forth in the preamble, the Board proposes to
amend 12 CFR part 230 as follows:
PART 230--TRUTH IN SAVINGS (REGULATION DD)
1. The authority citation for part 230 would continue to read as
follows:
Authority: 12 U.S.C. 4301 et seq.
2. Part 230 would be amended by adding a new Supplement I at the
end of the appendixes to the Part to read as follows:
Supplement I to Part 230--Official Staff Interpretations
INTRODUCTION
1. Official status. This commentary is the vehicle by which the
staff of the Division of Consumer and Community Affairs of the
Federal Reserve Board issues official staff interpretations of
Regulation DD. Good faith compliance with this commentary affords
protection from liability under section 271(f) of the Truth in
Savings Act.
Section 230.1--Authority, Purpose, Coverage, and Effect on State Laws
(c) Coverage
1. Foreign applicability. Regulation DD applies to all
depository institutions, except credit unions, that offer deposit
accounts to residents (including resident aliens) of any state as
defined in Sec. 230.2(r).
2. Persons who advertise accounts. Persons who advertise
accounts are subject to the advertising rules. For example, if a
deposit broker places an advertisement that offers consumers an
interest in an account at a depository institution, the advertising
rules apply to the advertisement, whether the account is held by the
broker or directly by the consumer.
Section 230.2--Definitions
(a) Account
1. Covered accounts. Examples of accounts subject to the
regulation are:
Interest-bearing and noninterest-bearing accounts
Accounts opened as a condition of obtaining a credit
card
Examples of accounts not subject to the regulation are:
Mortgage escrow accounts for collecting taxes and
property insurance premiums
Accounts established to make periodic disbursements on
construction loans
Trust accounts other than individual retirement
accounts (IRAs) and simplified employee pension (SEP) accounts
Accounts opened by an executor in the name of a
decedent's estate
Accounts of individuals operating businesses as sole
proprietors
2. Other investments. The term ``account'' does not apply to all
products of a depository institution. Examples of products not
covered are:
Government securities
Mutual funds
Annuities
Securities or obligations of a depository institution
Contractual arrangements such as repurchase agreements,
interest rate swaps, and bankers acceptances
(b) Advertisement
1. Coverage. Advertisements include commercial messages in
visual, oral, or print media that invite, offer, or otherwise
announce generally to prospective customers the availability of
consumer accounts such as:
Telephone solicitations
Messages on automated teller machine (ATM) screens
Messages on a computer screen in an institution's lobby
(including any printout)
Messages in a newspaper, magazine, or promotional flyer
or on radio
Messages promoting an account that are provided along
with information about the consumer's existing account at an
institution
Examples of messages that are not advertisements are:
Rate sheets published in newspapers, periodicals, or
trade journals provided the depository institution (or deposit
broker that offers accounts at the institution) does not pay a fee
to have the information included
An in-person discussion with a consumer about the terms
for a specific account
Information provided to consumers about their existing
accounts, such as on IRA disbursements or notices for automatically
renewable time accounts sent before renewal
(f) Bonus
1. Examples. Bonuses include items of value, other than
interest, offered as incentives to consumers, such as an offer to
pay the final installment deposit for a holiday club account.
The following is an example of an item that is not a bonus:
Discount coupons distributed by institutions for use at
restaurants or stores
2. De minimis rule. Items with a de minimis value of $10 or less
are not bonuses. Institutions may rely on the valuation standard
used by the Internal Revenue Service (IRS) to determine if the value
of the item is de minimus. (See 26 CFR Sec. 1.6049-5(a)(2), which
discusses the fair market value of property received.) Items
required to be reported by the institution under IRS rules are
bonuses under this regulation. Examples of items that are not
bonuses are:
Disability insurance premiums paid by the institution
in an amount less than $10 per year
Coffee mugs, T-shirts or other merchandise with a
market value of less than $10 per year
Institutions must aggregate per account per calendar year any
items given to a consumer that are individually valued at less than
$10 and must consider them to be a bonus if their aggregate value
exceeds $10.
3. Waiver or reduction of a fee or absorption of expenses.
Bonuses do not include value received by consumers through the
waiver or reduction of fees for banking-related services (even if
the fees waived exceed $10), such as the following:
Waiving a safe deposit box rental fee for one year for
consumers who open a new account
Waiving fees for travelers checks for account holders
Discounts on interest rates charged for loans at the
institution
(h) Consumer
1. Professional capacity. Examples of accounts held by a natural
person in a professional capacity for another are:
Attorney-client trust accounts
Landlord-tenant security accounts
2. Nonprofessional capacity. Examples of accounts not held in a
professional capacity are:
Accounts held by parents for a child under the Uniform
Gifts to Minors Act
Accounts established by a tenant for apartment lease
payments pending resolution of a landlord-tenant dispute
3. Retirement plans. Individual retirement accounts (IRAs) and
simplified employee pension (SEP) accounts are consumer accounts to
the extent that funds are invested in accounts subject to the
regulation. Keogh accounts, like sole proprietor accounts, are not
subject to the regulation.
4. Unincorporated associations. An account held by or offered to
an unincorporated association of natural persons is a consumer
account if the account is primarily for a nonbusiness purpose.
The following factors may be considered:
The institution may rely on the declaration of the
person representing the association as to whether the account is
held for a business or nonbusiness purpose.
Whether the association has paid employees, which would
indicate a business purpose for the account. For example, an account
held by a religious organization that has payroll obligations is not
covered by the regulation.
(j) Depository Institution and Institution
1. Foreign institutions. Branches of foreign institutions
located in the United States are subject to the regulation if they
offer consumer accounts. Edge Act and Agreement corporations, and
agencies of foreign institutions, are not depository institutions.
