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F
ROBERT
ederal
Re
s e r v e
Ba
nk
o f
D
a ll a s
D. M c T E E R , J R .
PRESIDENT
October 2, 1992
N otice 92-93
TO:
The Chief Executive Officer of each
member bank and others concerned in
the Eleventh Federal Reserve District
SUBJECT
Final R egulation DD (Truth in Savings)
and R elated R evision to R egulation Q ( I n t e r e s t on D eposits)
DETAILS
The Federal Reserve Board has issued its final Regulation DD to
carry out provisions of the Truth in Savings Act. Regulation DD requires
d ep ository institutions to disclose to consumers any fees imposed on deposit
accounts, the interest rate paid, the annual percentage yield, and other terms
before an account is opened or upon request. Existing consumer account
holders must be notified that such disclosures are available. The regulation
went into effect on September 21, 1992, but compliance is optional until March
21, 1993.
Major provisions of Regulation DD include:
•
Establish formulas for computing the annual percentage yield to
ensure a uniform method for institutions to calculate the return
on accounts.
•
Require that if institutions provide a periodic statement to
consumers, they must disclose the fees imposed, the annual
percentage yield, and other information.
• Establish rules for the advertising of deposit accounts. In this
connection, the Board deleted similar provisions in its Reg ul a
tion Q which retains provisions prohibiting the payment of
interest on demand deposits.
• Restricts how institutions determine the balance on which inter
est is calculated. Institutions are required to calculate inter
est on the full principal balance in the account
each day.
STATIO N K
DALLAS
TEXAS
75222
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
- 2 -
ATTACHMENTS
Att ac h ed are a copy of the final Regulation DD and a copy of the
revision to Regulation Q as they appear on pages 43336-93, Vol. 57, No. 183,
of the Federal Register dated September 21, 1992.
MORE INFORMATION
For more information, please contact Eugene Coy at (214) 922-6201.
S up plementary information is available upon request from the Board or from the
Federal Reserve Bank. The Board has also established a "hotline" telephone
hookup to respond to questions concerning Truth in Savings and Regulation DD.
The number is (202) 736-5500.
For additional copies of this B a n k ’s notice or for a copy of the
supplementary information, please contact the Public Affairs Department at
(214) 922-5254.
Sincerely yours,
FINAL REGULATION DD
(TRUTH IN SAVINGS)
AND
RELATED REVISION TO REGULATION Q
(INTEREST ON DEPOSITS)
43336
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
FEDERAL RESERVE SYSTEM
12 CFR Part 217
[Regulation Q: Docket No. R-0775]
Prohibition Against the Payment of
Interest on Demand Deposits
a g e n c y : Board of Governors of the
Federal Reserve System.
a c t i o n : Final rule.
The Board is retitling and
amending Regulation Q in conjunction
with its adoption of Regulation DD,
which implements the Truth in Savings
Act. Since Regulation DD provides for
rules relating to advertisements and
other disclosures for deposit accounts,
similar provisions in Regulation Q are
deleted. Regulation Q retains provisions
prohibiting the payment of interest on
demand deposits.
EFFECTIVE DATE: March 21,1993.
SUMMARY:
FOR FURTHER INFORMATION CONTACT:
Patrick J. McDivitt, Staff Attorney, Legal
Division, Board of Governors of the
Federal Reserve System, Washington,
DC 20551, at (202) 452-3818; for the
hearing impaired only, contact Dorothea
Thompson, Telecommunications Device
for the Deaf, at (202) 452-3544.
regulation, which is retitled, “Prohibition
SUPPLEMENTARY INFORMATION:
Against the Payment of Interest on
(1) Background
Demand Deposits," to reflect the subject
Section 19(i) of the Federal Reserve
it addresses. All interpretations to 12
Act (FRA) (12 U.S.C. 371(a)) prohibits
CFR part 217 are deleted, with the
member banks from paying interest on
exception of § 217.302 (premiums on
demand deposits, and section 19(a) of
deposits).
This interpretation relates to
the FRA (12 U.S.C. 461(a)) authorizes the
the payment of interest on demand
Board to define terms and prescribe
regulations to effectuate the purposes of deposits, and is redesignated as
§ 217.101.
the section. Section 19(j) of the FRA
authorizes the Board to prescribe rules
List of Subjects in 12 CFR Part 217
governing the advertisement of interest
on deposits bv member banks on time
Federal Reserve System.
and savings deposits. Currently,
For the reasons set forth in the
Regulation Q prohibits the payment of
preamble, the Board is amending 12 CFR
interest on demand deposits and sets
part 217 as follows:
forth disclosure and advertising
requirements for interest on deposits by
member banks and certain other
PART 217—"PROHIBITION AGAINST
institutions.
THE PAYMENT OF INTEREST ON
The Truth in Savings Act (12 U.S.C.
DEMAND DEPOSITS
4301) directs the Board to issue an
implementing regulation, which shall
1. The authority citation for part 217 is
apply six months after the final
revised to read as follows:
regulation is issued. The purpose of the
Authority: 12 U.S.C..248, 371a, 461, 505,
regulation is to assist consumers in
1818, and 3105.
comparing deposit accounts offered by
depository institutions, principally
2. The heading of part 217 is revised to
through the disclosure of account terms, read as set forth above.
including the annual percentage yield
3. In § 217.1, paragraphs-(a) and (b)
and the interest rate, whenever a
are revised to read as follows:
consumer requests the information and
before an account is opened. The
§ 217.1 Authority, purpose, and scope.
regulation also provides for rules
regarding advertisements of deposit
(a) Authority. This part is issued
accounts. On April 13,1992, the Board
under the authority of section 19 of the
published a proposed rule, 57 F R 12735
Federal Reserve Act (12 U.S.C. 371a, 481,
(correction notice at 57 FR 22021, May
505), section 7 of the International
28,1992).
Banldng Act of 1978 (12 U.S.C. 3105),
The Board requested comment on
section 11 of the Federal Reserve Act (12
whether certain provisions in the
U.S.C. 248), and section 8 of the Federal
Board's Regulation Q dealing with
Deposit Insurance Act (12 U.S.C. 1818),
advertising and other disclosure rules
unless otherwise noted.
should be included in Regulation DD
(b) Purpose. This part prohibits the
and removed from Regulation Q.
Commenters strongly endorsed the idea payment of interest on demand deposits
by member banks and other depository
of consolidating the requirements of
institutions within the scope of this p a rt
these two regulations. Based on
* * * * *
comments received to proposed
Regulation DD and upon further
analysis, the Board is amending
Regulation Q to eliminate its advertising §§ 217.4,217.6, 217.201; 217.301,217.601,
217.602, and 217.603 [Removed]
provisions, effective on March 21,1993,
the mandatory compliance date for
4. Sections 217.4, 217.6, 217.201,
Regulation DD. (See Docket R-0753
217.301, 217.601, 217.802, and 217.603 are
published elsewhere in this issue of the
removed.
Federal Register, which sets forth
Regulation DD.) Institutions that begin
5 217.302 [Redesignated as § 217.101]
compliance with Regulation DD prior to
5. Section 217.302 is redesignated as
the mandatory compliance date may
§ 217.101.
comply solely with the advertising
provisions of Regulation DD, and not the
By order of the Board of Governors of the
advertising and disclosure provisions in
Federal Reserve System, September 11,1992.
Regulation Q.
All rules relating to disclosures and
William W. Wiles,
the advertisement of deposit accounts
Secretary of the Board.
are deleted from Regulation Q. Rules
[FR Doc. 92-22479 Filed 9-18-92; 8:45 am]
relating to the prohibition of interest on
BtLUNQ COOC 6210-0 I'M
demand deposits remain in the
Federal Register / Vol. 57, No. 183 / Monday, September 21. 1992 / Rule3 and Regulations
used definitions and provisions from its
other consumer regulations (for
example, Regulation Z (12 CFR part 226),
which implements the Truth in Lending
A ct and Regulation E (12 CFR part 205),
which implements the Electronic Fund
Transfer Act).
The section-by-section description
indicates any significant differences
between the proposal and the final
regulation. The supplementary
information addresses concerns raised
by commenters, and provides guidance
on many questions raised. The Board
expects that much of the discussion
below will be included in the Official
Staff Commentary to the regulation.
Since the Board does not plan to issue a
proposed commentary until the fall of
1993, the section-by-section description
was drafted with the purpose of
providing institutions the necessary
guidance until the commentary is
published. One consequence of
providing such guidance is that the
supplementary information section is
lengthy. The Board believes it will more
fully assist institutions in complying
with the new regulation.
The Board received over 1400
comment letters on the proposal, with
all but about 100 from institutions that
would be covered by the regulation or
their trade associations. A number of
(2) Regulatory Provisions
commenters
questioned the need for the
The act is quite detailed and, for the
act and raised concerns about the
most part, the regulation mirrors the
burden and costs the new requirements
statutory requirements. The act
would impose. Many of the commenters,
recognizes that implementation of a
comprehensive scheme such as this may however, provided information that has
been useful to the Board in preparing a
require some adjustments and, in
section 269(a)(3), it authorizes the Board final rule. A significant number of
commenters raised specific questions
to make such classifications,
about various provisions in the
differentiations, adjustments and
proposal,
and the Board has responded
exceptions as, in the judgment of the
to many of those concerns by adopting
Board, are necessary or proper to cany
both substantive and technical changes
out the purposes of this Act, to prevent
to the proposal.
circumvention or evasion of the
In examining the proposal and the
requirements of this Act, or to facilitate
issues
raised by the commenters, the
compliance with the requirements of this
Board used several principles in
Act. In addition, section 265 of the act
fashioning the final regulation. First, the
authorizes the Board to vary the
Board has closely followed the
requirements relating to the annual
provisions set forth by the Congress in
percentage yield for several particular
the act. In a few cases, where statutory
types of accounts. In several
provisions simply elaborate on one
circumstances, as discussed in the
basic requirement, the regulation
information that follows, the Board has
contains only the basic requirement, and
used these grants of authority.
the supplementary information reflects
The section-by-section description
the elaboration of that requirement. The
which follows points out those
Board believes this approach provides a
provisions that differ in any significant
way from the act—for example, creating more concise regulation without losing
the additional information the Congress
an exception to a statutory provision,
wanted.
adding a disclosure, or departing
Second, the Board has attempted to
significantly from the language of the
write precise, simple rules to help
act—and explains why the differences
exist. In those cases where the act is not ensure that institutions understand the
requirements of the act. The Board
specific and parallel rules would be
believes this will minimize the
beneficial, the Board has frequently
Board to issue final regulations by
September 1992, and provides that the
[Reg. DD: Docket No. R-0753]
statutory provisions and rules adopted
by
the Board shall apply six months
Truth in Savings
after that. On April 13,1992, the Board
published a proposed rule to implement
a g e n c y : Board of Governors of the
the act, 57 FR 12735 (correction notice at
Federal Reserve System.
57 FR 22021, May 28,1992).
ACTION: Final rule.
