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F ederal Reserve Bank OF DALLAS ROBERT D. M C T E E R , J R . DALLAS, TEXAS P R E S ID E N T AND C H IE F E X E C U T IV E O F F IC E R Decem ber 29, 1995 75265-5906 Notice 95-123 TO: The Chief Executive Officer of each m em ber bank and others concerned in the Eleventh Federal Reserve District SUBJECT Extension of Comment Period on Proposed Amendments to Regulation M (Consumer Leasing) and the Official Staff Commentary to Regulation M; Proposed Revisions to the Official Staff Commentary to Regulation DD (Truth in Savings) DETAILS The Board of Governors of the Federal Reserve System has extended the comment period on proposed amendments to Regulation M (Consumer Leasing) and to the Official Staff Commentary to Regulation M. The purpose of the extension is to obtain views on the proposals from consumers who have experience in leasing or are interested in leasing by inviting individuals to take part in focus groups. Other public comment is also invited during this period. The extension is not expected to delay implementation of the final rule, which is anticipated in the second quarter of 1996. The Board must now receive comments by February 15, 1996. Please address comments to William W. Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551. Comments on Regulation M should refer to Docket No. R-0892, and comments on the Official Staff Commentary to Regulation M should refer to Docket No. R-0893. Also, the Board is requesting public comment on proposed revisions to the Official Staff Commentary to Regulation DD (Truth in Savings). The proposed revisions would clarify regulatory provisions and provide further guidance on issues of general interest, such as when credited interest becomes part of principal and how leap years affect the calculation of the annual percentage yield. For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas: Dallas Office (800) 333 -4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) The Board must receive comments by February 2, 1996. Please address com ments to William W. Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551. Comments should refer to Docket No. R-0904. ATTACHMENT A copy of the Board’s notices as they appear on pages 62349-51, Vol. 60, No. 234, of the Federal Register dated Decem ber 6, 1995, is attached. MORE INFORMATION For m ore information regarding Regulation M or the Regulation D D staff commentary, please contact Eugene Coy at (214) 922-6201. For additional copies of this Bank’s notice, please contact the Public Affairs Departm ent at (214) 922-5254. Sincerely yours, Federal Register / Vol. 60, No. 234 / Wednesday, December 6, 1995 / Proposed Rules FOR FURTHER INFORMATION CONTACT: Kyung H. Cho-Miller, Obrea O. Poindexter, or W. Kurt Schumacher, Staff Attorneys, Division of Consumer and Community Affairs, Board of. Governors of the Federal Reserve System, W ashington, DC 20551, at (202) 452-2412 or 452-3667. For users of Telecommunications Device for the Deaf FEDERAL RESERVE SYSTEM (TDD), please contact Dorothea Thom pson at (202) 452-3544. 12 CFR Part 213 SUPPLEMENTARY INFORMATION: The Consumer Leasing Act (CLA), 15 U.S.C. [Regulation M; Docket No. R-0892 and 1667-1667e, was enacted into law in Docket No. R-0893] 1976 as an amendm ent to the Truth in Consumer Leasing; Extension of Lending Act (TILA), 15 U.S.C. 1601 et Comment Period seq. The Board was given rulewriting authority, and its Regulation M (12 CFR AGENCY: Board of Governors of the part 213) implements the CLA. An Federal Reserve System. official staff commentary that interprets ACTION: Proposed rule and official staff the regulation has also been published interpretation; extension of comment (Supplement I-CL-1 to 12 CFR 213). period. The CLA generally governs consumer leases of personal property involving SUMMARY: On September 20,1995, the $25,000 or less and a term of more than Board published a request for comment four months. An automobile lease is the on proposed amendments to Regulation most common type of consumer lease M, w hich implements the Consumer covered by the CLA. Like the credit Leasing Act (60 FR 48752). At that time, provisions of the TILA, the CLA the Board also proposed revisions to the requires lessors to provide uniform cost official staff commentary to Regulation and other disclosures in consumer lease M, w hich were published in the same transactions and lease advertising. Prior issue of the Federal Register (60 FR to entering into a lease agreement, 48769). The Consumer Leasing Act and lessors m ust give consumers fifteen to Regulation M require lessors to provide twenty disclosures, including the uniform cost and other disclosures am ount oT initial charges to be paid, an about consumer lease transactions. The identification of leased property, a Board’s proposal contains several payment schedule, the responsibilities substantive amendments to the for maintaining the leased property, and regulation and would also simplify and the liability for terminating a lease early clarify its provisions. In order to obtain The Board’s Regulatory Planning and additional views on the proposal from Review Program calls for the periodic individual consumers, the Board has review of Board regulations w ith four extended the public