[Federal Register Volume 59, Number 148 (Wednesday, August 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18719]
[[Page Unknown]]
[Federal Register: August 3, 1994]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 707
Truth in Savings
AGENCY: National Credit Union Administration.
ACTION: Proposed rule; official staff interpretation.
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SUMMARY: The NCUA Board is publishing for comment a proposed official
staff commentary to Part 707 of the NCUA Rules and Regulations (Truth
in Savings). The commentary applies and interprets the requirements of
Part 707 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 postmarked or posted on the NCUA electronic
bulletin board by September 19, 1994.
ADDRESSES: Send comments to Becky Baker, Secretary of the Board,
National Credit Union Administration, 1775 Duke Street, Alexandria, VA
22314-3428.
FOR FURTHER INFORMATION CONTACT: Martin S. Conrey, Staff Attorney,
Office of General Counsel, telephone (703) 518-6540; William Ryan,
Compliance Officer, Division of Supervision, Office of Examination and
Insurance, telephone (703) 518-6360; or Annette Moore, Senior Analyst,
Division of Supervision, Region V, telephone (512) 482-4500. For
further information about the NCUA Electronic Bulletin Board, contact
Carey D. Savage, Jr., System Operator, Office of Public and
Congressional Affairs, telephone (703) 518-6335.
SUPPLEMENTARY INFORMATION:
(1) Background
The purpose of the Truth in Savings Act (``TISA'') (12 U.S.C. 4301
et seq.) is to assist members in comparing share and deposit accounts
offered by credit unions. TISA requires credit unions to disclose fees,
the dividend or interest rate, the annual percentage yield, and other
account terms whenever a member requests the information and before an
account is opened. Fees and other information also must be provided on
any periodic statement the credit union sends to the member. Rules are
set forth for share and deposit account advertisements and advance
notices to account holders of adverse changes in terms. TISA restricts
how credit unions must determine the account balance on which dividends
or interest are calculated. TISA is implemented by part 707 of the
NCUA's Rules and Regulations (``part 707'') (12 CFR part 707), which
becomes effective on January 1, 1995, for most credit unions. TISA
authorizes the issuance of official staff interpretations of the
regulation.
The Board is publishing a proposed commentary to Part 707. The
proposal is designed to provide guidance to credit unions in applying
the regulation to specific transactions and is a substitute for, and a
supplement to, 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 the fall of 1994, with an effective date of the
compliance date of Part 707. Due to the special needs of small,
nonautomated credit unions, and for the reasons explained by the Board
in the Final Rule adopted at the July Board meeting, the Board has
decided to extend the compliance date of part 707 until January 1, 1996
for credit unions that are not automated and are under $2 million in
assets as of December 31, 1993.
(2) Proposed Commentary
The Federal Register notices containing the regulation that
implemented TISA and notices for subsequent amendments set forth a
large amount of supplementary material interpreting the new regulation.
(See final rule published on September 27, 1993 (58 FR 50394), and
final rule, corrections and correcting amendments, published on March
22, 1994 (59 FR 13435).) 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.
On December 6, 1993, the Federal Reserve Board (``FRB'') published
a proposal to amend the regulation's rules for calculating the annual
percentage yield for accounts that pay dividends or interest prior to
maturity (58 FR 64190). (See also the notice extending the comment
period published on January 13, 1994, 59 FR 1921.) This FRB proposed
rule was withdrawn on May 11, 1994 (59 FR 24376). In its place, a new
FRB proposed rule was published on May 11, 1994 (59 FR 24378), as
amended on July 11, 1994 (59 FR 35271). The FRB amendments focus on two
issues: a desire for the annual percentage yield to reflect the time
value of money, and the concern of compliance costs and the impact on
depository institutions if the proposed rules is adopted. The comment
period on the May 11 and July 11 FRB proposed rules has been extended
until September 6, 1994. Credit unions are encouraged to sent comments
to the FRB. For further information on the FRB proposed amendments
credit unions may contact Jane Ahrens, Senior Attorney, Kyung Cho or
Kurt Schumacher, Staff Attorneys, Division of Consumer and Community
Affairs, Board of Governors of the Federal Reserve System, at (202)
452-3667 or 452-2412. The NCUA Board is delaying action regarding any
adoption of similar amendments to part 707 until the completion of the
FRB's rulemakings.
The NCUA proposed commentary is derived from the one proposed by
the FRB and from information provided in the supplementary information
to NCUA's final Truth in Savings rule, part 707 of the NCUA Rules and
Regulations. The proposed commentary also reflects NCUA staff's
understanding of the FRB's interpretations which have not been publicly
published. The proposed commentary, for the most part, does not repeat
information provided in part 707. We believe the proposed commentary is
self-explanatory and not in need of further supplementary information.
Due to the fact that most credit unions will not have to comply with
part 707 until 1995, NCUA is in the unusual position of promulgating a
commentary before experiencing the implementation of the rule which is
explained in the commentary. However, the NCUA Board believes that it
will be of assistance to credit union members and potential members,
credit unions, credit union supervisors and regulators, the NCUA, and
other interested parties to have a commentary finalized before the
compliance date of part 707 to aid in compliance of this new, technical
regulation required by Congress. Therefore, NCUA requests the
assistance of all interested parties in ensuring that the commentary
address the most generally asked questions and concerns that credit
union members and potential members, credit unions, and other
interested parties might have regarding Truth in Savings and part 707.
To a great extent, the final commentary to be issued by NCUA will
reflect the questions, concerns, and comments that are generated by
this proposed commentary. NCUA solicits comments on any aspect of part
707 that may be addressed by a commentary which may provide assistance
to credit unions in complying with TISA and part 707, providing an
easily accessible, safe harbor for credit unions, while observing the
letter, spirit and intent of TISA. In providing comments on this
proposal, NCUA reminds commenters that TISA requires NCUA's regulation
to be substantially similar to Regulation DD (12 CFR 230), the FRB's
Truth in Savings regulation, except that NCUA may take into account the
unique nature of credit unions and the limitations under which credit
unions pay dividends. Commenters are asked to direct their comments not
to the rule (12 CFR Secs. 707.1-707.9) or Appendices A and B to part
707, but to how the rule and its appendices can best be implemented and
complied with by credit unions.
List of Subjects in 12 CFR Part 707
Advertising, Credit unions, Consumer protection, Deposit accounts,
Interest, Interest rates, Truth in savings.
For the reasons set forth in the preamble, the Board proposed to
amend 12 CFR part 707 as follows:
PART 707--TRUTH IN SAVINGS
1. The authority citation for part 707 would continue to read as
follows:
Authority: 12 U.S.C. 4311.
2. Part 707 would be amended by adding a new Appendix C to Part
707--Official Staff Interpretations to read as follows:
Appendix C--Official Staff Interpretations
Introduction
1. Official status. This commentary is the vehicle by which the
staff of the Office of General Counsel of the National Credit Union
Administration issues official staff interpretations of Part 707 of
the NCUA Rules and Regulations. Good faith compliance with this
commentary affords protection from liability under section 271(f) of
the Truth in Savings Act (``TSIA''), 12 U.S.C. Sec. 4311.
Section 707.1--Authority, purpose, coverage, and effect on state
laws.
(c) Coverage
1. Foreign applicability. Part 707 applies to all credit unions,
whether state or federally chartered, that offer share and deposit
accounts to residents (including resident aliens) of any state as
defined in Sec. 707.2(v) and that offer accounts insurable by the
National Credit Union Share Insurance Fund (``NCUSIF'') whether or
not such accounts are insured by the NCUSIF. Corporate credit unions
designated as such by NCUA under 12 CFR Sec. 704.2 (definition of
``corporate credit union'') are exempt from part 707.
2. Persons who advertise accounts. Persons who advertise
accounts are subject to the advertising rules. This includes agent
and agented accounts, such as a member who subdivides interests in a
jumbo term share certificate account for sale to other parties or
among members who form a certificate account investment club. For
example, if a share broker places an advertisement that offers
members a dividend in an account at a credit union, the advertising
rules apply to the advertisement, whether the account is held by the
broker or directly by the member.
3. Preemption of state laws. State laws are preempted to the
extent they impose requirements that are inconsistent with TISA and
part 707. If credit union officials or members are concerned as to
whether state law requirements are preempted, they may write to
NCUA's Office of General Counsel requesting a preemption
determination. Written preemption requests should cite (or include a
copy of) the allegedly inconsistent state law, demonstrate the
inconsistency with TISA and part 707 and the burden on credit
unions, and formally request a preemption determination.
Section 707.2--Definitions.
(a) Account
1. Covered accounts. Examples of accounts subject to the
regulation are:
Dividend-bearing or interest-bearing accounts
Non-dividend-bearing or non-interest-bearing accounts
Accounts opened as a condition of obtaining a credit card
Escrow accounts with a consumer purpose, such as an account
established by a member to escrow rental payments, pending
resolution of a dispute with the member's landlord
Accounts held by a parent or custodian for a minor under a state's
Uniform Gift to Minors Act (or Uniform Transfers to Minors Act)
Individual retirement accounts (IRAs) and simplified employee
pension (SEP) accounts
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
Certificates of indebtedness. Some credit unions borrow funds from
their members through a certificate of indebtedness that sets forth
the terms and conditions of the repayment of the borrowing, such as
federal credit unions do through 12 CFR 701.38. Such an account does
not represent shares in a credit union and is not covered by part
707.