The purpose of the regulation is to
s u m m a r y : The Board is adopting a new
assist consumers in comparing deposit
regulation, Regulation DD, to implement accounts offered by depository
the Truth in Savings Act. The act and
institutions, principally through the
regulation require depository
disclosure of fees, the annual percentage
institutions to disclose fees, interest
yield, the interest rate, and other
rates and other terms concerning
account terms whenever a consumer
requests the information and before an
deposit accounts to consumers before
they open accounts. The act requires
account is opened. The regulation also
requires that fees and other information
depository institutions that provide
be provided on any periodic statement
periodic statements to consumers to
include information about fees imposed, the institution sends to the consumer.
Rules are set forth for advertisements of
interest earned and the annual
deposit accounts and advance notices to
percentage yield earned on those
account holders of adverse changes in
statements. The act and regulation
terms. The regulation places one
impose substantive limitations on the
methods by which institutions determine substantive restriction on institutions’
practices: How institutions determine
the balance on which interest is
the account balance on which interest is
calculated. Rules dealing with
advertisements for deposit accounts are calculated.
The Board is publishing sample
also included in the new regulation.
disclosure forms and model clauses to
d a t e s : This final rule is effective
assist institutions in preparing their
September 21,1992, but compliance is
account disclosures. They appear in
optional until March 21,1993.
appendix B to the proposed regulation.
12 CFR Part 230
FOR FURTHER INFORMATION CONTACT:
Leonard Chanin, Senior Attorney, or
Jane Ahrens, Kurt Schumacher, or Mary
Jane Seebach, Staff Attorneys, Division
of Consumer and Community Affairs,
Board of Governors of the Federal
Reserve System, Washington, DC 20551,
at (202) 73&-5500; for the hearing
impaired only, contact Dorothea
Thompson, Telecommunications Device
for the Deaf, at (202) 452-3544. For
information about the Board’s action
concerning the recordkeeping and
disclosure requirements under the
Paperwork Reduction Act only, contact
Mary McLaughlin, Federal Reserve
Board Clearance Officer, Division of
Research and Statistics, Board of
Governors of the Federal Reserve
System, Washington, DC 20551, at (202)
452-3829, or Gary Waxman, OMB Desk
Officer, Office of Information and
Regulatory Affairs, Office of
Management "nd Budget, New
Executive Office Building, room 3208,
Washington, DC 20503, at (202) 3957340.
SUPPLEMENTARY INFORMATION:
(1) Background
The Truth in Savings Act (the act) (12
U.S.C. 4301 et seq., contained in the
Federal Deposit Insurance Corporation
Improvement Act of 1991, Public Law
102-242,105 Stat. 2236) was enacted in
December 1991. The act directs the
43337
43338
Federal F.egister / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
possibility of errors and the potential for
civil liability due to complicated or
vague requirements. Exceptions to rules
have been carefully considered and in
several cases adopted in the final
regulation. However, the Board is
mindful that special rules add to the
length, detail and complexity of the
regulation. It has taken this into account,
especially when considering suggestions
for minor exceptions that would add
significant complexity to the rules.
Third, the Board has sought to ensure
that the disclosures provided to
consumers are clear and meaningful.
The Board believes providing overly
complicated or technical disclosures to
consumers provides little value in
shopping for accounts and may diminish
the value of information given.
Fourth, the Board has sought to
provide institutions with flexibility to
minimize compliance costs. It has also
tried to minimize the possibility that
institutions will unnecessarily reduce
the variety of existing product choices
offered to consumers. Similarly, the
Board has tried to ensure that the
compliance requirements do not have
the effect of limiting the development of
new products for consumers.
Fifth, the Board has used its
“exception” authority judiciously. The
Board has made adjustments and
exceptions to the act when essential to
assist consumers in comparing accounts
and to minimize significant compliance
problems for institutions.
In conjunction with the
implementation of the act, the Board
also is amending its Regulation Q (12
CFR part 217). (See Docket R-0775
published elsewhere in this issue of the
Federal Register.) Currently, Regulation
Q prohibits the payment of interest on
demand deposits and sets forth
disclosure and advertising requirements
for interest on deposits by member
banks and certain other institutions.
(Other federal financial regulatory
agencies have similar advertising rules,
such as 12 CFR 329.3, issued by the
Federal Deposit Insurance Corporation
(FDIC).) Given this regulation’s
comprehensive disclosure and
advertising rules for deposit accounts,
the Board is deleting advertising and
other disclosure rules in Regulation Q.
The Board has consulted with the other
agencies to try to ensure that all
depository institutions are governed by
the same rules, and expects that the
agencies will eliminate any inconsistent
rules in light of the new act.
The amendments to Regulation Q
become effective on March 21,1993, the
mandatory compliance date for
Regulation DD. Institutions that begin
compliance with Regulation DD prior to
the mandatory compliance date may
comply solely with the advertising
provisions of Regulation DD.
Section 230.1—Authority, Purpose,
Coverage, and Effect on State Laws
Paragraph (c)—Coverage
This paragraph has been revised from
the proposal. First, the final rule reflects
the fact that a definition of deposit
broker has been added to the regulation.
Although many commenters requested
that securities brokers and dealers be
fully covered by the regulation, neither
is included in the definition of a
“depository institution” under the act
and regulation. As discussed in
§§ 230.2(a) and 230.8, however, the
advertising rules apply to deposit
brokers who advertise deposit accounts.
The proposal stated that the
regulation applies to all depository
institutions except credit unions. A
number of commenters also urged that
the Board's final regulation cover credit
unions. The act explicitly states that
credit unions are to be covered by rules
issued by the National Credit Union
Administration (NCUA), not the
regulation issued by the Board.
Paragraph (d)—Effect on State Laws
Section 273 of the act provides a
narrow standard for preemption of state
laws (only if they are inconsistent), and
refers only to state disclosure laws. The
Board solicited comment on whether the
same preemption standard should apply
to all provisions in the act, including
I 230.7, dealing with the payment of
interest. Many commenters urged the
Board to adopt a rule that applied the
same standard to such provisions as
well as to the disclosure rules, thus
enabling the Board to make preemption
determinations on such issues. The
Board believes that under general
preemption standards a state law could
not require what federal law prohibits.
(For example, a state law could not
permit use of a low balance method of
calculating interest since the act and
regulation prohibit such a practice.) The
Board also believes the Congress
intended for the Board to make
determinations of preemption for all
aspects of the act, not just disclosures.
To read the Board's ability to make
preemption determinations more
narrowly could provide uncertainty as
to the status of state laws, and create
potential civil liability and compliance
concerns that the Congress sought to
avoid. The Board’s Regulation Z (Truth
in Lending) takes this broader approach
of dealing with both disclosures and
substantive requirements. (See 12 CFR
228.28.)
The Board has therefore changed the
wording of the final rule. The proposed
rule provided that state "disclosure” law
requirements are preempted if they are
inconsistent with the requirements of
the regulation. The word “disclosure”
has been deleted from the regulation to
make clear that the standard applies to
all requirements of the act and
regulation, including the requirement to
pay interest on the full balance in the
account.
Section 230.2—Definitions
Paragraph (a)—Account
Section 274(1) of the act defines an
account as any account offered to 1 or
more individuals or an unincorporated
nonbusiness association of individuals
by a depository institution into which a
customer deposits funds. The Board is
generally defining the term as any
deposit account held by, or offered to, a
consumer. The regulation covers
interest-bearing as well as noninterestbearing accounts.
Covered accounts. The Board solicited
comment on whether uninsured
accounts offered by depository
institutions should be covered. Based on
a review of the comments and on the
statutory language, the Board has
defined an “account” to include all
deposit accounts offered to consumers
by depository institutions, whether the
account is insured or uninsured. For
example, even though federal deposit
insurance limits are exceeded, a time
account in excess of $100,000 would be
covered.
Deposit accounts denominated in a
foreign currency are accounts under this
regulation, if offered to or held by
consumers. These accounts are typically
offered as money market accounts or
through certificates of deposit that may
be designated as foreign currency
accounts. Such accounts are eligible for
deposit insurance, but are not insured
for losses resulting from exchange rate
fluctuations. The Board believes it is
important that such accounts receive the
same disclosure and other protections of
the regulation as consumer accounts
denominated in United States dollars.
However, as discussed in the
supplementary information to
S § 230.4(b) and 230.8(a), the Board has
not adopted special disclosures for these
types of accounts, as had been
proposed.
Several commenters pointed out that
the proposed definition of a consumer
could be interpreted to include non
residents of the United States. The
Board believes the act is intended to
provide protections only to those
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
persons who are residents of the United
States (including resident aliens). The
Board also believes the regulation
applies to accounts at or offered by
depository institutions located in the
United States. Thus, if a depository
institution is located in the United
States and an account is held by or
offered to a U.S. resident, the regulation
applies. The regulation does not apply to
accounts opened by non-resident aliens
or to accounts of residents of a state
opened at institutions located outside
the United States.
Accounts held by deposit brokers. The
act specifies th a t in addition to
depository institutions, “deposit
brokers” are subject to its advertising
provisions. In the proposed regulation,
the Board solicited comment on whether
third parities (including deposit brokers)
who place advertisements that refer to
deposit accounts at depository
institutions should be covered by the
advertising rules of the regulation. Many
commenters urged the Board to apply
the advertising provisions to all parties
who offer accounts at depository
institutions or interests in such
accounts. Otherwise, they noted,
consumers being offered interests in
accounts at depository institutions
through deposit brokers would not have
the benefit of uniform advertising
disclosures. Further, they argued, the
regulation would create an “unequal
playing field" which would place
depository institutions offering the same
type of account as those being offered
by deposit brokers at a competitive
disadvantage.
Based on the comments received and
upon further analysis, the final rule
provides that the advertising provisions
cover interests in accounts at depository
institutions that are offered by deposit
brokers to consumers (even if the
account at the depository institution is
held in the name of the deposit broker,
its agent or custodian). The Board
believes that by using the broad
definition of “deposit broker” to cover
advertisers of accounts that are not
themselves depository institutions, the
Congress intended for consumers to
have uniform disclosures to comparison
shop whether the advertised account is
offered by institution directly or through
an independent entity. (See section 29(g)
of the Federal Deposit Insurance Act
(FDIA), which defines deposit broker as
any person in the business of placing or
facilitating the placement of deposits in
an institution.) Thus, for purposes of the
advertising rules, the Board is defining
the term “account” to include an
account at a depository institution that
is held by or on behalf of a deposit
broker, if any interest in the account is
held by or offered to a consumer. For
example, if a deposit broker purchases
for its customers a time account at an
institution in its own name, or in the
name of its agent or custodian, the
interests held by consumers are
accounts that are covered by the
advertising provisions of the regulation.
Where an account offered to consumers
through a deposit broker is advertised, it
is the sole responsibility of the broker
(and not the depository institution
where the underlying account is located)
to comply with the advertising rules.
While brokers must comply with § 230.8,
they are not required to provide other
disclosures or comply with the other
portions of the act or regulation.
Existing accounts held by
unincorporated nonbusiness
associations. An addition has been
made to the paragraph to deal with
accounts existing on the mandatory
compliance date of the regulation that
are held by associations such as book
clubs or softball leagues. The act and
regulation cover accounts held by
“consumers,” which includes
“unincorporated nonbusiness
associations of natural persons.” (See
§ 230.2(h).) Many commenters noted that
operational difficulty of identifying
those existing “consumer" account
holders that are not individuals. For
example, some larger institutions
commented that the ownership status of
literally millions of existing accounts
held by organizations and associations
might have to be manually reviewed to
determine whether accounts are covered
or exempt.