comment period for goals in mind: To clarify and simplify 90 days. The comment period for the regulatory language; to determine proposed revisions to the commentary is w hether regulatory am endm ents are similarly extended for 90 days. needed to address technological and DATES: Comments m ust be received by other developments; to reduce undue February 15,1996. regulatory burden on the industry; and ADDRESSES: Comments should refer to to delete obsolete provisions. On Docket No. R-0892 and Docket No. R September.20,1995, the Board 0893, and be m ailed to W illiam W. published proposed revisions to Wiles, Secretary, Board of Governors of Regulation M for comment (60 FR the Federal Reserve System, 20th Street 48752). The proposal contains several and Constitution Avenue NW., substantive revisions to the regulation, Washington, DC 20551. Comments also for example: additional disclosure may be delivered to room B-2222 of the requirements about early term ination Eccles Building between 8:45 a.m. and charges, the gross cost of leases, the 5:15 p.m. weekdays, or to the guard residual value, and the estimated lease station in the Eccles Building courtyard charge; a requirement that certain on 20th Street NW., (between leasing disclosures be segregated from Constitution Avenue and C Street) any other information; and pursuant to a statutory change, revisions to the time. Comments may be inspected in room MP-500 of the M artin Building advertising provisions for radio and between 9 a.m. and 5 p.m. weekdays, television. The proposal also simplifies except as provided in 12 CFR 261.8 of the language and format of the the Board’s rules regarding the regulation to state the requirements availability of information. more clearly. 62349 The Board is extending the comment period until February 15,1996, in order to obtain views on the proposals from consumers who have experience in leasing or are interested in leasing, by inviting certain individuals to participate in focus groups. The focus group participants will be asked to address key elements of the Board’s proposed amendments to Regulation M and to provide comments on the proposed consumer leasing forms. During the extension period, the Board’s staff will undertake its review and analysis of the comments that have already been filed. The comment period is being extended primarily for the purpose of conducting these focus group interviews. Other members of the public may submit comments during this period, but they are encouraged to submit them as soon as possible. The Board does not expect this extension to delay the implementation of the final rule. The Board anticipates that revisions to Regulation M and the official staff commentary w ill be adopted in final form in the second quarter of 1996. Board of Governors of the Federal Reserve System, November 30, 1995. William W. Wiles, Secretary of the Board. [FR Doc. 95-29697 Filed 12-5-95; 8:45 am] BILLING CODE 6 2 1 0 -0 1 -P 12 CFR Part 230 [Regulation DD; Docket No. R-0904] Truth in Savings AGENCY: Board of Governors of the Federal Reserve System. ACTION: Proposed rule; official staff interpretation. SUMMARY: The Board is publishing for comment proposed revisions to the official staff commentary to Regulation DD (Truth in Savings). .The commentary applies and interprets the requirements of Regulation DD. The proposed revisions would clarify regulatory provisions or provide further guidance on issues of general interest, such as ' w hen credited interest becomes part of principal and how leap years affect the calculation of the annual percentage yield. DATES: Comments must be received on or before February 2,1996. ADDRESSES: Comments should refer to Docket No. R-0904, and may be mailed to William W. Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW., Washington, DC 20551. 62350 Federal Register / Vol. 60, No. 234 / Wednesday, December 6, 1995 / Proposed Rules Comments also may be delivered to Room B-2222 of the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the guard station in the Eccles Building courtyard on 20th Street, NW. (between Constitution Avenue and C Street) at any time. Comments may be inspected in Room MP-500 of the Martin Building between 9 a.m. and 5 p.m. weekdays, except as provided in 12 CFR 261.8 of the Board’s rules regarding the availability of information. FOR FURTHER INFORMATION CONTACT: Jane Ahrens, Senior Attorney, or Obrea O. Poindexter, or Michael L. Hentrel, Staff Attorneys, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, at (202) 452-3667 or 452— 2412. For users of Telecommunications Device for the Deaf (TDD) only, please contact Dorothea Thompson, at (202) 452-3544. SUPPLEMENTARY INFORMATION: I. Background The purpose of the Truth in Savings Act (12 U.S.C. 4301 et seq.) is to assist consumers in comparing deposit accounts offered by depository institutions. The act requires institutions to disclose fees, the interest rate, the annual percentage yield (APY), and other account terms whenever a consumer requests the information and before an account is opened. Fees and other information also m ust be provided on any periodic statement the institution sends to the consumer. Rules are set forth for deposit account advertisements and advance notices to account holders of adverse changes