2. Other investments. The term ``account'' does not apply to all
products of a credit union. Examples of products not covered are:
Government securities
Mutual funds
Annuities
Securities or obligations of a credit union
Contractual arrangements such as repurchase agreements, interest
rate swaps, and bankers acceptances
Purchases of U.S. Savings Bonds through a credit union
Services offered through a group purchasing plan or a credit union
service organization (CUSO)
3. Unincorporated nonbusiness association accounts. 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 credit union 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.
Examples of unincorporated nonbusiness associations are softball
teams, bowling leagues, and church and school groups. Accounts of
such organizations opened on or after the compliance date of part
707 are covered by part 707. Such accounts in existence prior to the
compliance date of part 707 are not covered unless one of the
association members notifies the credit union that it would like to
receive applicable account disclosures. If the credit union is
notified by such an organization, it must begin complying with the
requirements of this rule for subsequent disclosures as applicable,
such as periodic statements and change-in-terms notices, within a
reasonable period of time after notification. A credit union would
be required to comply with the provisions regarding notices to
existing members, including full disclosures at the credit union's
option, if the association notifies the credit union prior to the
first periodic statement mailing after the compliance date of part
707.
4. Options. All accounts are either fixed-rate or variable-rate
accounts.
(b) Advertisement
1. Coverage. Advertisements include commercial messages in
visual, oral, or print media that invite, offer, or otherwise
announce generally to members and potential members the availability
of member accounts such as:
Telephone solicitations
Messages on automated teller machine (ATM) screens
Messages on a computer screen in a credit union's lobby (including
any printout)
Messages in a newspaper, magazine, or promotional flyer or on radio
or television
Messages promoting an account that provided along with information
about the member's existing account at a credit union, such as on
the periodic statement
Examples of messages that are not advertisements are:
Rate sheets published in newspapers, periodicals, or trade journals,
provided the credit union (or share and deposit broker that offers
accounts at the credit union) does not pay a fee to have the
information included
Telephone conversations initiated by a member or potential member
about an account
An in-person discussion with a member about the terms for a specific
account
Information provided to members about their existing accounts, such
as on IRA disbursements or notices for automatically renewable term
share accounts sent before renewal
(c) Annual Percentage Yield.
1. General. The annual percentage yield (APY) is required for
disclosures for new accounts, oral responses to inquiries about
rates; disclosures provided upon request; disclosures for existing
members (if the credit union chooses to provide full disclosures
instead of the shorter periodic statement notice); notices prior to
the maturity of a term share account, if known at the time the
notice is sent, and in advertising. The annual percentage yield
shows the total amount of dividends on an assumed principal amount
as a percentage of the principal, based on the dividend rate and
frequency of compounding for a 365 day period (for accounts such as
share or share draft accounts) or for the term of the account for
term share accounts. The annual percentage yield assumes the
principal amount remains in the account for 365 days or for the term
of the account.
2. How Annual Percentage Yield differs from Annual Percentage
Yield Earned. The annual percentage yield (APY) differs from the
annual percentage yield earned (APYE). The annual percentage yield
earned is required for periodic statements only. The annual
percentage yield earned shows the total amount of dividends earned
for the dividend or statement period as a percent of the actual
average daily balance in the member's account. Unlike the annual
percentage yield, the annual percentage yield earned is affected by
additions and withdrawals during the period. The annual percentage
yield and the annual percentage yield earned must be calculated
according to the formulas provided in Appendix A to this rule.
(d) Average Daily Balance Method.
1. General. One of the two required methods (the daily balance
is the other) of determining the balance upon which dividends must
be paid. The average daily balance method requires the application
of a periodic rate to the average daily balance in the account for
the average daily balance calculation period. The average daily
balance is determined by adding the full amount of principal in the
account for each day of the period and dividing that figure by the
number of days in the period.
(e) Board.
1. General. The NCUA Board.
(f) Bonus.
1. General. Bonuses include items of value offered as incentives
to members, such as an offer to pay the final installment deposit
for a holiday club account. Bonuses do not include the payment of
dividends (including extraordinary dividends), the waiver of
reduction of a fee, the absorption of expenses, non-dividend
membership benefits, or other consideration aggregating $10 or less
per year.
2. Examples. The following are examples of bonuses.
A credit union offers $25 to potential members for becoming a
member and opening an account. The $25 could be provided by check,
cash, or direct deposit.
A credit union offers $25 to a member with only a regular share
account to open a share draft account. The $25 could be provided by
check, cash, or direct deposit.
A credit union offers a portable radio with a value of $20 to
members and potential members for opening a share draft account.
The following are examples of items that are not bonuses:
Discount coupons distributed by credit unions for use at restaurants
or stores.
A credit union offers $25 to a parent or custodian if the parent or
custodian opens an account for a minor. The $25 is not a bonus
because the parent or custodian is not opening the account in his or
her own name.
A credit union offers $20 to any member if the member is
responsible for convincing a potential member to open an account.
The $20 is not a bonus because the $20 is not paid to the individual
opening the account. Any item, including cash, given or offered to a
third party in exchange for a member or potential member opening (or
a member renewing or adding to) an account is not a bonus.
A credit union offers $25 to a member if the member if the member
can locate his name in the body of a newsletter.
Life savings benefits. Many credit unions offer life savings
benefits to beneficiaries of deceased members. Because the benefit
accrues to a third party, such life savings plans offered are not
bonuses.
3. De minimis rule. Items with a de minimis value of $10 or less
are not bonuses. Credit Unions 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 credit union under IRS rules are
bonuses under this regulation.
Examples of items that are not bonuses are:
Disability insurance premiums that are not connected to a loan
account paid by the credit union in an amount $10 or less per year
Any insurance premiums paid by the credit union in connection with a
loan account
Coffee mugs, T-shirts or other merchandise with a market value of
$10 or less per year
4. Aggregation. Credit unions must aggregate per account per
calendar year any items given to a member that are individually
valued at $10 or less and must consider them to be a bonus if their
aggregate value exceeds $10.
5. Waiver or reduction of a fee or absorption of expenses.
Bonuses do not include value received by members through the waiver
or reduction of fees for credit union-related services (even if the
fees waived exceed $10), such as the following:
Waiving a safe deposit box rental fee for one year for members who
open a new account
Waiving fees for travelers checks for members
Nondiscriminatorily waiving all fees for a particular class of
members, such as seniors or minors
Discounts on interest rates charged for loans at the credit union
Rebates of loan interest already paid by a member
Discounts on application fees charged for loans at the credit union
6. Non-dividend membership benefits. Such benefits are not
bonuses because they are sporadic in nature, often difficult to
value, and providing non-dividend membership benefits is a long-
standing unique credit union practice. (See commentary to
Sec. 707.2(r) for examples of such benefits.)
(g) Credit union.
1. General. Includes credit unions in the United States, Puerto
Rico, Guam, U.S. Virgin Islands, and U.S. territories. Applies to
credit unions whether or not the accounts in the credit union are
federally, state, or privately insured, or uninsured.
(h) Daily balance method.
1. General. One of the two required methods (the average daily
balance is the other) of determining the balance upon which
dividends must be paid. The daily balance method requires the
application of a daily periodic rate to the full amount of principal
in the account each day.
(i) Dividend and dividends.
1. General. Member savings placed in share accounts are equity
investments, and the returns earned on these accounts are dividends.
Federal credit unions may only offer dividend-bearing and non-
dividend-bearing share accounts. State-chartered credit unions may
offer both share and deposit accounts if permitted by state law.
Dividends exclude the payment of a bonus or other consideration
worth $10 or less given during a year, the waiver or reduction of a
fee, the absorption of expenses, non-dividend membership benefits,
and extraordinary dividends.
2. Procedure. Dividends may be viewed as a portion of the
available current and undivided earnings of the credit union which
is set apart, after required transfers to reserves, by valid act of
the board of directors, for distribution among the members. As a
matter of legal procedure, members are not entitled to dividends
until the following steps are completed: (1) the board of the credit
union develops a nondiscriminatory dividend policy, by establishing
dividend periods, dividend credit determination dates, dividend
distribution dates, any associated penalties (if applicable), and
the method of dividend computation for each type of share account;
(2) the provision for required transfers to reserves are made; (3)
sufficient and available prior and/or current earnings are available
at the end of the dividend period; (4) the board formally makes a
dividend declaration in accordance with the credit union's dividend
policy; and (5) dividends must be paid to members by a credit to the
appropriate share account, payment by share draft or by a
combination of the two methods.