All existing consumer accounts are
covered by the regulation. However, the
Board recognizes that the regulation’s
rules may cover accounts using criteria
that differ from distinctions currently
made by institutions between accounts
of individuals and accounts of
organizations. The Board is authorized
under section 269(a)(3) to create
exceptions for classes of accounts to
facilitate compliance with the a c t To
ease the significant burden of
reevaluating the ownership status of
existing nonindividual consumer
accounts, the Board is exercising its
exception authority under section
269(a)(3) to exclude a limited class of
existing accounts from coverage. Thus,
the final rule excepts from all aspects of
coverage those existing accounts held
by unincorporated nonbusiness
associations of natural persons opened
prior to the mandatory compliance date
of the regulation. If the institution is
notified by an unincorporated
nonbusiness association that an existing
43339
account is held by such an entity, the
exception will cease to apply and the
account must thereafter be considered a
consumer account which is covered by
the regulation. Institutions that are so
notified must begin complying with the
regulation within a reasonable time. For
example, if the institution is notified
during a statement cycle or a
compounding period that the account
holder fits the "consumer” definition,
commencing coverage at the beginning
of the following statement cycle or
compounding period would be acting
within a reasonable time.
For purposes of determining coverage
under this provision, institutions may
initially assume that existing accounts
covered are those identified for tax
purposes by an individual's social
security number. Of course, even
accounts identified with a social
security number are not covered if they
are for a business purpose, for example,
an account held by a sole proprietor.
Institutions must have procedures in
place so that unincorporated
nonbusiness associations that open new
accounts on or after the mandatory
compliance date (or existing customers
that inform the institution of their
“consumer” status) receive all
applicable disclosures required to be
provided (1) at account opening and
upon request (2) on periodic statements
sent on the account and (3) if terms are
changed. They will also be covered by
all other provisions of the regulation
(such as the interest payment
requirements).
Other investm ents. As stated in the
proposal, the term "account” does not
include every financial relationship a
consumer might have with an institution.
For example, the purchase of a
government security or an annuity
through a depository institution is not an
“account” subject to the regulation.
Also, a consumer’s interest in the
securities or obligations of a depository
institution that are being held by the
institution on the consumer’s behalf, or
offered by the institution to the
consumer is not an “account.” Similarly,
the term “account” does not include
other contractual relationships a
consumer may have with a depository
institution such as repurchase
agreements, interest rate swaps and
banker's acceptances.
As stated in the proposal, the Board
believes the Congress did not intend to
cover certain other investments that
may be offered through (as opposed to
offered by) depository institutions, such
as mutual funds. Often these
investments are offered by affiliates of
the depository institution, such as by a
43340
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
non-depository subsidiary of a bank
holding company. These investments are
not deposit accounts of the depository
institution, and are thus not covered by
the final regulation.
Many commenters urged the Board to
expand the definition of “account" to
cover accounts held by consumers with
non-depository affiliates or other non
depository financial service providers.
Since the scope of the act is clearly
limited to accounts at depository
institutions and, to a limited extent,
those offered by deposit brokers, the
Board believes that the Congress did not
intend to cover accounts for mutual
funds and other investments offered by
such non-depositories.
Paragraph (b)—Advertisement
The regulation retains the proposed
definition of an advertisement Thus, an
advertisement is any commercial
message appearing in any medium (for
example, newspaper, television, lobby
boards and telephone response
machines) if it directly or indirectly
promotes the availability of an account
Similarly, a message promoting a
savings account that is sent to
consumers on their NOW account
periodic statement is an advertisement
As discussed more fully in the
supplementary information
accompanying § 230.8(e), the regulation
contains a limited exception from some
of the advertising provisions for
advertisements such as lobby boards,
telephone response machines, broadcast
and electronic media, and outdoor
advertising.
The act covers advertisements
“initiated by a depository institution or
deposit broker." The Board has defined
“advertisement" without regard to the
party initiating it, but, by virtue of the
definition of "account” in paragraph (a)
of this section, both depository
institutions and deposit brokers are
subject to the advertising provisions of
the final regulation.
Rate sheets. The Board requested
comment on whether the savings “rate
sheets” published in newspapers,
periodicals, or trade journals should be
considered as advertisements. These
rate sheets typically list certain limited
information about the deposit account
rates of selected depository institutions.
Often, these rate sheets are independent
third-party compilations of information
on the rates of many of an area’s
depository institutions, with no payment
made by the institutions to the third
party nor any duty by the third party to
include information about a specific
institution.
Many commenters argued that rate
sheets should not be classified as
a “bonus" has significance under the
regulation because a bonus is excluded
from interest must be disclosed under
§ 230.4(b)(7), and because mention of a
bonus in an advertisement “triggers” or
requires other disclosures to be made.
The Board’s proposal denned the term
“bonus” very broadly. Under the
proposal, it would have encompassed
any cash, premium, gift, award, or other
consideration regardless of the form the
payment takes. Commenters were
concerned that with such a broad
definition, inexpensive “promotional”
items such as pens or coffee mugs would
be bonuses, and would trigger
additional disclosures. Based on these
comments and upon further analysis, the
Board has modified the definition of a
bonus. The final rule excludes premiums
(or any other consideration) of de
m
inim is amounts. The de minimis
Paragraph (c)—Annual Percentage Yield
amount the Board has adopted is $10 or
The regulation incorporates a
less given during any consecutive 12definition of the annual percentage yield month period. This is the same amount
that is substantially similar to the act’s
used under current Official Staff
definition. The act defines annual
Interpretation | 217.302 of the Board’s
percentage yield by referencing the total Regulation Q (see Docket R-0775
amount of interest that would be
published elsewhere in this issue of the
received on a $100 deposit As proposed Federal Register, where the
and adopted, the definition does not
interpretation is redesignated as
incorporate the reference to a $100
§ 217.101) and under section 6049 of the
deposit since the annual percentage
Internal Revenue Code for excluding
yield calculation can be performed with amounts from being considered as
any amount of principal, and the Board
interest and for reporting interest for tax
believes reference to $100 could be
purposes, respectively.
confusing. The language of the final rule
While Regulation Q contains a twovaries slightly from the proposed text for
tier de m inim is rule ($10 for deposits
clarity, but the meaning is unchanged.
under $5,000 and $20 for deposits of
$5,000 or more), the Board feels that
Paragraph (d)—Average Daily Balance
providing a flat $10 de m inim is amount
Method
is
the best approach. Adding a tiered
The proposed regulation did not have
bonus rule would add complexity that is
a definition of the “average daily
balance method.” An explanation of the unnecessary to address the commenters’
daily balance and average daily balance concerns.
The $10 de m inim is exception is the
methods were contained in footnote 1 to
same amount used by the Internal
§ 230.7(a) in the proposed regulation,
Revenue Service (IRS). The Board
however, and the present definition is
believes it is appropriate to mirror IRS
taken from that footnote.
rules for determining the value of any
Several commenters asked how the
bonus. As a result, once the duty is
average daily balance should be
triggered under IRS provisions for a
calculated if a “negative collected
depository institution and a consumer to
balance” occurs. This takes place if a
report a bonus as interest for tax
consumer "overdraws” an account and
purposes, the bonus will be covered by
thus produces a negative balance. In
the account disclosure and advertising
such circumstances, institutions should
treat the balance in the account for that rules (See paragraph (n) of this section
for further discussion of the valuation of
day (or days) as $0 and not average a
bonuses for tax purposes.)
negative sum into the calculation. If a
Based on comments received, the
fee is assessed in such circumstances
regulation has been revised to clarify
(and is not part of a credit transaction),
that a bonus does not include the
it should be disclosed as a fee—in the
payment of interest on an account. Also,
initial disclosures—and should not be
some commenters suggested that the
treated as “negative" interest
waiver or reduction of a fee or the
Paragraph (f)—Bonus
absorption of expenses by a depository
institution should not be considered a
The act does not use or define the
term “bonus.” However, the definition of bonus. The Board agrees with this
advertisements under the regulation.
They believed that most of the rate
sheets being published provide
consumers with valuable information on
the current savings rate environment,
and that the regulation would reduce the
availability of such information if all of
the advertising rules applied to rate
sheets.
It is the Board’s position that rate
sheets published in newspapers,
periodicals, or trade journals are not
advertisements as long as the depository
institution does not pay a fee to have the
information included and does not have
control over whether the information
will be published. The Board believes
these types of rate sheets are not
"commercial” messages of the type
contemplated by the term
“advertisement."
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
position. Thus, under the final rule, an
account is opened and when a request is
offer of certain “fringe benefits” by an
made for account disclosures. In all
institution to a consumer is not
other circumstances, timing rules use
considered a bonus.
calendar days.
Finally, the supplementary
Paragraph (h)—Consumer
information to the proposed rule stated
The act does not define the term
that an item could be a bonus if given or
“consumer,” although it is clear from the
offered to a third party, rather than to
act and legislative history that the
the consumer. Commenters suggested
protections were intended to apply only
that the definition include only items
given or offered to the consumer holding to consumer purpose—and not business
the account. They suggested compliance purpose—accounts.
The final regulation, as proposed,
would be eased by such a rule and that
defines the term “consumer” by using
the disclosures applicable to bonuses
are most important where the consumer, the term “natural person" rather than
and not some third party, is the recipient “individual,” and by adding the phrase
“primarily for personal, family, or
of the financial benefit from the
household purposes" to the definition. A
payment of a bonus. The Board agrees
similar definition has worked well in
that a concise rule regarding the
Regulation Z (Truth in Lending) in
disclosure of information concerning
determining whether credit is for a
bonuses is desired. It has thus modified
consumer purpose, and the Board
its position. Under the final regulation,
believes it will be equally helpful in
an item of any value given or offered
determining coverage for deposit
directly to a third party by a depository
products. Although the proposal also
institution in exchange for a consumer
opening or renewing an account with the included the phrase “or other
nonbusiness purpose,” the Board has
institution is not a bonus.
deleted the phrase as unnecessary.
Paragraph (g)—Business Day
Sole proprietorships. The act does not
The regulation tracks the definition of expressly exclude from coverage
business day used in Regulation CC
accounts held by, or offered to,
(Expedited Funds Availability). (See 12
individuals operating businesses in the
CFR 229.2(g).) This definition differs
form of a sole proprietorship. The
from that in the proposed rule, which
proposed regulation excluded such
referred to days when an institution
accounts. Commenters agreed with the
“carries on substantially all business
Board’s proposed position not to cover
functions." The change is in response to such accounts, and this position has
commenters’ concerns that the proposal been adopted in the final rule. Thus,
could present difficulty in determining
because sole proprietorship accounts
whether an institution is open “for
are for a business purpose, they are not
substantially all business functions,”
subject to the act or regulation.
since certain banking services might be
Unincorporated associations. An
performed on weekends while others
account held by or offered to an
might not. Additionally, the change
unincorporated association of natural
responds to commenters’ requests that
persons (such as a softball team or a
uniformity be provided between the
book club) is a consumer account
Board’s Regulation CC and Regulation
covered by the regulation if that account
DD. Thus, the final rule defines business is primarily for nonbusiness purposes.
day as any calendar day other than a
An account held by an incorporated,
Saturday, a Sunday, or any of the legal
not-for-profit organization is not covered
public holidays specified in 5 U.S.C.
by the act, since the act limits its
6103(a). If New Year’s Day,
protection to unincorporated
Independence Day, Veterans Day or
associations.