(k) Deposit Broker
1. General. A deposit broker is any person in the business of
placing or facilitating the placement of deposits in an institution,
as defined by the Federal Deposit Insurance Act (12 U.S.C. 29(g)).
(n) Interest
1. Relation to Regulation Q. While bonuses are not interest for
purposes of this regulation, other regulations may require that
bonuses be treated as the equivalent of interest. For example,
Regulation Q identifies payments of cash or merchandise that violate
the prohibition against paying interest on demand accounts. (See 12
CFR Sec. 217.2(d).)
(p) Passbook Savings Account
1. Relation to Regulation E. Passbook savings accounts include
accounts accessed by preauthorized electronic fund transfers to the
account (as defined in 12 CFR 205.2(j)), such as an account credited
by direct deposit of social security payments. Accounts that permit
access by other electronic means are not ``passbook saving
accounts,'' and any statements that are sent four or more times a
year must comply with the requirements of Sec. 230.6.
(q) Periodic Statement
1. Examples. Periodic statements do not include:
Additional statements provided solely upon request
Information provided by computer through home banking
services
General service information such as a quarterly
newsletter or other correspondence that describes available services
and products
(r) State
1. General. Territories and possessions include Guam, the
Mariana Islands, and the Marshall Islands.
(t) Tiered-rate Account
1. Time accounts. Time accounts that pay different rates based
solely on the amount of the initial deposit are not tiered-rate
accounts.
(u) Time Account
1. Relation to Regulation D. Regulation D permits in limited
circumstances the withdrawal of funds without penalty during the
first six days after a ``time deposit'' is opened. (See 12 CFR
Sec. 204.2(c)(1)(i).) Withdrawals without penalty from a time
account made in accordance with Regulation D do not disqualify the
account from being a time account for purposes of this regulation.
(v) Variable-rate Account
1. General. A certificate of deposit that permits one or more
rate adjustments prior to maturity at the consumer's option is a
variable-rate account.
Section 230.3--General Disclosure Requirements
(a) Form
1. Design requirements. Disclosures must be presented in a
format that allows consumers to readily understand the terms of
their account. Disclosures may be made:
In any order
In combination with other disclosures or account terms
On more than one page and on the front and reverse
sides
By using inserts to a document or filling in blanks
On more than one document, as long as the documents are
provided at the same time
2. Multiple account disclosures. Institutions may prepare
combined disclosures for all accounts offered, or prepare different
documents for different types of accounts. If an institution
provides one document for several types of accounts, consumers must
be able to understand clearly which disclosures apply to their
account.
3. Consistent terminology. An institution must use the same
terminology to describe terms or features that are required to be
disclosed. For example, if an institution describes a monthly fee
(regardless of account activity) as a ``monthly service fee'' in
account-opening disclosures, the same terminology must be used in
its periodic statements and change-in-term notices.
(b) General
1. Specificity of legal obligation. An institution may use the
term ``monthly'' to describe its compounding or crediting policy
when interest is compounded or paid at the end of each calendar
month or for twelve periods during the year even if the actual days
in each period vary between 28 and 33 days.
(c) Relation to Regulation E
1. General rule. Compliance with Regulation E (12 CFR part 205)
is deemed to satisfy the disclosure requirements of this regulation,
such as when:
An institution changes a term that triggers a notice
under Regulation E, and the timing and disclosure rules of
Regulation E are used for sending change-in-term notices.
A consumer adds an ATM access feature to an account,
and the institution provides disclosures pursuant to Regulation E,
including disclosure of fees before the consumer receives ATM
access. (See 12 CFR Sec. 205.7.) If the institution complies with
the timing rules of Regulation E, fees related to electronic
services (such as balance inquiry fees imposed if the inquiry is
made at an ATM) that are required to be disclosed by this regulation
but not by Regulation E may also be provided at that time.
An institution relies on Regulation E's disclosure
rules regarding limitations on the frequency and amount of
electronic fund transfers, including security-related exceptions.
But any limitation on the number of ``intra-institutional
transfers'' from other accounts at the institution during a given
time period must be disclosed, even though those transfers are
exempt from Regulation E.
(e) Oral Response to Inquiries
1. Application of rule. Institutions need not provide rate
information orally.
2. Relation to advertising. An oral response to a question about
rates is not covered by the advertising rules.
(f) Rounding and Accuracy Rules for Rates and Yields (f)(2)
Accuracy
1. Annual percentage yield and annual percentage yield earned.
The tolerance for annual percentage yield and annual percentage
yield earned calculations is designed to accommodate inadvertent
errors. Institutions may not purposely incorporate the tolerance
into their calculation of yields.
2. Interest rate. There is no tolerance for an inaccuracy in the
interest rate.
Section 230.4--Account Disclosures
(a) Delivery of Account Disclosures
(a)(1) Account Opening
1. New accounts. New account disclosures must be provided when:
A time account that does not automatically rollover is
renewed by a consumer
A consumer changes the term for a renewable time
account (from a one-year time account to a six-month time account,
for instance)
Funds in an MMDA account are transferred by an
institution to open a new account for the consumer, such as a NOW
account, because the consumer exceeded transaction limitations on
the MMDA account
An institution accepts a deposit from a consumer to an
account the institution previously deemed to be ``closed'' by the
consumer
New account disclosures are not required when an institution
acquires an account through an acquisition of or merger with another
institution (but see Sec. 230.5(a) regarding advance notice
requirements if terms are changed).
(a)(2) Requests
(a)(2)(i)
1. Inquiries versus requests. A response to an oral inquiry (by
telephone or in person) about rates and yields or fees does not
trigger the duty to provide account disclosures. However, when a
consumer asks for written information about an account (whether by
telephone, in person, or by other means), the institution must
provide disclosures.