3. When available. Legally, it is the declaration of the
dividend itself which creates the dividend and the member has no
right to receive a dividend until it is so declared. The decision of
when to declare dividends lies within the official discretion of
each credit union's board of directors and cannot be abrogated by
contract. An agreement to pay dividends on a share account is
interpreted not as an obligation to pay the stipulated dividends
absolutely and unconditionally, but as an undertaking to pay them
out of the earnings when sufficiently accumulated from which
dividends in general are properly payable. ``Prospective rates'' are
rates set in good faith in advance of the close of a dividend
period, that may be altered if sufficient funds are not available,
or in the event of a superseding event, such as a significant
fluctuation in market rates, natural disaster or emergency that
alters the assumptions under which the ``prospective rates'' were
made. ``Prospective rates'' may also be referred to as ``projected
rates'' or similar wording, but not as ``estimated rates.'' (See
commentary to Sec. 707.3(b)(2), prohibiting use of estimates).
4. Referencing. Except where specifically stated otherwise, use
of the term ``share'' in part 707, as in ``share account,'' also
refers to ``deposit,'' as in ``deposit account,'' where appropriate
(for interest-bearing or non-interest-bearing deposit accounts at
some state-chartered credit unions).
(j) Dividend declaration date.
1. General. One means of disclosing dividend rate information is
to disclose the dividend rate earned on the account for the previous
dividend period. The term ``dividend declaration date'' is used to
define the date that the board of directors of a credit union
declares a dividend for the preceding dividend period. Credit unions
are cautioned that the ``dividend declaration date'' (the date
dividends are legally declared and earned) and the ``dividend
distribution date'' (the date dividends are credited to an account)
may differ.
(k) Dividend period.
1. General. The dividend period is to be set by a credit union's
board of director's for each account type, e.g., regular share,
share draft, money market share, and term share. The most common
dividend periods are weekly, monthly, quarterly, semiannually, and
annually. Dividend periods need not agree with calendar months,
e.g., a monthly dividend period could begin March 15 and end April
14.
(l) Dividend rate.
1. General. The dividend rate does not reflect compounding.
Compounding is reflected in the ``annual percentage yield''
definition.
2. Referencing. Except where specifically stated otherwise, use
of the term ``dividend rate'' in part 707 also refers to ``interest
rate,'' where appropriate (for interest-bearing and non-interest-
bearing deposit accounts at some state-chartered credit unions).
(m) Extraordinary dividends.
1. General. Extraordinary dividends are commonly referred to
among credit unions as ``bonus dividends.'' The definition
encompasses all irregularly scheduled and declared dividends, and as
dividends, extraordinary dividends are exempt from the ``bonus''
disclosure requirements. Extraordinary dividends do not have to be
disclosed on account disclosures, but the dollar amount of an
extraordinary dividend credited to the account during the statement
period does have to be separately disclosed on the periodic
statement for the dividend period during which the extraordinary
dividends are earned.
(n) Fixed-rate account.
1. General. Includes all accounts in which the credit union, by
contract, gives at least 30 days advance written notice of decreases
in the dividend rate or interest rate. Thus, credit unions can
decrease rates only after providing advance written notice of rate
decreases, e.g., a ``change-in-terms notice.''
(o) Grace period.
1. General. A period after maturity of an automatically renewing
term share account during which the member may withdraw funds
without being assessed a penalty. Use of a ``grace period'' is
discretionary, not mandatory. This definition does not refer to the
``grace period'' account, which is a synonym for ``federal rollback
method'' or ``in by the 10th'' accounts, which are prohibited by
TISA and part 707.
(p) Interest.
1. General. Member savings placed in deposit accounts are debt
investments, and the return earned on these accounts is interest.
Federal credit unions are not authorized to offer any interest-
bearing deposit accounts. State-chartered credit unions may offer
both share and deposit accounts if permitted by state law. Interest
excludes the payment of a bonus or other consideration worth $10 or
less given during a year, the waiver or reduction of a fee, the
absorption of expenses, non-dividend membership benefits, and
extraordinary dividends.
2. Differences between Dividends and Interest. Dividends are
returns on an equity investment (shares); interest is return on a
debt investment (deposits). Dividends are not properly payable until
declared at the close of a dividend period; interest is properly
payable daily according to the deposit contract. Dividend rates are
prospective until actually declared; interest rates are set
according to contract in advance and are earned on that basis. Share
accounts establish a member (owner)/credit union (cooperative)
relationship; deposit accounts establish a depositor (creditor)/
depositary (debtor) relationship.
3. Referencing. Except where specifically stated otherwise, use
of the terms ``dividend'' or ``dividends'' in part 707 also refers
to ``interest'' where appropriate (for interest-bearing and non-
interest-bearing deposit accounts at some state-chartered credit
unions).
(q) Member.
1. Professional capacity. Examples of accounts held by a natural
person in a professional capacity for another are:
Attorney-client trust accounts
Trust, estate and court-ordered 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 (or Uniform Transfers 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 member 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.
(r) Non-dividend membership benefits.
1. General. Term reflects unique credit union practices that are
difficult to value, encourage community spirit, and are not granted
in such quantity as to be includable as calculable dividends.
2. Examples. Examples include:
Food and refreshments at annual meetings, member functions, and
branch openings
Travel club benefits
Prizes offered at annual meetings, such as U.S. Savings bonds, a
deposit of funds into the winner's account, trips, and other gifts.
Such prizes are not bonuses because they are offered as an incentive
to increase attendance at the annual meeting, and not to entice
members to open, maintain, or renew accounts or increase an account
balance.
Life savings benefits
(s) Passbook account
1. Relation to Regulation E. Passbook accounts include accounts
accessed by preauthorized electronic fund transfers to the account
(as defined in 12 CFR Sec. 205.2(j)), such as an account credited by
direct share and deposit of social security payments. Accounts that
permit access by other electronic means are not ``passbook
accounts,'' and any statements that are sent four or more times a
year must comply with the requirements of Sec. 707.6.
(t) Periodic statement
1. General. Passbook and term share accounts are exempt from
periodic statement requirements.
2. Examples. Periodic statements do not include:
Additional statements provided solely upon request
Information provided by computer through home electronic credit
union services
General service information such as a quarterly newsletter or other
correspondence that describes available services and products
3. Regulation E interplay. Credit unions need not, but may treat
any Regulation E statements as periodic statements for part 707
purposes. For credit unions that choose not to treat Regulation E
activity statements as part 707 periodic statements, the quarterly
periodic statement must reflect the annual percentage yield earned
and dividends earned for the full quarter. However, credit unions
choosing this option need not redisclose fees already disclosed on
an interim Regulation E activity statement on the quarterly periodic
statement. For credit unions that choose to treat Regulation E
activity statements as part 707 periodic statements, the Regulation
E statement must meet all part 707 requirements.
4. Account status information. Credit unions may provide the
account number, the type of account, and balance information for an
account on a periodic statement given for another account. This
allows members to receive information on their accounts either not
covered by the periodic statement disclosure requirements (passbook
and term share accounts) or accounts on different statement cycles
(e.g., ``status information'' could be provided on a share draft
monthly periodic statement for a share money market account on a
quarterly periodic statement cycle). However, providing information
other than the balance in an account (such as dividend rate or
annual percentage yield earned information) would require the credit
union to give full disclosures for the ``status information''
account on the piggybacked statement. (See commentary to
Sec. 707.6(a)).
5. Use of ledger and collected balance to calculate Annual
Percentage Yield Earned. Ledger balance means the record of the
balance in a member's account, as per the credit union's records.
(The ledger balance may reflect additions and deposits for which the
credit union has not yet received final payment). Collected balance
means the record of balance in a member's account reflecting
collected funds, that is, cash or checks deposited in the credit
union which have been presented for payment and for which payment
has actually been received. (See Regulation CC, 12 CFR Sec. 229.14).
The method used by a credit union to accrue or pay dividends or
interest on noncash deposits must be the same method used to
determine the annual percentage yield earned. For example, a credit
union using the collected balance method must use the collected
balance method to determine the annual percentage yield earned.
(u) Potential member.
1. General. A potential member is a natural person eligible for
membership in a credit union, who has not yet taken the steps
necessary to make himself or herself a member. The term also
includes natural person nonmembers eligible to hold accounts in a
credit union pursuant to relevant federal or state law.
2. Verification of eligibility. All credit unions should have
sound written procedures in place to identify those eligible for
membership. If these procedures include verification measures, such
as an application process, verification telephone call or letter to
an employer or association within the field of membership,
witnessing by an existing member, or similar procedure, then the
credit union may first verify the membership eligibility of a
potential member before sending account disclosures or other
information to the potential member. This process of verifying a
member's eligibility status, making a recommendation for membership,
and providing account disclosures should be completed within 20
calendar days.
3. Nonmembers. Within its sole discretion, the board of
directors of a credit union may provide TISA disclosures to
nonmembers who are ineligible for membership or to hold an account
at the credit union. If disclosures are made to such nonmembers, it
is the position of the Board that no civil liability can accrue to
the credit union for any errors in such disclosures. (See commentary
to Sec. 707.3(d)).
(v) State
1. General. Territories and possessions include American Samoa,
Guam, the Mariana Islands, and the Marshall Islands.
(w) Stepped-rate account
1. General. Stepped-rate accounts are those accounts in which
two or more dividend rates (known at the time the account is opened)
will take effect in succeeding periods.
2. Example. An example of a stepped-rate account is a one-year
term share certificate account in which a 5.00% dividend rate is
paid for the first six months, and 5.50% for the second six months.