Christmas Day falls on a Sunday, the
Commenters expressed concern
next Monday is not a business day.
regarding an institution’s ability to
While Regulation CC contains the
determine the “consumer” status of
previous sentence in the regulation
existing accounts held by organizations.
itself, the Board believes it is
The supplementary information to
unnecessary for purposes of this
paragraph (a) of this section provides
regulation. This rule follows the general guidance to depository institutions for
Federal Reserve check collection and
these accounts in existence prior to the
payment schedule in Regulation CC, and mandatory compliance date of the
provides uniformity for institutions
regulation. Thereafter, depository
regarding when interest must begin to
institutions must determine whether
accrue on deposits. (See § 230.7(c).)
associations opening new accounts are
Business days are used for timing
covered by the regulation. Institutions
rules regarding the delivery of account
may rely on the assertions of the
disclosures to consumers who are not
association’s representatives in making
present at the institution when an
those determinations.
43341
Custodial accounts. The Board
solicited comment on whether custodial
accounts, in which a natural person is a
beneficial owner but where the legal
holder (the custodian) is not a consumer
should be subject to the act and
regulation. Commenters felt it would be
extremely burdensome and difficult for
institutions in many cases to determine
the identity of the person for whom an
account is held. Commenters also
questioned the value of requiring
disclosures to be given to the custodian,
since beneficiaries often cannot control
the investment decisions of the
custodian, and cannot comparison shop
for accounts, one of the main purposes
of the act. Moreover, they argued,
custodians for such accounts—often
large institutional investors—are in the
business of acting as professional
custodians, and are not the type of
account holder the Congress intended to
protect. The Board agrees that it would
be burdensome to depository
institutions to treat such custodial
accounts as accounts held by
consumers, and that disclosures
generally could not be used by
individuals in the way the Congress
intended. Thus, the final definition of
"consumer” excludes natural persons
who, in their professional capacity, hold
an account for another.
Several commenters asked whether
Individual Retirement Accounts (IRAs)
at depository institutions are covered by
the regulation. The Board believes such
accounts are covered to the extent funds
are invested in an “account,” as defined
by the regulation. While IRAs
technically are custodial accounts, they
differ from typical custodial accounts.
Unlike other custodial accounts, the
consumer (beneficiary) usually controls
the investment decisions for an IRA.
Furthermore, the depository institution
itself is the "custodian” rather than a
third party acting on behalf of the
consumer. The Board believes
consumers would benefit and be better
able to comparison shop if disclosures
were received for such accounts. Of
course, the regulation does not apply to
all products in which a consumer may
invest IRA funds. For example, if a
consumer invests funds in a product
such as government securities, the
regulation would not apply.
Some commenters expressed concern
about whether the proposed regulation
would cover accounts such as landlordtenant security accounts and attomeyclient trust accounts where both the
legal holder and the beneficial owner of
an account may be natural persons.
These accounts are established by the
landlord or the attorney for a business
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Federal Register / Vol. 57, No. 183 / Monday, September 21. 1992 / Rules and Regulations
purpose, though the funds may represent
a personal or household purpose for the
tenant or the attorney’s client. Such
accounts are not primarily for personal,
family, or household purposes, and thus
are not consumer accounts covered by
the regulation. Likewise, accounts held
by a natural person for the benefit of a
non-natural person or persons (for
example, a charity) also would not be a
covered consumer account if the holder
is acting in a professional capacity.
However, where a natural person
holds an account in a non-professional
capacity for the benefit of another and
the account is not for business purposes,
the act and regulation apply. Thus, an
account opened by a parent for a child
under the Uniform Gifts to Minors Act
would be covered by the regulation.
Commenters also requested guidance
on the coverage of escrow accounts. To
the extent that a general "escrow” or
dispute-resolution account is opened by
a consumer primarily for personal,
family or household purposes, it would
be covered by the final regulation. For
example, an account established by an
individual for lease payments pending
resolution of a dispute with a landlord
would be a consumer account for the
purposes of the regulation. However, a
typical escrow account established for
the payment of funds (such as for taxes
and property insurance) in connection
with a real estate transaction is not a
consumer account Such escrow
accounts are normally opened primarily
as a mechanism for the safe-keeping of
funds pending a future event, and not as
an independent investment decision
allowing the consumer to shop for an
account. For example, mortgagors
typically do not determine the particular
depository institution where the
mortgage escrow account is established.
Some commenters requested that the
Board modify its proposal to exclude
accounts—even if held by natural
persons for nonbusiness purposes—
where such accounts are typically
designed for, but not limited to,
businesses or sophisticated individual
investors. Similarly, others requested a
dollar threshold, for example, $100,000,
above which an account would be
deemed not to be a consumer account
While the Board believes there may be
some consumers holding such accounts
who arguably do not need the
protections of the act and regulation,
others would certainly find these
protections beneficial. In addition,
neither the act nor the legislative history
suggests any Congressional intent to
exempt any consumers from the scope
of the act’s provisions based on the
amount deposited. Therefore, the Board
does not believe it is appropriate to
modify the regulation to provide
exceptions from coverage based on the
size of the account or the target group
intended for a particular account. A
depository institution must determine in
each case whether a consumer will hold
an account primarily for personal,
family or household purposes (or if an
association meets the “consumer”
definition).
Paragraph (i)—Daily Balance Method
As with the term "average daily
balance method,” there was no
definition for the term “daily balance” in
the proposed regulation. The Board has
moved the material from footnote 1 to
§ 230.7(a) in the proposal to the
definition of this term.
Paragraph (j)—Depository Institution
and Institution
Section 274(6) of the act defines a
“depository institution” as that term is
defined in clauses (i) through (vi) of
section 19(b)(1)(A) of the Federal
Reserve A c t The Federal Reserve Act
includes in its definition any insured
bank, savings bank, mutual savings
bank, or savings association, and any
institution eligible to make application
to become an “insured” institution under
the FDIA. The FDIA definition of an
insured institution includes any state of
federally chartered bank, any insured
branch of a foreign bank, as well as
industrial banks and other state
incorporated banking institutions that
are engaged in the business of receiving
deposits (other than trust funds). (See
section 3 of the FDIA.) Based on these
definitions, the act’s coverage is very
broad, and covers both state and
federally chartered institutions if the
institution is insured, or is uninsured but
is eligible to make application to
become insured. Branches of foreign
banks that meet this definition are
covered.
The final regulation adopts the
definition of depository institution as it
was proposed. Many commenters
believed credit unions should be subject
to the Board’s regulation. As discussed
in the proposal and in S 230.1(c) of the
final rule, the act specifically provides
that the Board’s regulation shall not
apply to credit unions; instead, the
NCUA is required to issue substantially
similar Truth in Savings regulations for
credit unions within 90 days of the
effective date of this regulation.
Paragraph (k)—Deposit Broker
The act defines “deposit broker” by
reference to section 29(f)(1) of the FDIA.
The act also includes any person who
sdlicits any amount from any other
person for deposit in an insured
depository institution in its definition.
The proposal did not specifically
define “deposit broker,” although
§ 230.1(c) referred to the FDIA
definition. However, the Board solicited
comment on whether third parties
(including deposit brokers) who place
advertisements that refer to deposit
accounts at depository institutions
should be covered by the advertising
rules of the regulation. Given the
Board’s position that deposit brokers are
covered by the advertising rules, the
term has been defined in the final
regulation. To facilitate compliance, the
Board is defining deposit broker by
reference to the FDIA. The Board
believes that the FDIA, which covers
any person in the business of placing or
facilitating the placement of deposits in
an institution, essentially captures
Congressional intent. If the Act’s exact
language were used, persons such as
employees of depository institutions or
pension plan administrators—and
others expressly excluded from the
FDIA definition—could arguably
become subject to rules governing
deposit brokers, creating confusing and
potentially conflicting coverage
standards.
Paragraph (1)—Fixed-Rate Account
The Board has added a definition for
fixed-rate accounts since the final
regulation uses the term in
§ 230.4(b)(l)(i). The term includes those
accounts in which the institution, by
contract gives at least 30 calendar days
advance written notice of decreases in
the interest rate. Thus, institutions
offering fixed-rate accounts may change
rates from time to time, but only if they
provide advance notice of rate
decreases. (An increase in the rate
would not require any notice.)
Paragraph (m)—Grace Period
The proposal did not define “grace
period,” though comment was requested
on whether a grace period should be
disclosed. The final regulation
incorporates a definition because, if a
grace period is provided for an
automatically renewable time account
it must be disclosed under
§ 230.4(b)(6)(iv). In addition, a grace
period may be important for purposes of
§ 230.5(b), dealing with the timing of
disclosures for rollover time accounts. A
grace period is defined as a period after
maturity of an automatically renewing
time account during which the consumer
may withdraw funds without being
assessed a penalty. An institution is free
to provide a grace period or not. (See
footnote 1 to the Board’s Regulation D,
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
12 CFR 204.2(c)(1) and footnote 1 to
Regulation Q, 12 CFR 217.3, however,
dealing with the payment of interest
during any grace period, and similar
rules of other federal financial
regulatory agencies.)
term to “interest rate." Several
commenters remarked that the word
“simple” in conjunction with “interest
rate” has no standard meaning in the
industry and does not assist consumers
in understanding the figure disclosed.
The Board agrees with this position, and
Paragraph (n)—Interest
has deleted the word “simple” from the
This definition, which is adopted
term.
substantially unchanged from die
Section 274(3) of the act provides that
proposal, states that bonuses and
the interest rate may be referred to as
similar offers do not constitute interest
the “annual percentage rate.” The Board
for purposes of the regulation. This
proposed to use its exception authority
differs from the rule in Regulation Q, 12
to limit use of the term "annual
CFR 217.2(d), which does include
percentage rate" so that it may be used
bonuses as part of its definition of
only in conjunction with the term
interest due to the prohibition on paying “interest rate,” and only for purposes of
interest on demand accounts, and the
account disclosures (that is, not in
fact that in that context a bonus is the
advertisements). The Board pointed out
equivalent of interest (See also the rules the importance of standardized
of other federal financial regulatory
terminology in advertising in order to
agencies.) This rule also differs from the assist consumers in comparing accounts,
position of the IRS. In 28 CFR 1.6049and requested comment on this issue.
5(a)(2), the IRS states that the fair
With very few exceptions,
market value of property received as
commenters
opposed allowing any use
interest or in lieu of a cash payment of
of "annual percentage rate” under the
interest is “interest” for reporting
regulation because the term is
purposes.
associated with credit, not deposits.
Though commenters were divided in
Commenters recognized that the term
their views on the issue, many agreed
with the Board’s proposal to not include “annual percentage rate,” as required to
be disclosed under Regulation Z, is
the payment of a bonus as interest As
commonly understood by consumers to
discussed in the proposal, the Board
encompass the total cost of credit—
believes that the benefit of including
bonuses as interest is outweighed by the including both interest and other finance
charges. Most commenters believed
burden such a requirement would
impose upon depository institutions and strongly that confusion could arise if
that term were used to designate an
the confusion that would be caused to
interest rate for the consumer’s deposit
consumers.