2. General requests. When a consumer generally asks for
information about a type of account (a NOW account, for example), an
institution that offers several variations may provide disclosures
for any one of them.
3. Timing for response. Ten business days is a reasonable time
for responding to a request for account information that a consumer
does not make in person.
(a)(2)(ii)(B)
1. Term. Describing the maturity of a time account as ``1 year''
or ``6 months,'' for example, illustrates a response stating the
maturity of a time account as a term rather than a date (``January
10, 1995'').
(b) Content of Account Disclosures
(b)(1) Rate information
(b)(1)(i) Annual Percentage Yield and Interest Rate
1. Rate disclosures. In addition to the interest rate and annual
percentage yield, a periodic rate corresponding to the interest rate
may be disclosed. No other rate or yield (such as ``tax effective
yield'') is permitted. If the annual percentage yield is the same as
the interest rate, institutions may disclose a single figure but
must use both terms.
2. Fixed-rate accounts. To disclose the period of time the
interest rate will be in effect, institutions may state the maturity
date for fixed-rate time accounts that pay the opening rate until
maturity. (See Appendix B, B-7--Sample Form.) For other fixed-rate
accounts, institutions may disclose a date (such as ``This rate will
be in effect through June 30, 1994'') or a period (such as ``This
rate will be in effect for at least 30 days'').
3. Tiered-rate accounts. Each interest rate, along with the
corresponding annual percentage yield for each specified balance
level (or range of annual percentage yields, if appropriate), must
be disclosed for tiered-rate accounts. (See Appendix A, Part I,
Paragraph D.)
4. Stepped-rate accounts. A single annual percentage yield must
be disclosed for stepped-rate accounts. (See Appendix A, Part I,
Paragraph B.) However, the interest rates and the period of time
each will be in effect also must be provided. When the initial rate
offered on a variable-rate account is higher or lower than the rate
that would otherwise be paid on the account, the calculation of the
annual percentage yield must be made as if for a stepped-rate
account. (See Appendix A, Part I, Paragraph C.)
(b)(1)(ii) Variable Rates
(b)(1)(ii)(B)
1. Determining interest rates. To disclose how the interest rate
is determined, institutions must:
Identify the index and specific margin, if the interest
rate is tied to an index
State that rate changes are solely within the
institution's discretion, if the institution does not tie changes to
an index
(b)(1)(ii)(C)
1. Frequency of rate changes. Institutions that reserve the
right to change rates at any time must state that fact.
(b)(1)(ii)(D)
1. Limitations. A floor or ceiling on rates or on the amount the
rate may decrease or increase during any time period must be
disclosed. Institutions need not disclose the absence of limitations
on rate changes.
(b)(2) Compounding and Crediting
(b)(2)(ii) Effect of Closing an Account
1. Deeming an account closed. Institutions may provide in their
deposit contract the actions by consumers that the institution will
treat as closing the account and that will result in the forfeiture
of accrued but uncredited interest, such as when a consumer
withdraws all funds from the account prior to the date interest is
credited.
(b)(3) Balance Information
(b)(3)(ii) Balance Computation Method
1. Methods and periods. Institutions may use different methods
or periods to calculate minimum balances for purposes of imposing a
fee (daily balance for a calendar month, for example) and accruing
interest (average daily balance for a statement period, for
example). Each method and period must be disclosed.
(b)(3)(iii) When Interest Begins to Accrue
1. Additional information. Institutions may disclose additional
information such as the time of day after which deposits are treated
as having been received the following business day, and may use
additional descriptive terms such as ``ledger'' or ``collected''
balances to disclose when interest begins to accrue.
(b)(4) Fees
1. Types of fees. The following are types of fees that must be
disclosed in connection with an account:
Maintenance fees, such as monthly service fees
Fees related to deposits or withdrawals, such as fees
for use of the institution's ATMs
Fees for special services, such as stop payment fees,
fees for balance inquiries or verification of deposits, and fees
associated with checks returned unpaid
Fees to open or to close accounts Institutions need not
disclose fees such as the following:
Fees assessed for services offered to account and
nonaccount holders alike, such as fees for travelers checks and wire
transfers (even if different for nonaccount holders)
Incidental fees, such as fees associated with state
escheat laws, garnishment or attorneys fees, and fees for
photocopying forms
2. Amount of fees. Institutions must state the amount and
conditions under which a fee may be imposed. Naming and describing
the fee typically satisfies this requirement. Some examples are:
``$4.00 monthly service fee''
``$7.00 and up'' or ``fee depend on style of checks
ordered'' for check printing fees
3. Tied-accounts. Institutions must state if fees that may be
assessed against an account are tied to other accounts at the
institution. For example, if an institution ties the fees payable on
a NOW account to balances held in the NOW account and in a savings
account, the NOW account disclosures must state that fact and
explain how the fee is determined.
(b)(5) Transaction Limitations
1. General rule. Examples of limitations on the number or dollar
amount of deposits or withdrawals that institutions must disclose
are:
Limits on the number of checks that may be written on
an account for a given time period
Limits on withdrawals or deposits during the term of a
time account
Limitations required by Regulation D, such as the
number of withdrawals permitted from money market deposit accounts
by check to third parties each month (but they need not disclose
that the institution reserves the right to require a seven-day
notice for a withdrawal from an account).
(b)(6) Features of Time Accounts
(b)(6)(i) Time Requirements
1. ``Callable'' time accounts. In addition to the maturity date,
institutions must state the date or the circumstances under which
the institution may redeem a time account at the institution's
option (a ``callable'' time account).