(x) Term share 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 term share
account made in accordance with Regulation D do not disqualify the
account from being a term share account for purposes of this
regulation, such as withdrawals upon the death of the member, or
within a ``grace period'' for automatically renewable term share
accounts.
2. Club accounts. Club accounts, including Christmas club,
holiday club, and vacation club accounts may be either term share or
regular share accounts, depending on the terms of the account.
a. Term share club accounts.
i. General. A club account may be a term share account if it has
the following characteristics:
It has a maturity of at least seven days, and
During the first six days a member either
May not make withdrawals, or
If the member is allowed to make early withdrawals during the first
six days or there is an early withdrawal penalty equal to the loss
of seven days' dividends.
A club account can be a term share account without a stated
maturity date if members may not withdraw funds until a certain date
or if withdrawal occurs, an early withdrawal penalty is incurred.
ii. Examples. The following are examples of term share club
accounts:
An account for which the credit union will distribute the funds on a
certain date and withdrawals prior to that date are either not
permitted during the first six days after the account is opened or
there is an early withdrawal penalty equal to the amount of
dividends earned on the account during the first seven days (e.g., a
credit union offers an account to which the member makes regular,
periodic additions through October, with the funds distributed
November 1. If the member withdraws funds before November 1, an
early withdrawal penalty is incurred, making the account a term
share account).
An account for which the credit union will distribute the funds on a
certain date and withdrawals are permitted, but the funds withdrawn
are transferred to another account and dividends on the amount
withdrawn earn at the second account's rate, not the club account's
rate (e.g., a credit union offers an account earning dividends at a
5.00% rate to which a member makes regular, periodic additions,
funds in the account are distributed November 1. Prior to the
November 1 distribution date, the member withdraws funds which are
transferred to a regular share account earning dividends at a 3.00%
rate. This rate decrease acts as a penalty, making the account a
term share account).
b. Regular share club accounts. Accounts may be considered
regular share accounts if such accounts do not have an early
withdrawal penalty and permit withdrawals within the first seven
days after the account is opened.
(y) Tiered-rate account
1. General. Tiered-rate accounts are those accounts in which two
or more dividend rates are paid on the account and are determined by
reference to a specified balance. Tiered-rate accounts are of two
types: Tiering Method A and Tiering Method B. In Tiering Method A
accounts, the credit union pays the applicable tiered dividends rate
on the entire amount in the account. This method is also known as
the ``hybrid'' or ``plateau'' tiered-rate account. In Tiering Method
B accounts, the credit union does not pay the applicable tiered
dividends rate on the entire amount in the account, but only on the
portion of the share account balance that falls within each
specified tier. This method is also known as the ``pure'' or
``split-rate'' tiered-rate account. (See commentary to Appendix A,
Sec. I, D.)
2. Example. An example of a tiered-rate account is one in which
a credit union pays a 5.00% dividend rate on balances below $1,000,
and 5.50% on balances $1,000 and above.
3. Term share accounts. Term share accounts that pay different
rates based solely on the amount of the initial share and deposit
are not tiered-rate accounts.
4. Minimum balance accounts. If dividends are not paid on
amounts below a specified balance level, then the account has a
minimum balance requirement (required to be disclosed under
Sec. 707.4(b)(3)(i)), but the account does not constitute a tiered-
rate account. A zero rate (0%) cannot constitute a tier. Minimum
balance accounts are single rate accounts with a minimum balance
requirement.
(z) Variable-rate account
1. General. Includes all accounts in which the credit union does
not contract to give at least 30 days advance written notice of
decreases in the dividend rate. An account meets this definition
whether the rate change is determined by reference to an index, by
use of a formula, or merely at the discretion of the credit union's
board of directors. A term share certificate of deposit that permits
one or more rate adjustments prior to maturity at the member's
option, such as a rate relock option, is a variable-rate account.
2. Differences between fixed-rate and variable-rate accounts.
All accounts must either be fixed-rate or variable-rate accounts.
Classifying an account as variable-rate affects credit unions three
ways:
Additional account disclosures are required (Sec. 707.4(b)(1)(ii));
Rate decreases are exempted from change-in-terms requirements
(Sec. 707.5(a)(2)(i)); and
Advertising notice required (Sec. 707.8(c)(1)).
Fixed-rate accounts require a contract term obligating the
credit union to a 30-day advance, written notice to members before
decreasing the dividend rate on the account. Term changes and rate
decreases cannot take effect until 30 days after such fixed-rate
change in terms notices are mailed or delivered to members
(Sec. 707.5(a)).
Section 707.3--General disclosure requirements.
(a) Form
1. General. All required disclosures, e.g., account disclosures,
change-in-terms notices, term share maturity notices, statement
disclosures and advertising disclosures, must be made clearly and
conspicuously, in a form the member may retain. Disclosures need be
made only as applicable, e.g., disclosures for a non-dividend-
bearing account would not include disclosure of annual percentage
yield, dividend rate, or other disclosures pertaining to dividend
calculations.
2. Design requirements. Disclosures must be presented in a
format that allows members and potential members 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.
3. Multiple account disclosures. Credit unions may prepare
combined disclosures for all accounts offered, or prepare different
documents for different types of accounts. If a credit union
provides one document for several types of accounts, members must be
able to understand clearly which disclosures apply to their account.
4. Consistent terminology. A credit union must use the same
terminology to describe terms or features that are required to be
disclosed. For example, if a credit union 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-terms notices.
(b) General
1. Terms and conditions. Credit unions are required to have
disclosures reflect the terms of the legal obligation between the
credit union and a member at the time the member opens the account.
This provision does not impose any contract terms or supersede state
or other laws that define how the legal obligations between a credit
union and its membership are determined.
2. Specificity of legal obligation. A credit union may use the
term ``monthly'' to describe its compounding or crediting policy
when dividends are compounded or paid at the end of each calendar
month or for twelve periods during the year even if actual days in
each period vary between 28 and 33 days. Use of estimates is
prohibited in TISA disclosures.
3. Foreign language. Disclosures may be made in any foreign
language, if desired by the board of directors of a credit union.
However, disclosures must also be provided in English, upon request.
(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:
A credit union 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-terms notices.
A member adds an ATM access feature to an account, and the credit
union provides disclosures pursuant to Regulation E, including
disclosure of fees before the member receives ATM access. (See 12
CFR Sec. 205.7.) If the credit union 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.
A credit union 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 credit union during a given time period must be
disclosed, even though those transfers are exempt from Regulation E.
(d) Multiple members
1. General. When an account has multiple natural person member
accountholders, delivery of disclosures to any member accountholder
or agent authorized by the accountholder satisfies the disclosure
requirements of part 707. In the case of a joint account in a credit
union, disclosures may be made to a nonmember holding a joint
account with a member.
(e) Oral responses to inquiries
1. Application of rule. Credit unions 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.
3. Disclosures. For dividend-bearing accounts other than term
share accounts, a credit union must state either the dividend rate
and annual percentage yield as of the last dividend declaration
date, or, if such rate might be inaccurate due to known or
contemplated dividend rate changes, a prospective rate and annual
percentage yield determined in good faith by the board of directors,
or, both the past and prospective rates. For interest-bearing
accounts and for dividends-bearing term share accounts, a credit
union would specify the interest (dividend) rate and annual
percentage yield offered during the most recent seven calendar days;
state that the rate and yield are accurate as of an identified date;
and give a number for members to call for current rate information.
These rate disclosures are identical to rate disclosures made upon
request (Sec. 707.4(a)(2)(ii)), in account disclosures
(Sec. 707.4(b)(1)(i)), and in advertising disclosures
(Sec. 707.8(c)(2)).
(f) Rounding and accuracy rules for rates and yields
(f)(1) Rounding
1. General. The annual percentage yield, annual percentage yield
earned and dividend rate must be rounded to the nearest one-
hundredth of one percentage point (.01%) when disclosed. For
example, if a credit union calculated an annual percentage yield to
be 5.644%, it would be rounded down and shown as 5.64%; 5.645% would
be rounded up and disclosed as 5.65%.
(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. Credit unions may not purposely incorporate the one-
twentieth of one percentage point (.05%) tolerance into their
calculation of yields.
2. Dividend rate. There is no tolerance for an inaccuracy in the
dividend rate.
Section 707.4--Account disclosures.
(a) Delivery of account disclosures
(a)(1) Account opening
1. New accounts. New account disclosures must be provided when:
A term share account that does not automatically rollover is renewed
by a member
A member changes the term for a renewable term share account (from a
one-year term share account to a six-month term share account, for
instance)
Funds in a money market share account are transferred by a credit
union to open a new account for the member, such as a share draft
account, because the member exceeded transaction limitations on the
money market share account.
A credit union accepts a share deposit from a member to an account
the credit union previously deemed to be ``closed'' by the member.
New account disclosures are not required when:
A credit union acquires an account through an acquisition of or
merger with another credit union (but see Sec. 707.5(a) regarding
advance notice requirements if terms are changed).
A member opens separate subaccounts (suffix designations) from a
main (suffix) account, if the terms of the subaccounts are identical
to that of the main account and disclosures for the main account
have already been given to the member.
(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
member asks for written information about an account (whether by
telephone, in person, or by other means), the credit union must
provide disclosures.