The definition has been revised by an account at a depository institution,
while the same terminology would be
additional reference to the fact that
used to designate a rate that includes
interest is calculated by applying a
both interest and, for example, “points"
periodic rate to the balance in the
charged for a mortgage loan from the
account. The final regulation makes
same institution. In addition, most
clear that an institution’s absorption of
commenters believed that it would be
expenses or its forbearance from
confusing for prospective account
charging a fee in connection with a
service is not considered to be payment holders to see the same figure labeled as
the “interest rate” in some
of interest. A depository institution's
advertisements and disclosures and as
practice of charging higher fees to non
account holders than to account holders the “annual percentage rate” in others.
The Board agrees with these
does not make the differential
commenters. For these reasons the
“interest.”
Board is using its exception authority
Paragraph (o)—Interest Rate
under section 269(a)(3) of the act, and is
Section 274(3) of the act defines the
adopting the rule regarding use of the
“annual rate of simple interest" as the
term “annual percentage rate” as it was
annualized rate of interest paid with
proposed. Some-commenters urged the
respect to each compounding period,
Board to prohibit the use of the term
expressed as a percentage. In the
"annual percentage rate" in disclosures
proposal, the Board simplified the
as well as in advertisements. In the light
phrase to "simple interest rate” and
of the statutory provision, however, the
reworded the definition to clarify that
Board is taking a more limited approach.
the "interest rate” is the rate of interest
The Board believes that the potential for
paid without regard to compounding,
confusion is greatest in advertisements
shown as an annual figure and
and so is prohibiting it only in
expressed as a percentage.
advertisements. Thus, institutions are
The Board has revised the proposed
permitted (but not required) to use the
definition by further abbreviating the
term “annual percentage rate” only in
43343
the account disclosures and only in
addition to the term "interest rate.”
Paragraph (p)—Passbook Savings
Account
The final rule adds a definition of
passbook savings account because the
Board excludes from the definition of
periodic statement any statements for
passbook savings accounts. (See
paragraph (q) of this section.) The
regulation defines passbook savings
account as a savings account in which
the consumer retains a book or other
document in which the institution
records transactions on the account.
Paragraph (q)—Periodic Statement
Neither the act nor the regulation
requires institutions to provide periodic
statements (though a large number of
commenters misunderstood this point).
Disclosures are required to be included
if the institution sends such statements.
Further, the act does not define
“periodic statement,” although the term,
or a similar term “account statement," ia
used in two provisions (sections 266 and
268). Section 266(e) of the act (which
requires a notice to be given to existing
account holders) refers to account
statements provided on a quarterly
basis. The Board looked to this
provision and to requirements in other
regulations in proposing to define a
periodic statement as one sent on a
quarterly or more frequent basis. The
majority of commenters agreed with the
Board’s proposed definition. Thus, the
general definition of a periodic
statement in the final rule is one that
sets forth account information and is
provided to a consumer on a regular
basis four or more times a year. An
example of a periodic statement is a
monthly statement for a NOW account,
listing transactions and balance
information.
In response to comments and upon
further analysis, the Board has
exercised its exception authority under
section 269(a)(3) of the act to exclude
specific types of accounts from the
periodic statement requirements of the
final rule. The regulation excludes from
the definition any statement about either
time accounts or passbook savings
accounts.
Under the proposal, if an institution
included information about any account
on a statement, all of the disclosures of
I 230.6 would be required for each type
of account listed on the statement. A
number of commenters noted that
institutions often provide “combined
statements.” These combined
statements contain detailed information
about one or two accounts (typically, a
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Federal Register / Vol. 57, No. 183 / Monday. September 21, 1992 / Rules and Regulations
checking account or a checking and
savings account), but also contain a
limited mention of other accounts
(typically, just the balance or interest
earned on a certificate of deposit) held
by the consumer at the same institution.
Institutions that currently provide such
status information for the accounts
urged the Board to exempt those
accounts from the periodic statement
requirements.
Commenters noted that institutions
may stop providing information about
time accounts on combined statements
without such an exception, due to the
burden of calculating rates on multiple
accounts and concerns about potential
civil liability. In addition, commenters
noted that space and printing limitations
might prompt institutions to stop
sending periodic statements that are
presently provided voluntarily.
Commenters also noted that, for time
accounts, the required disclosures may
be of limited value to the consumer. For
example, disclosure of the number of
days in the statement cycle is not
particularly useful since these accounts
have a set maturity. In addition, since
most time accounts have no transactions
and are fixed rate, the annual
percentage yield earned would likely
remain the same throughout the term of
the account. The Board believes that
exempting statements on time accounts
from the definition of periodic
statement, and thus from the disclosure
requirements in § 230.6, is appropriate
as it will encourage institutions to
continue providing account information
cn the regular statements provided to
consumers, without a significant
sacrifice of useful information to
consumers. Thus, regardless of their
frequency, statements providing
information to consumers about time
accounts, whether sent separately or in
combination with statements for other
accounts, are not covered by this
paragraph.
The Board is also using its exception
authority to exclude information
provided about passbook savings
accounts from the definition of a
periodic statement. Consumers who
maintain such accounts generally
understand that account information
will only be made available when the
passbook is presented for updating a
transaction. Consumers do not expect
periodic statements for their passbook
savings accounts. A consumer may
receive a periodic statement for other
accounts, on which the institution elects
to provide brief status information about
the passbook account. As with the
exception from the disclosure
requirements for statements on time
accounts, the Board believes it is
important that institutions not be
discouraged from providing this type of
useful information to consumers.
The Board believes that certain other
types of communication are not
"periodic statements." For example,
additional statements provided solely
upon request and information provided
by computer through home banking
services are not periodic statements. In
addition, general service information
sent to customers which does not
discuss specific transaction activity or
other aspects of a particular consumer's
account (for example, a quarterly
newsletter or other correspondence that
describes available services and
products) is not a periodic statement.
If an institution provides a periodic
statement to meet other legal
requirements (for example, if an account
involves electronic fund transfers and is
covered by Regulation E (12 CFR part
205)), such a statement would be a
periodic statement for purposes of this
regulation. Also, if an institution
provides a combined statement
containing both credit and deposit
account activity, such a statement
would be covered by the periodic
statement rules. In both cases, of course,
if the statement is for a time account or
passbook savings account it is exempt
from this regulation.
Paragraph (s)—Stepped-Rate Account
The act defines “multiple rate”
accounts, and authorizes the Board to
adjust its general annual percentage
yield disclosure rules to ensure that
meaningful disclosures are provided for
such accounts. The Board has separately
defined “stepped-rate” and “tiered-rate”
accounts, both of which are “multiplied
rate” accounts under the act.
The final regulation defines steppedrate accounts as that term appeared in
the proposed rule: those in which two or
more interest rates that are known at
the time the account is opened will take
effect in succeeding periods. An
example of a stepped-rate account is a
one-year certificate of deposit in which
a 5.00% interest rate is paid for the first
six months, and 5.50% for the second six
months.
Paragraph (t)—Tiered-Rate Account
The Board’s proposal defined tieredrate accounts as those in which two or
more interest rates paid on the account
“are determined by reference to a
specified balance level." One
commenter suggested that this definition
be revised to read “an account that has
two or more interest rates that are
applicable to specified balance levels.”
The Board agrees that this suggestion
more accurately describes tiered-rate
accounts, and has adopted a revised
definition based on this suggestion.
An example of a tiered-rate account i*
one in which an institution pays, for
example, a 5.00% interest rate on
balances below $1,000, and 5.50% or
balances SI,000 and above. There are
two types of tiered accounts which are
described more completely in appendix
A, part I, paragraph D.
If interest is not paid on arr ounts
below a specified balance W ei, the
account has a minimum balance
requirement (required to be disclosed
under § 230.4(b)(3)(i)), but the account
does not thereby constitute a tiered-rate
account. For example, an account that
does not pay any interest on account
balances of less ttian $1,000, but pays a
5.50% interest rate on account balances
of $1,000 or more is not a tiered-rate
account, but rather is a single rate
account with a minimum balance of
$1,000 required to earn the specified
annual percentage yield.
Paragraph (u)—Time Account
The proposed regulation did not
include a definition of a “time account.”
However, because the final regulation
provides special rules for certain time
accounts (such as automatically
renewable and non-automatically
renewable certificates of deposit) and
since time accounts are exempt from the
periodic statement rules, the Board has
adopted a definition. The term is based
on the term “time deposit” under the
Board’s Regulation D (12 CFR
204.2(c)(1)). However, the regulation
uses the phrase “time account” rather
than “time deposit” to avoid confusion
since time deposit, as used in Regulation
D, has a broader meaning than that in
this regulation. For example, a “time
deposit” in Regulation D includes
savings deposits, which do not fit the
definition of “time account” in this
regulation.
A time account is defined as an
account with a definite maturity of at
least seven days where a consumer
generally does not have a right to make
full or partial withdrawals from the
account for six days after the account is
opened, unless the deposit is subject to
an early withdrawal penalty of at least
seven days’ interest on amounts
withdrawn.
The most common time accounts are
certificates of deposit; but certificate
accounts and notice accounts issued by
savings and loan associations are also
included. Time accounts also may
include some types of “club” accounts
(such as "holiday club” and “vacation
club” accounts)—where consumers
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
agree by written contract not to
withdraw funds until a certain number
of periodic deposits are made—even
though deposits may be made within six
days before the end of the period.
The Board recognizes that Regulation
D permits withdrawals without penalty
during the first six days after a time
deposit is opened under limited
circumstances, such as upon the death
of any owner of the deposited funds or
within a “grace period" for
automatically renewable certificates of
deposit Accounts that permit
withdrawals of funds in accordance
with those provisions of Regulation D
remain time accounts for purposes of
this regulation.
lower than they otherwise might offer,
either to avoid the cost cf sending
advance notices if the rate had to be
lowered or to guard against having to
send notices because of unanticipated
fluctuations in the financial
marketplace. Many were concerned that
advance notice requirements would
restrict their ability to deal with
competitive factors and other'
investment options available to
consumers such as money market
mutual funds, which are not covered by
the act and regulation. Some were
concerned that tying changes to an
index—internal or external—would
inhibit an institution’s ability to respond
appropriately to volatility in obtaining
funds and to manage the liability side of
Paragraph (v)—Variable-Rate Account
the institution’s balance sheet. Others
The act does not define variable-rate
were concerned about the cost of
accounts, but section 265 of the act
sending notices on accounts that may
authorizes the Board to adjust its annual change rates as frequently as daily or
percentage yield disclosure rules for
weekly and the annoyance to consumers
such accounts. The legislative history
of receiving a constant deluge of notices
accompanying the act also indicates that about changes they already know can
modifications to the act’s advance
occur on their accounts.
notice requirement for changes in terms
In the proposal, the Board discussed
were contemplated for variable-rate
its concern that if institutions reserve
accounts. (See discussion of
the right to change rates on accounts but
5 230.5(a)(2)(i) below.) The Board
seldom do, consumers would view these
requested comment on how variableaccounts essentially as fixed-rate
rate accounts should best be defined to
accounts. Many commenters pointed out
further the purposes of the a c t Two
that account disclosures for variablealternative definitions were proposed: A rate features required by § 230.4(b)(l)(ii)
narrow one that tied rate changes to an
will alert consumers to the fact that the
index, and a broad one that
rates may change and the circumstances
encompassed any account agreement
for such changes. They also pointed out
allowing rate changes where the
that consumers can always contact the
institution did not commit itself to giving institution to get current rate
at least 30 days advance notice of the
information. (See §§ 230.3(e) and
change.