(b)(6)(ii) Early Withdrawal Penalties
1. General. The term ``penalty'' need not be used to describe
the loss that may be incurred by consumers for early withdrawal of
funds from time accounts.
2. Examples. Examples of early withdrawal penalties are:
Monetary penalties, such as ``$10.00'' or ``seven days'
interest plus accrued but uncredited interest''
Adverse changes to terms such as the interest rate,
annual percentage yield, or compounding frequency for funds
remaining on deposit
Reclamation of bonuses
3. Relation to rules for IRAs or similar plans. Penalties
imposed by the Internal Revenue Code for certain withdrawals from
IRAs or similar pension or savings plans are not early withdrawal
penalties.
(b)(6)(iv) Renewal Policies
1. Rollover time accounts. Institutions offering a grace period
on rollover time accounts that automatically renew need not state
whether interest will be paid if the funds are withdrawn during the
grace period.
2. Nonrollover time accounts. Institutions that pay interest on
funds following the maturity of time accounts that do not renew
automatically need not state the rate (or annual percentage yield)
that may be paid.
Section 230.5--Subsequent Disclosures
(a) Change in Terms
(a)(1) Advance Notice Required
1. Form of notice. Institutions may provide a change-in-term
notice on or with a regular periodic statement or in another
mailing. If an institution provides notice through revised account
disclosures, the changed term must be highlighted in some manner.
For example, institutions may state that a particular fee has been
changed (also specifying the new amount) or use an accompanying
letter that refers to the changed term.
2. Effective date. An example of a disclosure that complies is:
``As of May 11, 1994''
3. Terms that change upon the occurrence of an event.
Institutions that offer terms such as a fee waiver for employee
account holders during their employment or for students enrolled at
a local university need not send advance notice of a change
resulting from termination of employment or enrollment if:
The account-opening disclosures given (to the employee,
for example) describe the term and the event that would cause the
term to change (such as the consumer's leaving the institution's
employment), and
Notices are sent when the term is changed for other
account holders, even though the term remains unchanged for the
consumer while employment or enrollment continues.
(a)(2) No Notice Required
(a)(2)(ii) Check Printing Fees
1. Increase in fees. A notice is not required even if an
increase in check printing fees includes an amount added by the
institution to the price charged by a vendor.
(b) Notice Before Maturity for Time Accounts Longer Than One Month
That Renew Automatically
1. Maturity dates on nonbusiness days. For determining the term,
institutions may ignore the fact that the disclosed maturity falls
on a nonbusiness day and the term is extended beyond the disclosed
number of days. For example, a holiday or weekend may cause a ``one-
year'' time account to extend beyond 365 days (or 366, in a leap
year), or a ``one-month'' time account to extend beyond 31 days.
2. Disclosing when rates will be determined. Disclosures that
illustrate when the annual percentage yield will be available
include:
A specific date, such as ``October 28''
A date that is easily discernable, such as ``the
Tuesday prior to the maturity date stated on the notice'' or ``as of
the maturity date stated on this notice''
Institutions must indicate when the rate will be available if
the date falls on a nonbusiness day.
3. Alternative timing rule. To illustrate the alternative timing
rule: An institution that offers a 10-day grace period must provide
the disclosures at least 10 days prior to the scheduled maturity
date.
4. Club accounts. Club accounts that are time accounts are
covered by this paragraph, even though funds may be withdrawn at the
end of the current club period. For example, if the consumer has
agreed to the transfer of payments from another account to the time
account for the next club period, the institution must comply with
the requirements for automatically renewable time accounts.
5. Renewal of a time account. The following applies to a change
in a term that becomes effective if a rollover time account is
subsequently renewed:
If the change is initiated by the institution, the
disclosure requirements of this paragraph. (Paragraph 5(a) applies
if the change becomes effective prior to the maturity of the
existing time account.)
If initiated by the consumer, the account-opening
disclosure requirements of Sec. 230.4(b). (If the notice required by
this paragraph has been provided, institutions may give new account
disclosures or disclosures that reflect the new term.)
For example, if a consumer who receives a prematurity notice on
a one-year time account requests a rollover to a six-month account,
the institution must provide either account-opening disclosures that
reflect the new maturity date or, if all other terms previously
disclosed in the prematurity notice remain the same, only the new
maturity date.
(b)(1) Maturities of Longer Than One Year
1. Highlighting changed terms. Institutions need not highlight
terms that have changed since the last account disclosures were
provided.
(c) Notice for Time Accounts One Month or Less That Renew
Automatically
1. Providing disclosures within a reasonable time. Generally, 10
calendar days after an account renews is a reasonable time for
providing disclosures. For time accounts shorter than 10 days,
disclosures should be given prior to the next-scheduled renewal
date.
(d) Notice Before Maturity for Time Accounts Longer Than One Year That
Do Not Renew Automatically
1. Subsequent account. When funds are transferred following
maturity of a nonrollover time account, institutions need not
provide account disclosures unless a new account is established.
Section 230.6--Periodic Statement Disclosures
(a) General Rule
1. General. Institutions are not required to provide periodic
statements. If they provide periodic statements, disclosures need
only be furnished to the extent applicable. For example, if no
interest is earned for a statement period, institutions need not
disclose ``$0'' interest earned and ``0%'' annual percentage yield
earned.
2. Regulation E interim statements. When an institution provides
regular quarterly statements, and in addition provides a monthly
interim statement to comply with Regulation E, the interim statement
need not comply with this section unless it states interest or rate
information. (See 12 CFR 205.9.)
3. Combined statements. Institutions may provide certain
information about an account (such as an MMDA) on the periodic
statement for another account (such as a NOW account) without
triggering the disclosures required by this section, as long as:
The information is limited to the account number, the
type of account, or balance information, and
The institution also provides consumers a periodic
statement that complies with this section for the account (the MMDA,
in the example).