2. General requests. When a member or potential member generally
asks for information about a type of account (a share draft account,
for example), a credit union that offers several variations may
provide disclosures for any one of them. No disclosures need be made
to nonmembers, though a credit union may provide disclosures to
nonmembers within its sole discretion.
3. Timing for response. Twenty calendar days is a reasonable
time for responding to a request for account information that a
member does not make in person.
(a)(2)(ii)(B)
1. Term. Describing the maturity of a term share account as ``1
year'' or ``6 months,'' for example, illustrates a response stating
the maturity of a term share account as a term rather than a date
(e.g., ``June 1, 1995'').
(b) Content of account disclosures
(b)(1) Rate information
(b)(1)(i) Annual percentage yield and dividend rate
1. Rate disclosures. In addition to the dividend rate and annual
percentage yield, a periodic rate corresponding to the dividend 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 dividend rate, credit unions may disclose a single figure but
must use both terms.
2. Fixed-rate accounts. To disclose the period of time the
dividend rate will be in effect, credit unions may state the
maturity date for fixed-rate term share accounts that pay the
opening rate until maturity. (See Appendix B, B-5--Sample Form.) For
other fixed-rate accounts, credit unions 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 dividend 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 dividend 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.)
5. Minimum-balance accounts. If a credit union sets a minimum
balance to earn dividends, the credit union need not state that the
annual percentage yield is 0% for those days the balance in the
account drops below the minimum balance level when using the daily
balance method. Nor is a disclosure of 0% required for credit unions
using the average daily balance method, if the member fails to meet
the minimum balance required for the average daily balance period.
(b)(1)(ii) Variable rates
(b)(1)(ii)(B)
1. Determining dividend rates. To disclose how the dividend rate
is determined, credit unions must:
Identify the index and specific margin, if the dividend rate is tied
to an index
State that rate changes are solely within the credit union's
discretion, if the credit union does not tie changes to an index
(b)(1)(ii)(C)
1. Frequency of rate changes. Credit unions 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. Credit unions need not disclose the absence of
limitations on rate changes.
(b)(2) Compounding and crediting
(b)(2)(i) Frequency
1. General. Descriptions such as ``quarterly'' or ``monthly''
are sufficient. Irregular crediting and compounding periods, such as
if a cycle is cut short at year end for tax reporting purposes, need
not be disclosed.
2. Dividend period. For dividend-bearing share accounts, the
dividend period must be disclosed. A specific example of frequency
must be given. (See Appendix B, Sec. B-1(c).)
(b)(2)(ii) Effect of closing an account
1. Deeming an account closed. If permissible under federal and
state law, credit unions may provide in account contracts that
certain actions by members will be treated as the member voluntarily
closing the account which will result in the forfeiture of accrued
but uncredited dividends, such as when a member withdraws all funds
from the account prior to the date dividends are credited. Credit
unions are cautioned that bylaw requirements may prevent a credit
union from deeming a member's account closed until certain time
periods are extinguished if funds remain in a member's account. NCUA
Standard FCU Bylaws, Art. III, Sec. 3 (members have at least 6
months to replenish membership share before membership terminates
and account is deemed closed). Such bylaw requirements may not be
overridden without proper agency approval.
(b)(3) Balance information
(b)(3)(i) Minimum balance requirements
1. Par value. Credit unions must disclose any minimum balance
required to open the account, to avoid the imposition of a fee, or
to obtain the annual percentage yield. Since members cannot
generally maintain any accounts until the par value of the
membership share is paid in full, this section requires that credit
unions disclose the par value of a share necessary to become a
member and maintain accounts at the credit union. The par value of a
share and the minimum balance requirement do not have to be the same
amount (e.g., a credit union may have a $5 par value for a
membership share, in order for accounts to be opened and maintained,
and a $100 minimum balance requirement, in order for the account to
earn dividends).
2. Disclosures. The explanation of minimum balance computation
methods may be combined with the balance computation method
disclosures (Sec. 707.4(b)(3)(ii)) if they are the same. If a credit
union uses different cycles for determining minimum balance
requirements for purposes of assessing fees and for paying
dividends, the credit union must disclose the specific cycle or time
period used for each purpose (e.g., use of a midmonth statement
cycle for determining dividends, and use of a calendar month cycle
for determining fees). Credit unions may assess fees by using any
method. If fees on one account are tied to the balance in another
account, such provision must be explained (e.g., if share draft fees
are tied to a minimum balance in the regular share account (or a
combination of the share draft and regular share accounts), the
share draft account must explain that fact and how the balance in
the regular share account (or both accounts) is determined). The fee
need not be disclosed in the account disclosures if the fee is not
imposed on that account.
(b)(3)(ii) Balance computation method
1. Methods and periods. Credit unions 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
dividends (average daily balance for a statement period, for
example). Each method and period must be disclosed
(b)(3)(iii) When dividends begin to accrue
1. Additional information. Credit unions may disclose additional
information such as the time of day after which share 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 dividends or interest begin to accrue.
Under the ledger balance method, dividends begin to accrue on the
day of deposit. Under the collected balance method, dividends begin
to accrue when provisional credit is received for the item
deposited. Credit unions must include a statement as to when
dividends begin to accrue for noncash deposits.
(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 share deposits or withdrawals, such as fees for use
of the credit union's ATMs or nonproprietary ATMs
Fees for special services, such as stop payment fees, fees for
balance inquiries or verification of share and deposits, and fees
associated with checks returned unpaid
Fees to open or to close accounts
Credit unions need not disclose fees such as the following:
Fees assessed for services offered to members and nonmembers alike,
such as fees for certain travelers checks, to process credit card
cash advances, or to handle U.S. Savings Bond redemption
Incidental fees, such as fees associated with state escheat laws,
garnishment or attorneys fees, to change names on an account, to
generate a midcycle periodic statement, to wrap loose coins, and
fees for photocopying forms
2. Amount of fees. Credit unions 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 depends on style of checks ordered'' for
check printing fees
3. Tied-accounts. Credit unions must state if fees that may be
assessed against an account are tied to other accounts at the credit
union. For example, if a credit union ties the fees payable on a
share draft account to balances held in the share draft account and
in a regular share account, the share draft account disclosures must
state that fact and explain now the fee is determined.
4. Regulation E statements. Some fees are required to be
disclosed under both Regulation E (12 CFR Sec. 205.7) and part 707.
If such fees, such as ATM transaction fees, are disclosed on a
Regulation E statement, they need not be disclosed again on a
periodic statement required under part 707.
(b)(5) Transaction limitations
1. General rule. Examples of limitations on the number or dollar
amount of share deposits or withdrawals that credit unions must
disclose are:
Limits on the number of share drafts or checks that may be written
on an account for a given time period
Limits on withdrawals or share deposits during the term of a term
share account
Bylaw limitations (e.g., maximum amount of shares which may be held
by any one member, NCUA Standard FCU Bylaws, Art. III, Sec. 2, and
limitations of withdrawals, NCUA Standard FCU Bylaws, Art. III,
Sec. 5(a))
Limitations required by Regulation D, such as the number of
withdrawals permitted from money market share accounts by check to
third parties each month (but they need not disclose that the credit
union reserves the right to require a seven-day notice for a
withdrawal from an account).
(b)(6) Features of term share accounts
(b)(6)(i) Time requirements
1. ``Callable'' term share accounts. In addition to the maturity
date, credit unions must state the date or the circumstances under
which the credit union may redeem a term share account at the credit
union's option (a ``callable'' term share 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 members for early withdrawal of
funds from term share accounts.
2. Examples. Examples of early withdrawal penalties are:
Monetary penalties, such as ``$10.00'' or ``seven days' dividends
plus accrued but uncredited dividends''
Adverse changes to terms such as the dividend rate, annual
percentage yield, or compounding frequency for funds remaining in
shares or 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 term share accounts. Credit unions are not required
to provide a grace period, to pay dividends during the grace period,
or to disclose whether or not dividends will be paid during the
grace period. Credit unions offering a grace period must give the
length of the grace period. Commentary, Appendix B, Model Clauses,
Sec. B-1(i)(iv).
2. Nonrollover term share accounts. Credit unions that pay
dividends on funds following the maturity of term share accounts
that do not renew automatically need not state the rate (or annual
percentage yield) that may be paid. Term share club accounts will
generally have a specific maturity data and be nonrollover.
(b)(7) Bonuses
1. General. Credit unions are required to state the amount and
type of bonus, and disclose any minimum balance or time requirement
to obtain the bonus and when the bonus will be provided. If the
minimum balance or time requirement is otherwise required to be
disclosed, credit unions need not duplicate the disclosure for
purposes of this paragraph.
(b)(8) Nature of dividends
1. General. Dividends are not payable until declared and unless
sufficient current and undivided earnings are available after
required transfers to reserves at the close of a dividend period. A
disclosure explaining dividends educates members and protects credit
unions in the event that a prospective dividend cannot be paid, or
is not properly payable. This disclosure is required for all
dividend-bearing share accounts except term share accounts.