230.4(a)(2) regarding responses to oral
The classification of an account as a
inquiries and providing disclosure of
“variable-rate account" affects
account terms upon request.)
institutions in three ways:
The Board believes that a narrow
(1) Additional account disclosures are definition of “variable-rate account"
required in § 230.4(b)(l)(ii);
would require a substantial change in
(2) Rate decreases are exempted from how depository institutions price their
the change in terms requirements in
accounts, a change that was unintended
§ 230.5(a)(2)(i); and
by the disclosure provisions of the act.
(3) A notice is required in
Also, consumers would be harmed if
advertisements under § 230.8(c)(1).
institutions offered artificially low rates
Many commenters expressed their
to avoid repeated and expensive
views on the proposal. A few
mailings. Thus, the regulation broadly
commenters supported the narrow
defines a variable-rate account as one in
definition linking rate changes on an
which the interest rate may change after
account to changes in an index. They
the account is opened, unless the
preferred a standard that paralleled
institution contracts to give at least 30
Regulation Z’s definition of variable
calendar days advance written notice of
rates for open-end credit to an
rate decreases. An account meets this
expansive definition which they
definition whether the change is
believed to be too broad.
determined by reference to an index, by
The overwhelming majority of
use of a formula, or merely at the
commenters, however, preferred a
discretion of the institution. A certificate
broader definition, based on both
of deposit that permits one or more rate
competitive and safety and soundness
adjustments at the consumer’s option is
concerns. Some stated that without a
a variable-rate time account.
broad definition consumers would be
For institutions that prefer to offer—
hurt since institutions would keep rates
and consumers who prefer to hold—
43345
fixed-rate accounts, the regulation
excludes from the definition c c variablerate those accounts whero the. institution
agrees to provide at le a st«. "iO-day
advance written notice ot ”ue
decreases. (See paragrap' (1) of this
section.)
Section 230.3—General Disclosure
Requirements
Paragraph (a)—Form
Section 264(e) of the act requires
disclosures to be written in “clear and
plain language.” The Board proposed
that information be presented "clearly
and conspicuously,” a standard used in
other regulations adopted by the Board,
such as Regulation Z. This standard was
supported by commenters. and is used
in the final rule for all disclosures
provided to consumers, including
account opening disclosures, change in
terms notices and information given on
periodic statements. (The same standard
applies to advertisements by virtue of
§ 230.8.)
Design requirements. The proposal
provided depository institutions with
flexibility in designing the account
disclosures, as long as the information is
presented in a format that allows
consumers to readily understand the
terms of their own accounts. The final
regulation provides even more flexibility
regarding the order of disclosures, the
use of multiple documents for accounts,
the use of documents that describe more
than one account, and the combination
of disclosures with contract terms and
with disclosures required by other
regulations (such as Regulation E and
Regulation CC).
The regulation does not require the
disclosures to be provided in any
particular order or segregated from other
disclosures or account terms.
Disclosures may be made on more than
one page and may appear on front and
reverse sides. For example, periodic
statements may consist of several pages,
depending on the consumer's account
activity. Institutions may also use
inserts to a document or fill in blanks to
show current rates or fees in account
opening disclosures. Whereas the
proposal suggested that disclosures had
to be part of “one document,” the final
regulation permits use of more than one
document. However, if more than one
document is used for a single account
(or if more than one account is
described in an institution’s brochure),
consumers must be able to understand
from the several documents (or multiple
account disclosures) which terms apply
to their particular account See, for
43346
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
example, the approach taken in Sample
Form B-4 in appendix B.
Depository institutions could comply
with the regulation by providing
consumers with disclosures contained in
one or more of the following documents:
a signature card, a rate sheet, a fee
schedule and a brochure that described
other terms of the account. However, if
the disclosures consist of more than one
document, all relevant documents must
be provided at the same time, and it
must be clear to which account each
document relates. For example, the
regulation would not permit a customer
service representative to hand a
consumer a brochure that describes
some terms of the account when an
account is opened and mail a rate sheet
and fee schedule at a later time.
Disclosures must be in a form the
consumer may retain. Thus, for example,
disclosures could not be made on a
signature card if the consumer is not
given a copy to keep.
Institutions may choose to prepare a
single document or brochure that
contains disclosures for all accounts
offered, or prepare different documents
for different types of accounts. For
example, an institution may provide one
brochure for all of its transaction
accounts, such as NOW and demand
deposit accounts. An institution may
provide disclosures for each type of
account, such as a document that
describes all time accounts offered. If
the institution chooses to provide one
document for several accounts, the
consumer must be able to understand
clearly which disclosures apply to the
consumer’s account. Thus, if an
institution offers two NOW accounts
(“A” and “B”) with some fees applicable
to both accounts, certain fees and rates
unique to the “A” account, and other
fees and rates unique to the "B”
account, the disclosures must make
clear (by the use of headings or some
other means] which fees and rates apply
to which account. Finally, the regulation
permits institutions to provide
individual disclosures describing a
single account product; for example, an
institution offering three different NOW
accounts may provide a separate
document for each account.
Disclosures need be made only as
applicable. For example, disclosures for
noninterest-bearing accounts need not
include disclosure of an annual
percentage yield, interest rate, or any
other disclosures required under the
regulation that pertain to interest
calculations.
Format requirements. Adopted as
proposed, the regulation does not
require any particular type size or
typeface, nor does it require any term to
be stated more conspicuously than any
other term in the account disclosures.
Sections 230.4(b) and 230.8(b) of the
regulation require the “annual
percentage yield” (and, in some cases,
the “interest rate") to be so labeled in
account disclosures and advertisements,
and § 230.6(a) requires the “annual
percentage yield earned” to be so
labeled on periodic statements. Apart
from this, there is no required
terminology. Institutions must be
consistent however, in the use of a term
whenever the term is required to be
disclosed. For example, if an institution
identifies a monthly fee imposed
regardless of a consumer’s balance or
activity in the account disclosures as a
“service” fee, a “maintenance” fee, or a
“monthly" fee, it must use the same term
in its periodic statements and change in
term notices.
Several commenters requested
guidance on the use of abbreviations.
Use of the abbreviation “AFY” for the
annual percentage yield is discussed in
§ 230.8(b) (dealing with advertisements).
Paragraph (b)—General
The Board sought comment on the use
of estimates in making disclosures.
Some commenters requested that
estimates be permitted for charges
imposed by third parties such as check
vendors as an alternative to the use of a
range of check printing charges. But
many opposed the use of estimates
under any circumstance; they viewed
the imprecision of estimates as being
more confusing than helpful to
consumers. The Board believes that, on
balance, a rule on estimates is not
needed because virtually all information
required to be disclosed is within the
total control of the institution (with the
special rules provided in § § 230.4(b)(4)
and 230.5(a)(2)(ii), to deal with the issue
of check printing charges). Furthermore,
the introduction of estimates
complicates the disclosure scheme
without providing attendant benefits to
consumers. Thus, the regulation does
not permit the use of estimates in
making disclosures.
The act does not contain any special
requirements regarding whether
disclosures may be made in a foreign
language rather than in English. The
Board sought comment on incorporating
a rule similar to that in Regulation Z,
which allows creditors in Puerto Rico
the option of providing credit
disclosures in Spanish, as long as those
that do so furnish disclosures in English
upon request. Most commenters
endorsed the alternative of providing
disclosures in languages other than
English. Some institutions currently
reach out to the communities they serve
by offering disclosures in languages
other than English, where appropriate,
and asked for express authority to do so.
A few commenters were concerned that
the proposed regulation could be
interpreted to impose a duty upon
institutions to provide disclosures in
languages other than English. Based on
comments received and upon further
analysis, the final regulation permits
(but doeS not require) institutions to
provide disclosures in languages other
than English, as long as disclosures in
English are available upon request. This
rules applies to institutions in every
state, not just in Puerto Rico. The Board
believes that the rule will promote
delivery of more useful information to
consumers.
The proposal stated that disclosures
should reflect the legal obligation
between the parties. This standard is
used in Regulation Z and was proposed
to provide guidance about the basis for
disclosures. Some commenters
expressed concerns about whether
inclusion of this provision in the
regulation implied the existence of some
new requirement for institutions to enter
into account contracts with their
consumers. This requirement does not
impose any contract terms or supplant
state or other laws that define how the
legal obligation between a consumer
and a depository institution is
determined (for example, whether a
written contract is required or whether
disclosures may act as the basis for the
obligation). The regulation requires the
disclosures to reflect the terms of the
legal obligation that exist once the
consumer opens an account.
Institutions offering automatically
renewable time accounts must base
their disclosures on the terms in effect
for the initial term of the account and
not on terms that may apply if the
account is renewed. Thus, if an
institution offers a six-month certificate
of deposit at an initial annual
Paragraph (c)—Relation to Regulation E
percentage yield of 4.00% with a
guaranteed renewal at an annual
The final regulation expressly allows
percentage yield of 5.00%, the institution institutions to fulfill their requirements
would not disclose the account as a one- under this regulation with disclosures
year stepped-rate account. Similarly, the that also satisfy the requirements of
fact that the rate may change on a fixed- Regulation E. Thus, if an institution is
rate time account at renewal does not
required to provide information
make it a variable-rate account.
pursuant to Regulation E, such as a fee
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
related to an electronic fund transfer,
disclosures given pursuant to that
regulation will be deemed to comply
with this regulation as long as they are
given at the same time as other
Regulation DD disclosures. Similarly, if
an institution changes a term that
triggers a change in term notice under
Regulation E (as well as under this
regulation), the institution may use the
timing rules set forth in Regulation E for
sending the notice to affected
consumers. (See the discussion in
§ § 230.4(h)(4) and 230.4(b)(5) regarding
disclosures of fees and transaction
limitations.)
Paragraph (d)—Multiple Consumers
The regulation retains without change
the proposed rule that in the case of an
account held or to be held by more than
one consumer, institutions may provide
the account disclosures to any consumer
who holds or will hold the account.
Similarly, if the account is held by a
group or organization, depository
institutions- may provide the disclosures
to any one individual who represents or
acts on behalf of the group. Some
commenters requested that the Board
consider identifying a “primary account
owner,” such as the consumer whose
tax identification number is assigned to
the account. The Board believes that
requiring institutions to provide
disclosures to a “primary account
owner” adds an unnecessary
compliance burden; thus, it has not
added such a requirement to the
regulation. Some commenters were
concerned that accounts "held” by
multiple consumers implied that only
account holders with ownership
interests in the account could receive
disclosures. The Board believes that
where there are multiple consumer
account holders, delivery to any account
holder or an agent authorized by the
account holder satisfies this paragraph.