4. Other information. Institutions may include additional
information on or with a periodic statement, such as:
Interest rates and periodic rates corresponding to the
interest rate applied to balances during the statement period
The dollar amount of interest earned year-to-date
Bonuses paid (or any de minimis consideration of $10 or
less)
Fees for other products, such as safe deposit boxes
(a)(1) Annual Percentage Yield Earned
1. Ledger and collected balances. Institutions that accrue
interest using the collected balance method may use either the
ledger or the collected balance in determining the annual percentage
yield earned.
(a)(2) Amount of Interest
1. Accrued interest. Institutions must state the amount of
interest that accrued during the statement period, even if it was
not credited. For interest not credited, institutions may disclose
when funds will become available for the consumer's use.
2. Terminology. In disclosing interest earned for the period,
institutions must use the term ``interest'' or terminology such as:
``Interest paid,'' to describe interest that has been
credited
``Interest accrued'' or ``interest earned,'' to
indicate that interest is not yet credited
3. Closed accounts. If a consumer closes an account between
crediting periods and forfeits accrued interest, the institution may
not show any figures for ``interest earned'' or annual percentage
yield earned for the period.
(a)(3) Fees Imposed
1. General. Periodic statements must state fees debited to the
account during the statement period even if assessed for an earlier
period.
2. Itemizing fees by type. In itemizing fees by type,
institutions may group together fees of the same type that are
imposed more than once in the period. If fees are grouped, the
description must make clear that the dollar figure represents more
than a single fee, for example, ``total fees for checks written this
period.'' Examples of fees that may not be grouped together are:
Monthly maintenance and excess activity fees
``Transfer'' fees, if different dollar amounts are
imposed--such as $.50 for deposits and $1.00 for withdrawals
Fees for electronic fund transfers and fees for other
services, such as balance inquiry or maintenance fees
3. Identifying fees. Statement details must enable the consumer
to identify the specific fee. For example:
Institutions may use a code to identify a particular
fee if the code is explained on the periodic statement or in
documents accompanying the statement.
Institutions using debit slips may disclose the date
the fee was debited on the periodic statement and show the amount
and type of fee on the dated debit slip.
4. Relation to Regulation E. Compliance with Regulation E
complies with this section for the disclosure of fees related to
electronic fund transfers on periodic statements (for example,
totaling all electronic funds transfer fees in a single figure).
(a)(4) Length of Period
1. General. Institutions that provide the beginning and ending
dates of the period must make clear whether both dates are included
in the period.
2. Opening or closing an account mid-cycle. If an account is
opened or closed during the period for which a statement is sent,
institutions must calculate the annual percentage yield earned based
on account balances for each day the account was open.
(b) Special Rule for Average Daily Balance Method
1. General. To illustrate, this rule applies when an institution
calculates interest on a quarterly average daily balance and sends
monthly statements. The first two monthly statements may not state
annual percentage yield earned and interest earned figures; the
third ``monthly'' statement will reflect the interest earned and the
annual percentage yield earned for the entire quarter.
2. Length of the period. Institutions must disclose the length
of both the interest calculation period and the statement period.
For example, a statement could disclose a statement period of April
16 through May 15 and further state that ``the interest earned and
the annual percentage yield earned are based on your average daily
balance for the period April 1 through April 30.''
3. Quarterly statements and monthly compounding. Institutions
that use the average daily balance method to calculate interest on a
monthly basis, but send statements on a quarterly basis, may
disclose a single interest (and annual percentage yield earned)
figure. Alternatively, an institution may disclose three interest
earned and three annual percentage earned figures, one for each
month in the quarter, as long as the institution states the number
of days (or beginning and ending date) in the interest period if it
is different from the statement period.
Section 230.7--Payment of Interest
(a) Permissible Methods
1. Prohibited calculation methods. Calculation methods that do
not comply with the requirement to pay interest on the full amount
of principal in the account each day include:
The ``ending balance'' method, where institutions pay
interest on the balance in the account at the end of the period
The ``investable balance'' method, where institutions
pay interest on a percentage of the balance, excluding an amount
institutions set aside for reserve requirements
2. Use of 365-day basis. Institutions may apply a daily periodic
rate that is greater than \1/365\ of the interest rate--such as \1/
360\ of the interest rate--as long as it is applied 365 days a year.
3. Periodic interest payments. An institution can pay interest
each day on the account and still make uniform interest payments.
For example, for a one-year certificate of deposit an institution
could make monthly interest payments that are equal to \1/12\ of the
amount of interest that will be earned for a 365-day period, or 11
uniform monthly payments and a final payment that accounts for the
total interest earned for the period.
4. Leap year. Institutions may apply a daily rate of \1/366\ or
\1/365\ of the interest rate for 366 days in a leap year, if the
account will earn interest for February 29.
5. Maturity of time accounts. Institutions are not required to
pay interest after time accounts mature, such as:
During any grace period offered by an institution for
an automatically renewable time account, if the consumer decides
during that period not to renew the account
Following the maturity of nonrollover time accounts
When the maturity date falls on a holiday, and the
consumer must wait until the next business day to obtain the funds
(See 12 CFR part 217, the Board's Regulation Q, for limitations on
duration of interest payments.)
6. Dormant accounts. Institutions may contract with a consumer
not to pay interest if the account becomes ``dormant,'' as defined
by applicable state or other law.
(a)(2) Determination of Minimum Balance To Earn Interest
1. Daily balance accounts. Institutions that use the daily
balance method to calculate interest and require a minimum balance
to earn interest may choose not to pay interest for days when the
balance drops below the required daily minimum balance.