2. State-chartered credit unions with interest-bearing deposit
accounts. If a member of a state-chartered credit union is opening
only an interest-bearing deposit account, or is requesting account
disclosures only for an interest-bearing deposit account, the
disclosures must generally include the following information on any
dividend-bearing share portion of the account (e.g., membership
share): the par value of a share; a statement that the portion of
the deposit that represents the par value of the membership share
will earn dividends and that dividends are paid from current income
and available earnings after required transfers to reserves. Further
additional disclosures, such as a separate dividend rate and annual
percentage yield for the membership share, are not required (as they
would agree with the remainder of the account, invested in an
interest-bearing deposit).
(c) Notice to existing accountholders
1. General. Only members who receive periodic statements
(provided regularly at least four times per year) and who hold
accounts of the type offered by the credit union as of the
compliance date of part 707 (generally January 1, 1995) must receive
the notice. If following receipt of the notice members request
disclosures, credit unions have twenty calendar days from receipt of
the request to provide the disclosures. Rate and annual percentage
yield information in such disclosures must conform to that required
for disclosures upon request As an alternative to including the
notice in or on the periodic statement, the final rule permits
credit unions to send the account disclosures themselves, as long as
they are sent at the same time as the periodic statement (the
disclosures may be mailed either with the periodic statement or
separately).
2. Form of the notice. The notice may be included on the
periodic statement, in a member newsletter, or on a statement
stuffer or other insert, if it is clear and conspicuous and it is
sent with the first periodic statement after the compliance date of
part 707. The notice cannot be sent in a separate mailing from the
periodic statement.
3. Timing. The notice may accompany the first periodic statement
after the compliance date for part 707, or the periodic statement
for the first cycle beginning after that date. For example, a credit
union's statement cycle is December 15, 1994--January 14, 1995. The
statement is mailed on January 15. The next cycle is January 15,
1995 through February 14, 1995, and the statement for that cycle is
mailed on February 15. The credit union may provide the notice
either on or with the January 15 statement or on or with the
February 15 statement, as it covers the first cycle after January 1,
1995.
4. Early compliance. Credit unions that provide the notice of
existing members prior to the compliance date of part 707, must be
prepared to provide accurate and timely disclosures when, following
receipt of the notice, members ask for account disclosures. Such
disclosures must be provided even if they are requested before the
compliance date of part 707. Credit unions who provide early notice
to existing members need to comply with all other aspects of part
707.
Section 707.5--Subsequent disclosures.
(a) Change in terms
(a)(1) Advance notice required
1. Form of notice. Credit unions may provide a change-in-term
notice on or with a regular periodic statement or in another
mailing. If a credit union provides notice through revised account
disclosures, the changed term must be highlighted in some manner.
For example, credit unions 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:
Effective as of May 11, 1995''
3. Terms that change upon the occurrence of an event. Credit
unions 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 member's leaving the credit union's employment), and
Notices are sent when the term is changed for other account holders,
even though the term remains unchanged for the member 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
credit union to the price charged by a vendor.
(b) Notice before maturity for term share accounts longer than one
month that renew automatically
1. Maturity dates on nonbusiness days. For determining the term,
credit unions 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'' term share account to extend beyond 365 days (or 366, in a
leap year), or a ``one-month'' term share 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 discernible, such as ``the Tuesday prior to
the maturity date stated on the notice`' or ``as of the maturity
date stated on this notice''
Credit unions 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: a credit union that offers a 10-day grace period must provide
the disclosures at least 10 calendar days prior to the scheduled
maturity date.
4. Club accounts. Club accounts that are term share accounts are
covered by this paragraph, even though funds may be withdrawn at the
end of the current club period. For example, if the member has
agreed to the transfer of payments from another account to the term
share account for the next club period, the credit union must comply
with the requirements for automatically renewable term share
accounts.
5. Renewal of a term share account. The following applies to a
change in a term that becomes effective if a rollover term share
account is subsequently renewed.
If the change is initiated by the credit union, the disclosure
requirements of this paragraph. (Paragraph 5(a) applies if the
change becomes effective prior to the maturity of the existing term
share account.)
If initiated by the member, the account-opening disclosure
requirements of Sec. 707.4(b). (If the notice required by this
paragraph has been provided, credit unions may give new account
disclosures or disclosures that reflect the new term.)
For example, if a member who receives a prematurity notice on a
one-year term share account requests a rollover to a six-month
account, the credit union 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. Credit unions need not highlight
terms that have changed since the last account disclosures were
provided.
(c) Notice for term share accounts one month or less that renew
automatically
1. Providing disclosures within a reasonable time. Generally, 20
calendar days after an account renews is a reasonable time for
providing disclosures. For term share accounts shorter than 20 days,
disclosures should be given prior to the next scheduled renewal
date.
(d) Notice before maturity for term share accounts longer than one
year that do not renew automatically
1. Subsequent account. When funds are transferred following
maturity of a nonrollover term share account, credit unions need not
provide account disclosures unless a new account is established.
Section 707.6--Periodic statement disclosures.
(a) Rule When Statement and Crediting Periods Vary
1. General. Credit unions 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
dividends are earned for a statement period, credit unions need not
disclose ``$0'' dividends earned and ``0%'' annual percentage yield
earned.
2. Regulation E interim statements. When a credit union 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 dividend or rate
information. (See 12 CFR Sec. 205.9.)
3. Combined statements. Credit unions may provide certain
information about an account (such as a money market share account
or regular share account) on the periodic statement for another
account (such as a share draft 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 credit union also provides members a periodic statement that
complies with this section for the account (the money market share
account or regular share account, in the example).
4. Other information. Credit unions may include additional
information on or with a periodic statement, such as:
Dividend rates and periodic rates corresponding to the dividend rate
applied to balances during the statement period.
The dollar amount of dividends earned year-to-date.
Bonuses paid (or any de minimis consideration of $10 or less).
Fees for other products, such as safe deposit boxes.
5. When statement and crediting periods vary. This rule permits
credit union, on dividend--bearing share accounts, to report the
annual percentage yield earned and the amount of dividends earned on
a statement other than on each periodic statement when the dividend
period does not agree with, varies from, or is different than, the
statement period. For dividend-bearing share accounts, credit unions
may disclose the required information either upon each periodic
statement, or on the statement on which dividends are actually
earned (credited or posted) to the member's account. In addition,
for accounts using the average daily balance method of calculating
dividends, when the average daily balance period and the statement
periods do not agree, vary or are different, credit unions may also
report annual percentage yield earned and the dollar amount of
dividends earned on the periodic statement on which the dividends or
interest is earned. For example, if a credit union has quarterly
dividend periods, or uses a quarterly average daily balance on an
account, the first two monthly statements may not state annual
percentage yield earned and dividends earned figures; the third
``monthly'' statement will reflect the dividends earned and the
annual percentage yield earned for the entire quarter. The fees
imposed disclosure must be given on the periodic statement on which
they are imposed.
6. Length of the period. Credit unions must disclose the length
of both the dividend period (or average daily balance 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 dividends earned and the annual percentage yield
earned are based on your dividend period (or average daily balance)
for the period April 1 through April 30.''
7. Quarterly statements and monthly compounding. Credit unions
that use the average daily balance method to calculate dividends on
a monthly basis, but send statements on a quarterly basis, may
disclose a single dividend (and annual percentage yield earned)
figure. Alternately, a credit union may disclose three dividends
earned and three annual percentage earned figures, one for each
month in the quarter, as long as the credit union states the number
of days (or beginning and ending date) in each dividend period if it
varies from the statement period.
8. Additional voluntary disclosures. For credit unions not
disclosing the annual percentage yield earned and dividends earned
on all periodic statements, credit unions may place a notice on
statements without dividends and annual percentage yield earned
figures, that the annual percentage yield earned and dollar amount
of dividends earned will appear on the first statement at the close
of the dividend (or average daily balance) period, or similar
wording. Credit unions may also choose to include a telephone number
to call for interim information, if desired by a member.
(b) Statement Disclosures
(b)(1) Annual percentage yield earned
1. Ledger and collected balances. The method used by a credit
union to accrue or pay dividends on noncash deposits must be the
same method used to determine the annual percentage yield earned.
(b)(2) Amount of dividends or interest
1. Definition of earned. The term ``earned'' is defined to
include dividends and interest either ``accrued'' or ``paid and
credited.'' Credit unions may use either the ``ledger'' or the
``collected'' balance for either option. (See commentary to
Sec. 707.2(t).)
2. Terminology. In disclosing dividends earned for the period,
credit unions must use the term ``dividends'' or terminology such
as:
``Dividends paid,'' to describe dividends that have been credited
``Dividends accrued'' or ``dividends earned,'' to indicate that
dividends are not yet credited.
3. Closed accounts. If a member closes an account between
crediting periods and forfeits accrued dividends, the credit union
may not show any figures for ``dividends earned'' or annual
percentage yield earned for the period.
4. Extraordinary dividends. Extraordinary dividends are not a
component of the annual percentage yield earned or the dividend
rate, but are an addition to the member's account. Only the dollar
amount of the extraordinary dividends paid, denoted as a separate,
identified figure, can be disclosed on the periodic statement on
which the extraordinary dividends are earned.