Paragraph (e)—Oral Response to
Inquiries
Although not required by the act, the
Board proposed to standardize rate
information that is given by institutions
in response to an oral inquiry regarding
rates. This requirement does not impose
a duty on institutions to provide
responses to oral inquiries, nor would a
response trigger the advertising
disclosures of the regulation. The
proposal would have required
institutions to use the terms "annual
percentage yield” and "simple interest
rate." The final regulation merely
requires that institutions that provide
oral responses for requests for rate
information state the annual percentage
yield figure. The interest rate figure may
43347
also be provided. (This would also
permit a statement of the corresponding
periodic rate.)
The regulation differs from the
proposal in two respects. First, in
response to comments, the regulation
has been clarified to state the interest
rate may be quoted in addition to (not in
lieu of) the annual percentage yield.
Second, the regulation has deleted the
requirement that the annual percentage
yield or interest rate be stated using
those terms. While the Board expects
that institutions will use those terms to
describe the figures quoted to
consumers, the regulation does not
require this terminology. The
requirement was deleted due to the
Board's concern about the potential for
civil liability if an employee of an
institution inadvertently failed to use the
specified term.
rule adopted for the annual percentage
yield. The Board believes that figures
shown to two decimal places in
advertisements will assist consumers in
successfully comparing the rates of
competing depository institutions.
Without such a rule an institution with
an interest rate of 5.45% could advertise
and disclose a rate of 5.5%, the same
rate advertised and disclosed by
another institution with an interest rate
of 5.50%. The Board believes this would
hinder consumers’ ability to compare
accounts. The interest rate also must be
shown to two decimal places in account
disclosures. At the depository
institution’s option, however, the
interest rate may be shown with greater
specificity (more than two decimal
places) in account disclosures, in order
to allow the use of the exact contract
rate.
Paragraph (f)—Rounding and Accuracy
Rules for Rates and Yields
In the proposal, rules relating to the
calculation and accuracy of the annual
percentage yield were contained in
appendix A. In response to suggestions
made by commenters, a new paragraph
that contains rules regarding rounding
and accuracy of the annual percentage
yield, the annual percentage yield
earned, and interest rate has been
added to this section of the regulation.
Regulation Z has a similar provision,
and the Board believes a single section
setting forth the accuracy standards for
rates and yields will ease compliance.
Paragraph (f)(2)—Accuracy
As proposed, the final rule provides a
tolerance of Y2 0 of one percentage point
(.05%) for the accuracy of the annual
percentage yield. While some
commenters believed that technology
mekes a tolerance unnecessary, many
commenters supported a calculation
tolerance and felt that V2 0 of one
percentage point was appropriate. If the
annual percentage yield disclosed is not
more than one-twentieth of one
percentage point (.05%) above or below
the actual annual percentage yield as
determined in accordance with
appendix A, no violation of the act or
Paragraph (f)(1)—Rounding
regulation has occurred. The same rule
applies to the annual percentage yield
As proposed, the final rule provides
and the annual percentage yield earned.
that annual percentage yields are to be
The tolerance is designed to take
shown to two decimal places and
rounded to the nearest one-hundredth of account of inadvertent errors. By
adopting the tolerance, the Board does
one percent (.01%). If an institution
calculated an annual percentage yield to not intend to sanction intentional
misstatements of the annual percentage
be 5.644%, it would be rounded down
yield. Institutions may not purposefully
and shown as 5.64%; 5.645% would be
incorporate the tolerance as part of their
rounded up and disclosed as 5.65%. The
Board believes that expressing all yields calculations. Thus, the amount of the
tolerance could not be routinely added
to two decimal places will assist
in when calculating the annual
consumers in comparing the rates of
percentage yield to be disclosed.
competing depository institutions. The
Although the regulation allows a
same rule applies to the annual
tolerance in the accuracy for annual
percentage yield and the annual
percentage yields, there is no
percentage yield earned.
In response to comments received, the corresponding tolerance for the
accuracy of the interest rate. The
final rule adds rounding rules for the
interest rate offered on accounts is
interest rate. For advertisements, the
interest rate must also be rounded to the chosen by, and therefore known to,
institutions and involves minimal risk of
nearest one-hundredth of one
percentage point (.01%) and expressed to calculation error. Further, the Board
believes the Congress intended
two decimal places. For example, if an
consumers to receive a disclosure of the
institution’s interest rate is 5.344%, that
precise interest rate paid on the account.
figure would be rounded down and
The Board believes adopting a tolerance
shown in an advertisement as 5.34%;
for the interest rate therefore is not
5.345% would be rounded up and
appropriate.
disclosed as 5.35%. This parallels the
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Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
account is opened by mail, the account
disclosures must be mailed or delivered
within 10 business days of the time the
account is opened. Institutions comply
with the provision if the account
disclosures are mailed or delivered to
the consumer at the address shown on
the records of the depository institution.
The Board solicited comment on
whether business days or calendar days
should be used in setting forth the timing
rules for opening accounts and providing
services, as well as for responding to
requests for disclosures. The majority of
commenters favored use of business
days, and that is retained in the final
Paragraph(a)—Delivery of Account
rule for providing disclosures when an
Disclosures
account is not opened in person. The
The regulation is organized differently
Board believes that using 10 business
from the proposal. The proposal outlined
days as the timing measure for the
subsequent disclosure duties for
account opening rule is appropriate to
maturing time accounts in both
allow institutions adequate time to
§ | 230.4(a)(3) and 230.5(b). For ease of
provide disclosures (especially since the
compliance, all requirements for
disclosures cannot be used for
providing information to consumers
comparison shopping in any event since
after an account is opened (other than
they come after the deposit decision has
ongoing disclosure duties for accounts
been made). However, the timing rules
that receive periodic statements) are
for other provisions (for example, the
now located in § 230.5. Thus, rules
subsequent disclosures required in
regarding subsequent notices for
§ 230.5) are measured by calendar days.
maturing time accounts are found in
The act states that disclosures need
§ 230.5(b), 230.5(c), and 230.5(d) of the
not be provided to the absent consumer
regulation.
if the disclosures were previously
provided. The Board requested comment
Paragraph (a)(1)—Account Opening
on whether it would be desirable to
The proposal and the final regulation
specify a time limit, for example, 60
parallel the act, and require institutions
days, beyond which prior disclosures
to provide account disclosures to
would be deemed not to be current—
consumers before an account is opened
even if they have not changed.
or a service is provided, whichever is
Commenters strongly opposed a rule
earlier.
with a specified time limit. Based on
Service fees. The Board is retaining
comments received, the Board is not
the proposed provision requiring
adopting the reference to 60 days.
disclosures to be given before a fee
However, the Board believes that the
(required to be disclosed under
Congress intended to permit institutions
paragraph (b) of this section) for a
to rely on this provision only if the
service is imposed. The Board believes
disclosures previously provided remain
this disclosure covers the unusual
the same (including the annual
circumstance where a fee is assessed for percentage yield and interest rate). As a
a service prior to the opening of an
practical matter, the Board believes this
account. This provision, however, does
provision of the regulation is of limited
not require institutions to give
benefit, as institutions that rely on it
disclosures to existing account holders
must know both that their customers
prior to imposing a service fee
previously received the disclosures and
connected with the account, such as for
that the account terms remain the same.
stopping payment on a check.
N ew accounts. Section 230.4(a) (3)(i)
Consumer absent when account is
(cited as § 230.4(a)(3)(A) in the April 13
opened. Section 266(b) of the act allows Federal Register notice) of the proposal
the disclosures to be sent within 10 days provided that renewals of all time
of “the initial deposit" if the consumer is accounts were new accounts.
not physically present when the deposit Commenters argued that an
is accepted and the disclosures have not automatically renewed time account is
been provided previously. The proposed not a new account but acknowledged
regulation applied the 10-day rule to the that a nonautomatically renewable time
provision of services as well as to
account that is “renewed” at the
opening accounts, and defined the
consumer’s request is a new account. In
period as 10 business days rather than
light of these comments, the Board has
calendar days. The final regulation
modified the final regulation by deleting
reflects the same position. Thus, if an
proposed § 230.4(a)(3)(i). Renewals of
Section 230.4—Account Disclosure
The Board proposed and retains in the
regulation its use of "account
disclosures” (rather than the term
“account schedule” used in the act) in
connection with the information
required to be: provided to consumers.
Similarly, the regulation does not
impose an independent duty on
institutions to “maintain” disclosures
but merely to deliver them in the
necessary circumstances. These
positions were supported by the
commenters.
“rollover*’ time accounts are dealt with
in 5 § 230.5(b) and 230.5(c). A “renewal”
of a time account that does not
automatically renew is a new account
requiring account disclosures delivered
according to the usual rules for account
opening.
Some commenters asked whether a
new account would be considered to be
opened when an institution acquires an
existing account through merger with or
acquisition of another institution.
Acquiring accounts through acquisition
or merger does not trigger the disclosure
rules under this section. Of course, if
terms required to be disclosed are
changed, the acquiring institution must
follow the rules in § 230.5(a) regarding
advance notice.
Paragraph (a)(2)—Requests
Paragraph (a)(2)(i). The act requires
that account disclosures be made
available to any person upon request.
The proposal required depository
institutions to mail or deliver the
disclosures no later than three business
days following receipt of a consumer’s
oral or written request
Several commenters requested
clarification about customer actions that
trigger the rule. A mere inquiry about
rates for an account does not trigger an
institution’s duty to provide account
disclosures. For example, common
telephone inquiries about rates and
yields on certificates of deposit or about
fees and charges for an account do not
trigger an institution's duty to send
disclosures to the caller. However, the
duty is triggered if, in the course of
inquiring about an account a consumer
asks for written information to be
provided. This section also governs
requests for account disclosures by
existing consumer account holders. (See
the discussion in § 230.4(c) below.)
Some commenters were concerned
how the rule might apply to repeat
callers who make numerous requests for
disclosures for the same account If an
institution has already sent disclosures
to a consumer who is repeating requests
for the same account, and institution
need not respond to the repeated
requests, if the disclosures previously
provided remain accurate.
An institution must provide
disclosures to consumers for each
account for which the consumer
requests information. If the consumer
makes the request in person, disclosures
must be provided at that time. If a
consumer expresses a general Interest in
a type of account (NOW accounts, for
example) of which an institution offers
several versions, an institution may
comply by sending disclosures for any
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
one of the products. Institutions are not
required to provide disclosures for
accounts that are no longer available to
the public. For example, an institution
that no longer opens passbook savings
accounts (but continues to service
existing passbook accounts) is not
required to provide account disclosures
for the passbook savings account upon
request.
Some commenters objected to the
proposed duty to “mail or deliver”
disclosures; instead, they urged that the
regulation use the statutory phrase to
“make available” disclosures upon
request and allow institutions to merely
keep disclosures in their offices or
branches for consumers to pick up in
person. The Board believes that the
purposes of the act would not be
furthered if consumers were required to
visit branches to obtain information
about an account. Convenient access to
account disclosures is essential to
comparison shopping and in-person
visits are not always possible. The
Board believes that the Congress
contemplated that institutions would
have the duty to actually get account
information to consumers who request
it. Thus, the regulation requires
institutions to mail or deliver account
disclosures upon request if the requester
is not at the institution when the request
is made.