2. Average daily balance accounts. Institutions that use the
average daily balance method to calculate interest and require a
minimum balance to earn interest may choose not to pay interest for
the period in which the average daily balance does not meet the
required minimum.
3. Beneficial method. Institutions may not require consumers to
maintain both a minimum daily balance and a minimum average daily
balance to earn interest, such as by requiring the consumer to
maintain a $500 daily balance and an average daily balance that is
higher or lower. But an institution could determine the minimum
balance to earn interest by using a method that is ``unequivocally
beneficial'' to the consumer such as the following: An institution
using the daily balance method to calculate interest and requiring a
$500 minimum daily balance could choose to pay interest on the
account (for those days the minimum balance is not met) as long as
the consumer maintained an average daily balance throughout the
month of $400.
4. Paying on full balance. Institutions must pay interest on the
full balance in the account once a consumer has met the required
minimum balance. For example, if an institution sets $300 as its
minimum daily balance requirement to earn interest, and a consumer
deposits $500, the institution must pay the stated interest rate on
the full $500 and not just on $200.
5. Negative balances prohibited. Institutions must treat a
negative account balance as zero to determine:
The daily or average daily balance on which interest
will be paid
Whether any minimum balance to earn interest is met
(See commentary to Appendix A, Part II, which prohibits institutions
from using negative balances in calculating the interest figure for
the annual percentage yield earned.)
6. Club accounts. Institutions offering club accounts (such as a
``holiday'' or ``vacation'' club) cannot impose a minimum balance
that is based on the total number or dollar amount of payments
required under the club plan. For example, if a plan calls for $10
weekly payments for 50 weeks, the institution cannot set a $500
minimum balance and then pay only if the consumer makes all 50
payments.
7. Minimum balances not affecting interest. Institutions may use
the daily balance, average daily balance, or other computation
method to calculate minimum balance requirements not involving the
payment of interest--such as to compute minimum balances for
assessing fees.
(b) Compounding and Crediting Policies
1. General. Institutions that choose to compound interest may
compound or credit interest annually, semi-annually, quarterly,
monthly, daily, continuously, or on any other basis.
2. Withdrawals prior to crediting date. If consumers withdraw
funds, without closing the account, prior to a scheduled crediting
date, institutions may delay paying the accrued interest on the
withdrawn amount until the scheduled crediting date, but may not
avoid paying interest.
3. Closed accounts. If consumers close accounts prior to the
date accrued interest is credited, institutions may choose not to
pay accrued interest as long as they have disclosed that fact to the
consumer. Whether (and the conditions under which) institutions are
permitted to deem an account closed by a consumer is determined by
state or other law, if any.
4. Dormant accounts. Subject to state or other law defining when
an account becomes dormant, an institution may contract with a
consumer not to pay accrued but uncredited interest if the account
becomes dormant prior to the regular interest crediting date.
(c) Date Interest Begins To Accrue
1. Relation to Regulation CC. Institutions may rely on the
Expedited Funds Availability Act (EFAA) and Regulation CC (12 CFR
part 229) to determine, for example, when a deposit is considered
made for purposes of interest accrual, or when interest need not be
paid on funds because a deposited check is later returned unpaid.
2. Ledger and collected balances. Institutions may calculate
interest by using a ``ledger'' balance or ``collected'' balance
method, as long as the crediting requirements of the EFAA are met.
3. Withdrawal of principal. Institutions must accrue interest on
funds until the funds are withdrawn from the account. For example,
if a check is debited to an account on a Tuesday, the institution
must accrue interest on those funds through Monday.
Section 230.8--Advertising
(a) Misleading or Inaccurate Advertisements
1. General. All advertisements must comply with the rule against
misleading or inaccurate advertisements, even though the disclosures
applicable to various media differ.
2. Indoor signs. An indoor sign advertising an annual percentage
yield is not misleading or inaccurate if:
For a tiered-rate account, it also provides the upper
and lower dollar amounts of the advertised tier corresponding to the
annual percentage yield
For a time account, it also provides the term required
to obtain the advertised yield
3. ``Free'' or ``no cost'' accounts. For purposes of determining
whether an account can be advertised as ``free'' or ``no cost,''
maintenance and activity fees include:
Any fee imposed if a minimum balance requirement is not
met, or if the consumer exceeds a specified number of transactions
Transaction and service fees that consumers reasonably
expect to be regularly imposed on an account
Examples of maintenance and activity fees include:
A flat fee, such as a monthly service fee
Fees imposed to deposit, withdraw or transfer funds,
including per-check or per-transaction charges (for example, $.25
for each withdrawal, whether by check, in person or at an ATM owned
by the institution)
Examples of fees that are not maintenance or activity fees
include:
Fees that are not required to be disclosed under
Sec. 230.4(b)(4)
Check printing fees of any type
Fees for obtaining copies of checks, whether the
original checks have been truncated or returned to the consumer
periodically
Balance inquiry fees
Fees assessed against a dormant account
Fees for using an ATM not owned by the account-issuing
institution
Fees for electronic transfer services that are not
required to obtain an account, such as preauthorized transfers or
home banking services
4. Similar terms. An advertisement may not use a term such as
``fees waived'' if a maintenance or activity fee may be imposed
because it is similar to the terms ``free'' or ``no cost.''
5. Specific account services. Institutions may advertise a
specific account service or feature as free as long as no fee is
imposed for that service or feature. For example, institutions that
provide free access to their ATMs could advertise that fact.
6. Free for limited time. If an account or a specific account
service is free only for a limited period of time--for example, for
one year following the account opening--the account or service may
be advertised as free as long as the time period is stated.