(b)(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, credit
unions 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 share deposits and $1.00 for withdrawals
Fees for electronic fund transfers and fees for other services, such
as balance inquiry or maintenance fees (unless permitted by
Regulation E)
3. Identifying fees. Statement details must enable the member to
identify the specific fee. For example:
Credit unions may use a code to identify a particular fee if the
code is explained on the periodic statement or in documents
accompanying the statement.
Credit unions 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).
(b)(4) Length of period
1. General. Credit unions that provide the beginning and ending
dates of the period must make clear whether both dates are included
in the period. For example, stating ``April 1 through April 30''
would clearly indicate that both April 1 and April 30 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,
credit unions must calculate the annual percentage yield earned
based on account balances for each day the account was open.
Section 707.7--Payment of dividends.
(a) Permissible methods
1. Prohibited calculation methods. Calculation methods that do
not comply with the requirement to pay dividends on the full amount
of principal in the account each day include:
The ``rollback'' method, also known as the ``grace period'' or ``in
by the 10th'' method, where credit unions pay dividends on the
lowest balance in the account for the period
The ``increments of par value'' method, where credit unions only pay
dividends on full shares in an account, e.g., a credit union with $5
par value shares pays dividends on $20 of a $24 account balance
The ``ending balance'' method, where credit unions pay dividends on
the balance in the account at the end of the period
The ``investable balance'' method, where credit unions pay dividends
on a percentage of the balance, excluding an amount credit unions
set aside for reserve requirements
2. Use of 365-day basis. Credit unions may apply a daily
periodic rate that is greater than 1/365 of the dividend rate--such
as 1/360 of the dividend rate--as long as it is applied 365 days a
year.
3. Periodic dividend payments. A credit union can pay dividends
each day on the account and still make uniform dividend payments.
For example, for a one-year term, term share certificate account, a
credit union could make monthly dividend payments that are equal to
1/12 of the amount of dividends that will be earned for a 365-day
period, or 11 uniform monthly payments and a final payment that
accounts for the total dividends earned for the period.
4. Leap year. Credit unions may apply a daily rate of 1/366 or
1/365 of the dividend rate for 366 days in a leap year, if the
account will earn dividends for February 29.
5. Maturity of term share accounts. Credit unions are not
required to pay dividends after term share accounts mature, such as:
During any grace period offered by a credit union for an
automatically renewable term share account, if the member decides
during that period not to renew the account
Following the maturity of nonrollover term share accounts
When the maturity date falls on a holiday, and the member must wait
until the next business day to obtain the funds
6. Dormant accounts. Credit unions may contract with a member
not to pay dividends if the account becomes ``dormant,'' as defined
by applicable state or other law.
7. Insufficient funds. Credit unions are not required to pay
dividends on checks or share drafts deposited to a member's account
that are returned for insufficient funds. If a credit union accrues
dividends on a check that it later determines is not good, it may
deduct from the accrued dividends any dividends attributed to the
proceeds of the returned check. If dividends have already been
credited before the credit union determines the item has
insufficient funds, the credit union may deduct the amount of the
check and associated dividends from the account balance. The
dividend deduction should not be included in the dividend amount and
annual percentage yield earned that is reported for the next period.
8. Account drawn below par value of a share. If a member draws
his or her account below the par value of a share, dividends would
continue to accrue on the account. However, under the NCUA Standard
FCU Bylaws, if a member who reduces his or her share balance below
the value of a par value share and does not increase the balance
within at least six months, the credit union may terminate the
member's membership. State-chartered credit unions may have similar
termination provisions.
(a)(2) Determination of minimum balance to earn dividends
1. General. Credit unions may set minimum balance requirements
that must be met in order to earn dividends. However, credit unions
must use the same method to determine a minimum balance required to
earn dividends as they use to determine the balance upon which
dividends will accrue. For example, a credit union that calculates
dividends on the daily balance method must use the daily balance
method to determine if the minimum balance to earn dividends has
been met. Similarly, a credit union that calculates dividends on the
average daily balance method must use the average daily balance
method to determine if the minimum to earn dividends has been met.
Credit unions may have a par value of a share that is different from
the minimum balance requirement to earn dividends (See commentary to
Sec. 707.4(b)(3)(i).)
2. Daily balance accounts. Credit unions that use the daily
balance method to calculate dividends and require a minimum balance
to earn dividends may choose not to pay dividends for days when the
balance drops below the required daily minimum balance. For example,
a credit union could set a minimum daily balance level of $200 and
pay dividends only those days the $200 daily balance is maintained.
3. Average daily balance accounts. Credit unions that use the
average daily balance method to calculate dividends and require a
minimum balance to earn dividends may choose not to pay dividends
for the average daily balance calculation period in which the
average daily balance does not meet the required minimum. For
example, a credit union could set a minimum average daily balance
level of $200 and pay dividends only if the $200 average daily
balance is met for the calculation period.
4. Beneficial method. Credit unions may not require members to
maintain both a minimum daily balance and a minimum average daily
balance to earn dividends, such as by requiring the member to
maintain a $500 daily balance and an average daily balance that is
higher or lower. But a credit union could determine the minimum
balance to earn dividends by using a method that is ``unequivocally
beneficial'' to the member such as the following:
A credit union using the daily balance method to calculate dividends
and requiring a $500 minimum daily balance could choose to pay
dividends on the account (for those days the minimum balance is not
met) as long as the member maintained an average daily balance
throughout the month of $400.
A credit union using the average daily balance method to calculate
dividends and requiring a $400 minimum average daily balance could
choose to pay dividends on the account as long as the member
maintained a daily balance of $500 for at least half of the days in
the period.
A credit union using either the daily balance method or average
daily balance method to calculate dividends that requires either of
the following, but not both, $500 daily balance or a $400 average
daily balance to pay dividends on the account.
5. Paying on full balance. Credit unions must pay dividends on
the full balance in the account once a member has met the required
minimum balance. For example, if a credit union sets $300 as is
minimum daily balance requirement to earn dividends, and a member
share and deposits $500, the credit union must pay the stated
dividend rate on the full $500 and not just on $200.
6. Negative balances prohibited. Credit unions must treat a
negative account balance as zero to determine:
The daily or average daily balance on which dividends will be paid
Whether any minimum balance to earn dividends is met
(See commentary to Appendix A, Part II, which prohibits credit
unions from using negative balances in calculating the dividends
figure for the annual percentage yield earned.)
7. Club accounts. Credit unions offering club accounts (such as
``holiday'' or ``vacation'' club accounts) 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 credit union cannot set a
$500 minimum balance and then pay only if the member makes all 50
payments.
8. Minimum balances not affecting dividends. Credit unions may
use the daily balance, average daily balance, or other computation
method to calculate minimum balance requirements not involving the
payment of dividends--such as to compute minimum balances for
assessing fees.
(b) Compounding and crediting policies
1. General. Credit unions that choose to compound dividends may
compound or credit dividends annually, semi-annually, quarterly,
monthly, daily, continuously, or on any other basis.
2. Withdrawals prior to crediting date. If members withdraw
funds, without closing the account, prior to a scheduled crediting
date, credit unions may delay paying the accrued dividends on the
withdrawn amount until the scheduled crediting date, but may not
avoid paying dividends.
3. Closed accounts. If members close accounts prior to the date
dividends are credited, credit unions may choose not to pay accrued
dividends as long as they have previously disclosed that fact to the
member. If accrued dividends are paid, accrued dividends must be
paid on funds up until the account is closed or the account is
deemed closed. For example, if an account is closed on a Tuesday,
accrued dividends on the funds through Monday would be paid. Whether
(and the conditions under which) credit unions are permitted to deem
an account closed by a member is determined by state or other law,
if any. Credit unions are cautioned that bylaw requirements may
prevent a credit union from deeming a member's account closed until
certain time periods are extinguished. (See NCUA Standard FCU
Bylaws, Art. III, Sec. 3 (members have at least 6 months to
replenish membership share before membership can terminate and the
account is deemed closed). Such bylaw requirements may not be
overridden without proper agency approval.
4. Dormant account. Subject to state or other law defining when
an account becomes dormant, a credit union may contract with a
member not to pay accrued, but uncredited, dividends if the account
becomes dormant prior to the regular dividend crediting date.
(c) Date dividends begin to accrue
1. Relation to Regulation CC. Credit unions may rely on the
Expedited Funds Availability Act (EFAA) and regulation CC (12 CFR
part 229) to determine, for example, when a share is considered made
for purposes of dividend accrual, or when dividends need not be paid
on funds because a deposited check is later returned unpaid.
2. Ledger and collected balances. Credit unions may calculate
dividends by using a ``ledger'' balance or ``collected'' balance
method, as long as the crediting requirements of the EFAA are met.
3. Withdrawal of principal. Credit unions must accrue dividends
on funds until the funds are withdrawn from the account. For
example, if a check is debited to an account on a Tuesday, the
credit union must accrue dividends on those funds through Monday.
Section 707.8--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. The word ``profit'' may be used
when referring to dividend-bearing share accounts, as it reflects
the nature of dividends. The word ``profit'' may not be used when
referring to interest-bearing deposit accounts.