in terms. The act restricts how institutions m ust determine the account balance on which interest is calculated. The act is implemented by the Board’s Regulation DD (12 CFR part 230). The regulation authorizes the issuance of official staff interpretations of the regulation. The Board is publishing proposed amendments to the commentary to Regulation DD, w hich provides guidance to depository institutions in applying the regulation to specific transactions and is a substitute for individual staff interpretations. The commentary is updated periodically to address significant questions that arise. The Board expects to adopt the commentary in final form by April 1996 with a six-month time period for optional compliance and a mandatory compliance date of October 1996. On January 26,1995, the Board published a proposal to amend the regulation’s rules for calculating the APY (60 FR 5142). The Congress is considering legislation that would repeal several provisions of the Truth in Savings Act, including those calling for an APY. The Board has deferred action on the proposal, pending the Congress’s resolution of the legislative proposals. II. Proposed Commentary Section 230.2—Definitions (2)(f) Bonus Comment 2(f)— provides additional 2 guidance regarding bonuses. The proposed comment clarifies the treatment of coupons. It also codifies guidance provided in the supplementary information accompanying the initial rulemaking (57 FR 43337, published September 21, 1992) concerning items given or offered to third parties. 2(u) Time Account Proposed comment 2(u)-3 clarifies that an interest-bearing account meets the definition of a time account if the amount of the early withdrawal penalty is equal to at least seven days’ interest for withdrawals during the first six days the account is opened and the account has a maturity of at least seven days. Thus, the Board believes that where a depository institution imposes a dollar amount as its early withdrawal penalty (assessed during the first six days an account is opened) on an interestbearing account, rather than applying a periodic rate to a balance (“interest,”), the fixed-dollar penalty is the functional equivalent of interest. Section 230.7—Payment o f Interest 7(b) Crediting and Compounding Policies Comment 7(b)-4 addresses crediting and compounding policies. The Board believes institutions may choose any crediting frequency. However, once interest is credited by posting interest to an account it becomes part of the principal, and if interest remains in the account, interest m ust accrue on those funds. The Board believes the act requires that once interest is credited to an account, institutions must calculate interest on the full principal in the account. For example, assume a consumer earns $5 in interest on a $1,000 balance for the month of January. If the institution credits interest monthly (in the example, at the end of January) and does not pay the interest by check or transfer to another account, the institution must accrue interest on $1,005 for the m onth of February. Comment 7(b)-4 would clarify that interest cannot be credited by posting to a consumer’s account without becoming part of the principal. Appendix A—A nnual Percentage Yield Calculation Part I. Annual Percentage Yield for Account Disclosures-and Advertising Purposes Part II. Annual Percentage Yield Earned for Periodic Statements Comment app. A.II.A.-2 provides additional guidance on rounding the interest earned figure of the annual percentage yield earned. Proposed comment app. A.II.-3 provides additional guidance on calculating interest and the annual percentage yield earned in a leap year. III. Form of Comment Letters Comment letters should refer to Docket No. R— 0904, and, when possible, should use a standard courier typeface with a type size of 10 or 12 characters per inch. This will enable the Board to convert the text into machine-readable form through electronic scanning, and will facilitate automated retrieval of comments for review. Comments may also be submitted on 3Vz inch or 5V4 inch computer diskettes in any IBMcompatible DOS-based format, if accompanied by an original document in paper form. List of Subjects in 12 CFR Part 230 Advertising, Banks, banking, Consumer protection, Federal Reserve System, Reporting and recordkeeping requirements, Truth in savings. Certain conventions have been used to highlight the proposed revisions to the regulation. New language is shown inside bold-faced arrows, while language that would be deleted is set off with bold-faced brackets. Comments are numbered to comply with new Federal Register publication rules. For the reasons set forth in the preamble, the Board proposes to amend 12 CFR part 230 as follows: PART 230— TR U TH IN SAVINGS (REGULATION DD) 1. The authority citation for part 230 would continue to read as follows: Authority: 12 U.S.C. 4301 et seq. 2. In Supplement I to part 230, under Section 230.2 Definitions., the following amendments would be made: a. Under (f) Bonus, paragraph 1. would be revised, paragraphs 2. through 4. would be redesignated as paragraphs 3. through 5., respectively, and a new paragraph 2. would be added; and b. Under (uj Time account, a new paragraph 3. w ould be added. The revisions and additions would read as follows: Federal Register / Vol. 60, No. 234 / Wednesday, December 6, 1995 / Proposed Rules Supplement I to Part 230—Official Staff Interpretations * * * * * Section 230.2 Definitions * * * * * (fj Bonus. 