7. Conditions not related to deposit accounts. Institutions may
advertise accounts as ``free'' for consumers that meet conditions
not related to deposit accounts such as age. For example,
institutions may advertise a NOW account as ``free for persons over
65 years old,'' even though a maintenance or activity fee may be
assessed on accounts held by consumers that are 65 or younger.
(b) Permissible Rates
1. Tiered-rate accounts. An advertisement for a tiered-rate
account that states an annual percentage yield must also state the
annual percentage yield for each tier, along with corresponding
minimum balance requirements. Any interest rates stated must appear
in conjunction with the annual percentage yields for the applicable
tier.
2. Stepped-rate accounts. An advertisement that states an
interest rate for a stepped-rate account must state each interest
rate and the time period each rate is in effect.
3. Representative examples. An advertisement that states an
annual percentage yield for a type of account (such as a time
account) need not state the annual percentage yield applicable to
every variation offered by the institution. For example, if rates
vary depending on the amount of the initial deposit and term of a
time account, institutions need not list each balance level and term
offered. Instead, the advertisement may:
Provide a representative example of the annual
percentage yields offered, clearly described as such. For example,
if an institution offers a $25 bonus on all time accounts and the
annual percentage yield will vary depending on the term selected,
the institution may provide a disclosure of the annual percentage
yield as follows: ``For example, our 6-month certificate of deposit
currently pays a 3.15% annual percentage yield.''
Indicate that various rates are available, such as by
stating short-term and longer-term maturities along with the
applicable annual percentage yields: ``We offer certificates of
deposit with annual percentage yields that depend on the maturity
you choose. For example, our one-month CD earns a 2.75% APY. Or,
earn a 5.25% APY for a three-year CD.''
(c) When Additional Disclosures Are Required
1. Trigger terms. Disclosures are triggered by statements such
as ``We will pay a bonus of 1% over our current rate for one-year
certificates of deposit opened before April 15, 1995.'' The
following are examples of information stated in advertisements that
are not ``trigger'' terms:
``One, three, and five year CDs available''
``Bonus rates available''
(c)(2) Time Annual Percentage Yield Is Offered
1. Specified recent date. If an advertisement discloses an
annual percentage yield as of a specified date, that date must be
recent in relation to the publication or broadcast frequency of the
media used. For example, the printing date of a brochure printed
once for a deposit account promotion that will be in effect for six
months would be considered ``recent,'' even though rates change
during the six-month period. Rates published in a daily newspaper or
on television must be a rate offered shortly before (or on) the date
the rates are published or broadcast.
(c)(5) Effect of Fees
1. Scope. This requirement applies only to maintenance or
activity fees as described in paragraph 8(a).
(c)(6) Features of Time Accounts
(c)(6)(i) Time Requirements
1. Club accounts. If the maturity date of a club account is set
but the term may vary depending on when the account is opened,
institutions may use a phrase such as: ``The term of the account
varies depending on when the account is opened. However, the
maturity date is November 15.''
(c)(6)(ii) Early Withdrawal Penalties
1. Discretionary penalties. Institutions that impose early
withdrawal penalties on a case-by-case basis may disclose that they
``may'' (rather than ``will'') impose a penalty if that accurately
describes the account terms.
(d) Bonuses
1. General reference to ``bonus.'' General statements such as
``bonus checking'' or ``get a bonus when you open a checking
account'' do not trigger the bonus disclosures.
(e) Exemption for Certain Advertisements
(e)(1) Certain Media
(e)(1)(iii)
1. Tiered-rate accounts. Solicitations for tiered-rate accounts
made through telephone response machines must provide all annual
percentage yields and the balance requirements applicable to each
tier.
(e)(2) Indoor Signs
(e)(2)(i)
1. General. Indoor signs include advertisements displayed on
computer screens, banners, preprinted posters, and chalk or peg
boards. Any advertisement inside the premises that can be retained
by a consumer (such as a brochure or a printout from a computer) is
not an indoor sign.
2. Consumers outside the premises. Advertisements may be
``indoor signs'' even though they may be viewed by consumers from
outside. An example is a banner in an institution's glass-enclosed
branch office, that is located behind a teller facing customers but
also may be seen by passersby.
Section 230.9--Enforcement and Record Retention
(c) Record Retention
1. Evidence of required actions. Institutions comply with the
regulation by demonstrating they have done the following:
Established and maintained procedures for paying
interest and providing timely disclosures as required by the
regulation, and
Retained sample disclosures for each type account
offered to consumers, such as account-opening disclosures, copies of
advertisements, and change-in-term notices; and information
regarding the interest rates and annual percentage yields offered.
2. Methods of retaining evidence. Institutions must retain
information needed to reconstruct the required disclosures or other
actions. They need not keep disclosures or other business records in
hard copy. Records evidencing compliance may be retained on
microfilm, microfiche, or by other methods that reproduce records
accurately (including computer files).
3. Payment of interest. Sufficient rate and balance information
must be retained to permit the verification of interest paid on an
account, including the payment of interest on the full principal
balance.
Appendix A to Part 230--Annual Percentage Yield Calculation
Part I. Annual Percentage Yield for Account Disclosures and
Advertising Purposes
1. Rounding for calculations. The following are examples of
permissible rounding rules for calculating interest and the annual
percentage yield:
The daily rate applied to a balance rounded to five or
more decimals
The daily interest earned rounded to five or more
decimals
Part II. Annual Percentage Yield Earned for Periodic Statements
1. Balance method. The interest figure used in the calculation
of the annual percentage yield earned may be derived from the daily
balance method or the average daily balance method. The balance used
in the annual percentage yield earned formula is the sum of the
balances for each day in the period divided by the number of days in
the period.