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 term, share 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 member exceeds a specified number of transactions
Transaction and service fees that members 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 share and 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 credit union)
Examples of fees that are not maintenance or activity fees
include:
Fees that are not required to be disclosed under Sec. 707.4(b)(4)
Check printing fees of any type
Fees for obtaining copies of checks, whether or not the original
checks have been truncated or returned to the member periodically
Balance inquiry fees
Fees assessed against a dormant account
Fees for using an ATM not owned by the account-issuing credit union
Fees for electronic transfer services that are not required to
obtain an account, such as preauthorized transfers or home
electronic credit union services
Stop payment fees and fees for returned share draft or checks
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. Credit unions may advertise a
specific account service or feature as free as long as no fee is
imposed for that service or feature. For example, credit unions 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 share accounts. Credit unions may
advertise accounts as ``free'' for members that meet conditions not
related to share accounts such as age. For example, credit unions
may advertise a share draft aaccount as ``free for persons over 65
years old,'' even though a maintenance or activity fee may be
assessed on accounts held by members 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 dividend rates stated must appear
in conjunction with the annual percentage yields for the applicable
tier.
2. Stepped-rate accounts. An advertisement that states a
dividend rate for a stepped-rate account must state each dividend
rate and the time period each rate is in effect.
3 Representative examples. An advertisement that states an
annual percentage yeild for a type of account (such as a term share
account) need not state the annual percentage yield applicable to
every variation offered by the credit union. For example, if rates
vary depending on the amount of the initial share and deposit and
term of a term share account, credit unions 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 a credit union
offers a $25 bonus on all term share accounts and the annual
percentage yield will vary depending of the term selected, the
credit union may provide a disclosure of the annual percentage yield
as follows: ``For example, our 6-month term share 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 that depend on the maturity you choose. For
example, our one-month CD earns a 2.75% APY. Or, earns 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
term share 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 an account promotion that will be in effect for six months
would be considered ``recent,'' even though rates change during the
six-month period. Interest 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. Similarly, dividend rates
published in a daily newspaper or on television must be a rate
reflecting either the preceding dividend period, or a prospective
rate, and the option chosen should be noted.
(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 term share 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,
credit unions 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. Credit unions that impose early
withdrawal penalties on a case-by-case basis my 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 member (such as a brochure or a printout from a computer) is
not an indoor sign.
2. Members outside the premises. Advertisements may be ``indoor
signs'' even though they may be viewed by members from outside. An
example is a banner in a credit union's glass-enclosed branch
office, that is located behind a teller facing customers but also
may be seen by passersby.
(e)(3) Newsletters
1. General. The partial exemption applies to all credit union
newsletters, whether instituted before or after the compliance date
of part 707. Nor must a newsletter be of any particular circulation
frequency (e.g., weekly, monthly, quarterly, biannually, annually,
or irregularly) or of any certain format (e.g. magazine, bulletin,
broadside, circular, mimeograph, letter, or pamphlet) in order to be
eligible for the partial advertising exemption.
2. Distribution. In order for newsletters to retain the partial
advertising exemption, newsletters can be sent to existing credit
union members only. Any distribution reasonably calculated to reach
only members is also acceptable, such as
Mailing newsletters to existing members
Distributing newsletters at a function reasonably limited to
members, such as an annual meeting or member picnic
Displaying or offering newsletters at a credit union lobby, branch,
or office. Distributing a newsletter in a place open to nonmembers,
such as a sponsor's lunch room, is not reasonably calculated to
reach only members, and such newsletter would be subject to all
applicable advertising rules.
Section 707.9--Enforcement and record retention.
(c) Record retention
1. Evidence of required actions. Credit unions comply with the
regulation by demonstrating they have done the following:
Established and maintained procedures for paying dividends and
providing timely disclosures as required by the regulation, and
Retained sample disclosures for each type account offered to
members, such as account-opening disclosures, copies of
advertisements, and change-in-term notices; and information
regarding the dividend rates and annual percentage yields offered.
2. Methods of retaining evidence. Credit unions 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). Credit unions must retain
copies of all printed advertisements and the text of all
advertisements conveyed by electronic or broadcast media, and
newsletters.
3. Payment of dividends. Sufficient rate and balance information
must be retained to permit the verification of dividends paid on an
account, including the payment of dividends on the full principal
balance.
Appendix A to Part 707--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 dividends and the annual
percentage yield:
The daily rate applied to a balance rounded to five or more
decimals. For example; .008219178%, 3.00% for a 365 day year, would
be rounded to no less than .00822%.
The daily dividends or interest earned rounded to five or more
decimals. For example; $.08219178082, daily dividends on $1,000 at
3% for a 365 day year, would be rounded to no less than $.08219.
2. Exponent numerator in a leap year. The annual percentage
yield formula's exponent numerator will remain 365 in leap years.
3. First tier of a tiered rate account. The first tier of a
tiered rate account is to be disclosed and advertised; ``Up to but
not exceeding . . .'', ``$.01 to . . .'', or similar language.
Part II. Annual percentage yield earned for periodic statements.
1. Balance method. The dividend or 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. The balance for each day is based on a
point in time; i.e. beginning of day balance, end of day balance,
closing of day balance, etc. Each day's balance must be based on the
same point in time and cannot be based on the day's low balance.
2. Collected balance method. Credit unions that accrue or pay
dividends on noncash deposits using the collected balance method
must disclose collected balance information on the periodic
statement in order that the member may calculate the dividend amount
and annual percentage yield earned (e.g., each day's collected
balance when the daily balance method is used and the average daily
balance when the average daily balance is used).
3. Negative balances prohibited. Credit unions 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. 707.7(a)(2).)
A. General formula.
1. Accrued but uncredited dividends. To calculate the annual
percentage yield earned, accrued but uncredited dividends:
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 dividends daily and credits dividends
monthly, the balance may not be increased each day to reflect the
effect of daily compounding. Assume a credit union will pay $13.70
in dividends on $100,000 for the first day, $6.85 in dividends on
$50,013.70 for the second day, and $3.43 in dividends on $25,020.55
for the third day. The sum of each days balance is $175,000 (does
not include accrued, but uncredited, dividends amounts $13.70,
$6.85, and $3.43), thereby resulting in an average daily balance for
the three days of $58,333.33.
Shall be included in the balance for succeeding statements if a
statement is issued more frequently than compounded dividends is
credited on an account. For example, if monthly statements are sent
for an account that compounds dividends daily and credits dividends
quarterly, the balance for the second monthly statement would
include dividends that had accrued for the prior month. Assume a
credit union will pay $411.78 in dividends on 30 days of $100,000,
$427.28 in dividends on 31 days of $100,411.78, and $415.23 in
dividends on 30 days of $100,839.06. The balance (average daily
balance in the account for the period) for the second 31 days is
$100,411.78.
2. Rounding. The dividends 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 dividends
earned for a statement period is $20.074 and the credit union pays
the member $20.07, the credit union must use $20.07 (not $20.074) to
calculate the annual percentage yield earned. For accounts that pay
dividends based on the daily balance method, compound and credit
dividends or interest quarterly, and send monthly statements, the
credit union may, but need not, round accrued dividends to two
decimals for calculating the ``projected'' or ``anticipated'' annual
percentage yield earned on the first two monthly statements issued
during the quarter. However, on the quarterly statement the
dividends earned figure must reflect the amount actually paid.
3. Compounding frequency using the average daily balance method.
Any compounding frequency, including daily compounding, can be used
when calculating dividends using the average daily balance method.
(See comment 707.7(b), which does not require credit unions to
compound or credit dividends at any particular frequency).
B. Special formula for use where periodic statement is sent more
often than the period for which dividends are compounded.
1. Statements triggered by Regulation E. Credit unions 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 dividends
quarterly and that receive monthly statements, triggered by
Regulation E, which comply with the provisions of Sec. 707.6.
2. Days in compounding period. Credit unions using the special
annual percentage yield earned formula must use the actual number of
days in the compounding period.
Appendix B to Part 707--Model Clauses and Sample Forms
1. Modifications. Credit unions that modify the model clauses
will be deemed in compliance as long as they do not delete
information required by TISA or regulation or rearrange the format
so as to affect the substance or clarity of the disclosures.
2. Format. Credit unions may use inserts to a document (see
Sample Form B-11) or fill-in blanks (see Sample Forms B-4 and B-5,
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 member when an account is
opened, as required by Sec. 707.4(a)(1). (See Sec. 707.4(a)(2),
which states the requirements for disclosing the annual percentage
yield, the dividend rate, and the maturity of a term share account
in responding to a member's request.)
4. Compliance with Regulation E. Credit unions may satisfy
certain requirements under Part 707 with disclosures that meet the
requirements of Regulation E. (See Sec. 707.3(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). Credit unions should consult
appendix A to Regulation E for appropriate Regulation E 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), credit unions
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 a credit union should insert
in the space provided (for example, a credit union might insert
``March 25, 1995'' in the blank for ``(date)'' disclosure). Brackets
and diagonals (``/'') indicate a Credit unions 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-11) 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.
By order of the National Credit Union Administration Board on
July 26, 1994.
Becky Baker,
Secretary of the Board.
[FR Doc. 94-18719 Filed 8-2-94; 8:45 am]
BILLING CODE 7535-01-V-M