1. ► General Rule-^ [Examples! Bonuses include items of value, other than interest, offered as incentives to consumers, such as an offer to pay the final installment deposit for a holiday club account. [Items that are not a bonus include discount coupons for goods or services at restaurants or stores.] ►2. Examples of Excluded Items. Items that are not bonuses include: i. Discount coupons distributed by institutions for goods or services at restaurants or stores where the consumer must pay a sum to the restaurant or store to receive the benefit of the coupon ii. Items of value given to a third party by an institution when a consumer opens, maintains, or renews an account—such as donations made to a charitable organization.-^ * * * * * (u) Time account * * * * * ►3. Fee for early withdrawal. Time accounts include interest-bearing accounts with a maturity of at least seven days that impose a dollar amount for withdrawals during the first six days after the account is opened that is equal to a t least seven days’ interest.-^ * * * * * * * * * Section 230.7 Payment of Interest * * * * (a)(1) Permissible methods. * * * * * 4. Leap year. Institutions may apply a daily rate of 1/366 or 1/365 of the interest rate for 366 days in a leap year, if the account will earn interest for February 29. ►“Leap year” is a calendar year in which February 29 occurs. For example, if the term of a time account includes days in a nonleap year but extends through February 29 of a leap year, the institution must use a daily rate of 1/365 (or a greater daily rate such as 1/360) each day the account is open in the nonleap year. * * * * * (b) Compounding and crediting policies. * * * * * ►4. Crediting and accrual of interest. Once interest is credited to an account it becomes part of the principal on which an institution must accrue interest.^ * * * * * * * * * * * Appendix A to Part 230—Annual Percentage Yield Calculation Part I. A nnual Percentage Yield for Account Disclosures and Advertising Purposes * * * * * ►2. Leap year. Institutions that use a daily rate of 1/366 to pay interest on an account during a leap year may calculate the annual percentage yield using 365 or 366 days in a leap year, as follows: 1. Institutions may use 365 days in all cases. ii. For time accounts, institutions must use 365 if the account term includes days in a nonleap year.-^ Part II. A nnual Percentage Yield Earned for Periodic Statements * * * * * A. General Formula 3. In Supplem ent I to part 230, under Section 230.7 Payment o f interest, the following am endm ents would be made: a. Under (a)(1) Permissible methods, paragraph 4. would be revised; and b. Under (b) Compounding and crediting policies, a new paragraph 4. would be added. The revisions and additions would read as follows: * 4. In Supplement I to part 230, under A ppendix A, the following amendments w ould be made: a. Under Part I. A nnual Percentage Yield for Account Disclosures and Advertising Purposes, a new paragraph 2. would be added; and b. Under Part II. A nnual Percentage Yield Earned for Periodic Statements, under A. General Formula, paragraph 2. would be revised, and a new paragraph 3. would be added. The additions and revisions would read as follows: * * '* * * 2. Rounding. The interest earned figure used to calculate the annual percentage yield earned m ust be rounded to two decimals and reflect the am ount actually paid, if at the end of the statement period the institution only accrues interest on two decimals. For e x a m p le ^ :" ^ [, if] ► i. I M the interest earned for a statement period is $20,074 and the institution pays the consum er $20.07, the institution must use $20.07 (not $20,074) to calculate the annual percentage yield earned ► if the institution does not accrue interest on the $20,074 if interest is credited to the account, or on the $.004 if interest is paid by check or transfer to another account for the next statement period-^. ► ii. If an institution accrues interest on the .004 for the next statem ent period, $20,074 may be used to calculate the annual percentage yield earned for the statement period. iii.-^ For accounts paying interest based on the daily balance m ethod that compound and credit interest quarterly, and send monthly statements, the institution may, but need not, round accrued interest to two decimals for calculating the annual percentage yield earned on the first two m onthly statements issued during the quarter. [However, on the quarterly statement the interest earned figure m ust reflect the am ount actually paid]. ►3. Leap year. Institutions that use a daily rate of 1/366 to pay interest on an account 62351 during a leap year may calculate the annual percentage yield earned using 365 or 366 days during the leap year.-^ * * * * * By order of the Board of Governors of the Federal Reserve System, acting through the Secretary of the Board under delegated authority, December 1, 1995. Jennifer J. Johnson, D eputy Secretary o f the Board. [FR Doc. 95-29712 Filed 12-5-95; 8:45 am] BILLING CODE 6210-01-P
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