2. Negative balances prohibited. Institutions must treat a
negative account balance as zero to determine the balance on which
the annual percentage yield earned is calculated. (See commentary to
Sec. 230.7(a)(2).)
A. General Formula
1. Accrued but uncredited interest. To calculate the annual
percentage yield earned, accrued but uncredited interest:
Shall not be included in the balance for statements
that are issued at the same time or less frequently than the
account's compounding and crediting frequency. For example, if
monthly statements are sent for an account that compounds interest
daily and credits interest monthly, the balance may not be increased
each day to reflect the effect of daily compounding.
Shall be included in the balance for succeeding
statements if a statement is issued more frequently than compounded
interest is credited on an account. For example, if monthly
statements are sent for an account that compounds interest daily and
credits interest quarterly, the balance for the second monthly
statement would include interest that had accrued for the prior
month.
2. Rounding. The interest earned figure used to calculate the
annual percentage yield earned must be rounded to two decimals to
reflect the amount actually paid. For example, if the interest
earned for a statement period is $20.074 and the institution pays
the consumer $20.07, the institution must use $20.07 (not $20.074)
to calculate the annual percentage yield earned. For accounts that
pay interest based on the daily balance method, compound and credit
interest quarterly, and send monthly statements, the institution
may, but need not, round accrued interest to two decimals for
calculating the annual percentage yield earned on the first two
monthly statements issued during the quarter. However, on the
quarterly statement the interest earned figure must reflect the
amount actually paid.
B. Special Formula for Use Where Periodic Statement Is Sent More
Often Than the Period for Which Interest Is Compounded
1. Statements triggered by Regulation E. Institutions may, but
need not, use this formula to calculate the annual percentage yield
earned for accounts that receive quarterly statements and that are
subject to Regulation E's rule calling for monthly statements when
an electronic fund transfer has occurred. They may do so even though
no monthly statement was issued during a specific quarter. This
formula must be used for accounts that compound and credit interest
quarterly and that receive monthly statements, triggered by
Regulation E, which comply with the provisions of Sec. 230.6.
2. Days in compounding period. Institutions using the special
annual percentage yield earned formula must use the actual number of
days in the compounding period.
Appendix B to Part 230--Model Clauses and Sample Forms
1. Modifications. Institutions that modify the model clauses
will be deemed in compliance as long as they do not delete
information required by the act or regulation or rearrange the
format so as to affect the substance or clarity of the disclosures.
2. Format. Institutions may use inserts to a document (see
Sample Form B-4) or fill-in blanks (see Sample Forms B-5, B-6 and B-
7, which use double underlining to indicate terms that have been
filled in) to show current rates, fees or other terms.
3. Disclosures for opening accounts. The sample forms illustrate
the information that must be provided to a consumer when an account
is opened, as required by Sec. 230.4(a)(1). (See Sec. 230.4(a)(2),
which states the requirements for disclosing the annual percentage
yield, the interest rate, and the maturity of a time account in
responding to a consumer's request.)
4. Compliance with Regulation E. Institutions may satisfy
certain requirements under Regulation DD with disclosures that meet
the requirements of Regulation E. (See Sec. 230.3(c).) The model
clauses and sample forms do not give examples of disclosures that
would be covered by both this regulation and Regulation E (such as
disclosing the amount of a fee for ATM usage). Institutions should
consult appendix A to Regulation E for appropriate model clauses.
5. Duplicate disclosures. If a requirement such as a minimum
balance applies to more than one account term (to obtain a bonus and
determine the annual percentage yield, for example), institutions
need not repeat the requirement for each term, as long as it is
clear which terms the requirement applies to.
6. Guide to model clauses. In the model clauses, italicized
words indicate the type of disclosure an institution should insert
in the space provided (for example, an institution might insert
``March 25, 1993'' in the blank for ``(date)'' disclosure). Brackets
and diagonals (``/'') indicate an institution must choose the
alternative that describes its practice (for example, [daily
balance/average daily balance]).
7. Sample forms. The sample forms (B-4 through B-8) serve a
purpose different from the model clauses. They illustrate various
ways of adapting the model clauses to specific accounts. The clauses
shown relate only to the specific transactions described.
B-1 Model Clauses for Account Disclosures
B-1(h) Disclosures Relating to Time Accounts
1. Maturity. The disclosure in Clause (h)(i) stating a specific
date may be used in all cases. The statement describing a time
period is appropriate only when providing disclosures in response to
a consumer's request.
B-2 Model Clauses for Change in Terms
1. General. The second clause, describing a future decrease in
the interest rate and annual percentage yield, applies to fixed-rate
accounts only.
B-4 Sample Form (Multiple Accounts)
1. Format. The sample form has been marked with an ``X'' to
indicate it is for a NOW account and provides for both a fee
schedule insert and a rate sheet insert.
2. Rate sheet insert. In the rate sheet insert, the calculations
of the annual percentage yield for the three-month and six-month
certificates are based on 92 days and 181 days respectively.
B-6 Sample Form (Tiered-Rate Money Market Account)
1. General. Sample Form B-6 uses Tiering Method A (discussed in
Appendix A and Clause (a)(iv)) to calculate interest. It gives a
narrative description of a tiered-rate account; institutions may use
a different format (for example, a chart similar to the one in
Sample Form B-4), as long as all required information for each tier
is clearly presented. The form does not contain a separate
disclosure of the minimum balance required to obtain the annual
percentage yield; the tiered-rate disclosure provides that
information.
B-9 Sample Form (Money Market Account Advertisement)
1. General. The advertisement is for a tiered-rate money market
account that uses Tiering Method A.
By order of the Board of Governors of the Federal Reserve
System, January 28, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-2505 Filed 2-4-94; 8:45 am]
BILLING CODE 6210-01-P