Timing requirements. The Board
proposed a three-business-day rule—a
timing rule used in Regulation Z for
certain transactions—for responding to
requests from consumers. The Board
solicited comment on whether it was
necessary to establish a specific time
period in which institutions must
respond to requests for disclosures, and
whether the appropriate period should
be three business days or longer, such
as 10 business days. Many commenters
opposed a specific time limit, stating
that competition and customary
business practices ensure institutions
will respond in a timely manner. If a
time limit were imposed, however,
commenters requested that timing rules
be consistent throughout the regulation
and that a period longer than three
business days be permitted.
The Board is persuaded that
competitive demands require
institutions to respond promptly to
potential and current account folders.
Thus, the final rule requires institutions
to respond to requests for disclosures
within a reasonable time. Ten business
days, consistent with the timing rule for
opening accounts, would be considered
a reasonable time to respond. Of course,
when the consumer is present at the
institution and requests information
about an account, the disclosures must
be given at that time.
Paragraph (a)(2)(H). Commenters
requested clarification about the content
of disclosures sent in response to a
consumer request for information.
Disclosures must be accurate when sent
to the consumer, and the regulation has
been modified to explain how
institutions may comply with that
standard in the case of the annual
percentage yield,.interest rate and a
time account’s maturity date. An
institution must specify an interest rate
and annual percentage yield that were
offered within the most recent seven
calendar days; state that the rate and
yield are accurate as of an identified
date; and give a telephone number
consumers may call to obtain current
rate information. The regulation also
permits institutions to describe a time
account’s maturity as a term such as “1
year” or “8 months,” rather than a
specific date, such as "January 10,1994,”
since the actual date will not be known.
Paragraph (b)—Content of Account
Disclosures
This paragraph is rearranged from the
proposal. For ease of compliance,
requirements relating solely to time
accounts (listed individually in the
proposal as § 230.4(b)(2), (b)(7), and
(b)(8)) have been combined in
§ 230.4(b)(6) in the final rule. Remaining
paragraphs have been renumbered
accordingly.
A disclosure regarding bonuses has
been added, as described in paragraph
(b)(7) of this section.
In response to comments received and
upon further analysis, the Board has not
adopted the proposed requirement that
institutions inform consumers if an
account involves the risk of a loss of
principal (see § 230.4(b)(9) of the
proposal). Adopting the rule, which is
not mandated by the act, would have
added complexity to the regulation. For
example, although the provision was
aimed at foreign currency denominated
accounts, commenters raised concerns
about its applicability to losses of
principal due to deposit insurance
limitations, right of offset and the
operation of escheat laws. Although the
Board believes that it is important for
institutions to disclose to consumers
when an account involves a potential
loss of principal—particularly in
accounts denominated in a foreign
currency—information indicates that the
industry currently alerts consumers to
the risks associated with such accounts.
Thus, on balance, the Board believes an
additional disclosure in the regulation is
not needed at this time.
43349
Paragraph (b)(1)—Rate Information
Paragraph (b)(l)(i)—Annual
percentage yield and interest rate.
Institutions are required to disclose the
“annual percentage yield," using that
term, computed in accordance with
appendix A, part I. Institutions also are
required to disclose the “interest rate,"
using that term. Aside from the
corresponding periodic rate, no other
term regarding rates (for example, an
"average” rate) is permitted to be used.
If the interest rate and the annual
percentage yield are the same,
institutions must use both terms but may
disclose a single figure.
Institutions must also disclose the
period of time the interest rate will be in
effect after a fixed-rate account is
opened. (This does not require
institutions to state how long the rate
will be offered to consumers who open
accounts. However, see the discussion
to | 230.8(c)(2), which requires
advertisements to state how long the
advertised annual percentage yield will
be offered.) The final rule clarifies that
this requirement applies only to fixedrate accounts. (The Board believes that
disclosures required under paragraph
(b)(l)(ii) of this section adequately
convey the same information for
variable-rate accounts.) If an institution
agrees to pay a rate until maturity of a
fixed-rate time account, disclosure of
the maturity date satisfies this
requirement. Fixed-rate accounts other
than time accounts could disclose a
date, a period, or include a statement
that the rate will be in effect for at least
30 days. (See § 230.2(1), which-defines
fixed-rate accounts as those in which an
institution agrees to provide at least 30
days’ advance notice of a rate decrease,
and § 230.5(a), which discusses change
in term requirements for rate decreases
for these accounts.) Even if an
institution retains die ability to increase
a rate without giving prior notice, it
should disclose that the initial rate will
be in effect for at least 30 days. Any rate
increase following delivery of
disclosures is not an event that would
make the account disclosure incorrect.
Commenters asked for clarification of
several issues relating to the disclosure
of the interest rate and annual
percentage yield. Some institutions
asked for guidance about how accurate
their disclosures must be when their
agreements permit changes as
frequently as daily in the rate and yield
paid. Some suggested that institutions
be permitted to provide a recently
available rate, along with a telephone
number the consumer could call for
current rates. The Board believes that
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Federal Register / Voi. 57, No. 183 / Monday, September 21, 1992 / Rules »nd Regulations
the most current rate and yield
information must be provided to
consumers who are opening new
accounts. (See paragraph (a)(1) of this
section.) The Board believes the
Congress did not intend for institutions
to disclose, for example, a recent
interest rate of 5.00%, if in fact the
institution is offering a 4.75% interest
rate on the day the consumer opens the
account. However, recent rates and
yields that are updated at least weekly
may be provided to consumers who
have merely requested information on
an account. (See paragraph (a)(2) of this
section.) As mentioned previously,
institutions may use inserts or rate
sheets in combination with their other
disclosures to state current interest rates
and annual percentage yields, but
institutions must make clear in the
account disclosures which rates and
yields apply to the account for which
disclosures are being given. (See
discussion of design requirements in the
supplementary information to § 230.3(a),
above.)
A number of commenters requested
guidance about how minimum balance
requirements affect the disclosure of
rates. If an institution sets a minimum
daily balance to earn interest, it need
not disclose that “0%” annual
percentage yield applies on those days
when the balance in the account drops
below the minimum balance. (Similarly,
a disclosure of “0%” is not required for
institutions that use the average daily
balance method, if the consumer fails to
meet the minimum balance required for
the period.) The Board believes that, in
light of the disclosures about minimum
balance requirements, consumers will
readily understand that interest is not
paid if a minimum balance is not
maintained, and the rule simplifies
disclosures for both consumers and
institutions.
Section 230.4(b)(l)(i) of the proposal
(cited as § 230.4(b)(1)(A) in the April 13
Federal Register notice) included a
sentence stating that for stepped- and
tiered-rate accounts all interest rates
and annual percentage yields must be
stated. The final rule does not include
thi3 provision in the regulation itself.
This requirement is simply an
elaboration on the general requirement
to state the interest rate and annual
percentage yield, and the Board believes
it is unnecessary for the regulation itself
to contain this rule. This provision does
require that, for stepped-rate and tieredrate accounts, institutions must state all
annual percentage yields and interest
rates.
A single annual percentage yield must
be disclosed for stepped-rate accounts.
(See appendix A, part I, paragraph B.)
However, each interest rate and the
period of time each will be in effect must
be provided in the disclosures. For
example, if an institution-offers a 1-year
certificate of deposit with daily
compounding and an interest rate of
5.00% for the first 180 days and 5.50% for
the remaining 185 days, it might say
something like the following: "The
interest rate on your account is 5.00% for
the first 180 days and 5.50% for the
remaining 185 days, with an annual
percentage yield of 5.39%.” (See Model
Clause B-l(a)(iii) in appendix B.)
An institution offering tiered-rate
accounts must disclose each interest
rate along with the corresponding
annual percentage yield (or range of
annual percentage yields if appropriate)
for that specified balance level. For
example, if an institution pays a 5.00%
interest rate for balances below $5,000
and a 5.50% interest rate for balances
$5,000 or above, both rates must be
provided, as well as the annual
percentage yields that would apply to
the two tiers in the account. (See
appendix A part I for the calculation of
the annual percentage yields for
stepped-rate and tiered-rate accounts.)
Commenters asked for guidance when
the initial rate offered on a variable-rate
account is higher than the rate that
would otherwise be paid on the account.
For example, an institution may promote
a particular account by offering to pay a
premium rate to new customers for a
given period such as 90 days. Such
accounts would be considered steppedrate accounts and the annual percentage
yield would be figured according to the
rules in Appendix A. (See the
supplementary information to appendix
A, discussing variable rates.)
In addition, as with any other
stepped-rate account, an institution
would state the initial interest rate and
the time that rate is in effect as well as
the rate that otherwise would apply if
the initial rate were not in effect For
example, an institution might state:
“You will be paid an interest rate of
6.00% for the first 90 days. The current
rate being paid on the account is 4.50%.”
(The disclosures for variable-rate
accounts will alert consumers that the
rate may change after 90 days.)
Paragraph (b)(l)(ii}— Variable rates.
The act does not expressly require
specific additional disclosures for
variable-rate accounts. Sections 284(d)
and 265(2) of the a c t however, recognize
that the Board may wish to prescribe
specific disclosures for variable-rate
accounts. The Board proposed that
account disclosures include information
similar to the variable-rate disclosures
for open-end credit found in Regulation
Z.
Commenters agreed that the purposes
of the act would be well served if
consumers were alerted to the basic
features of a variable-rate account, but
many commenters expressed concern
that lengthy and complicated
disclosures would confuse rather than
help consumers. The proposal required
institutions to provide four pieces of
information about variable-rate
accounts, and the Board believes it is
appropriate for each to be retained in
the final rule. The Board believes it is
important for consumers to receive basic
information about a variable-rate
account initially, particularly since
consumers will not receive change in
terms notices if the rate is later
decreased. (See § 230.5(a)(2)(i).)
First, institutions must state that the
interest rate and annual percentage
yield may change. Second, they must
explain how the interest rate is
determined. For example, if the interest
rate is tied an index (for example, the 1year Treasury bill) plus or minus a
specified margin, the index must be
clearly identified and the specific
margin stated. If an institution reserves
the right to change rates and does not tie
changes to an index, the fact that rate
changes are solely within the
institution’s discretion must be stated.
Third, depository institutions must
explain the frequency—such as weekly
or monthly—with which the interest rate
may change. Institutions that reserve the
right to change rates at any time must
state that fact
Finally, if the deposit contract places
any limits on the amount the interest
rate will change at any one time or for
any period, the limitation must be
explained. For example, if the institution
places a floor or ceiling on rates or
provides that a rate may not decrease or
increase more than a specified amount
during any time period, that must be
disclosed. An institution may describe a
floor or ceiling as a specific rate (for
example, “your interest rate will always
be at least 3%’Mor by explaining how
the limitation operates (for example,
“your interest rate will never drop lower
than 2% below the interest rate initially
disclosed to you”). If there are no
limitations placed on rate changes,
institutions may, but need not, disclose
that fact.
Paragraph (b)(2)—Compounding and
Crediting
Paragraph (b)(2)(i}—Frequency. The
act requires institutions to disclose the
frequency with which interest is
compounded and credited, and any
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
changes in either frequency if a time
requirement is not m et The
supplementary information in the
proposal tracked the a c t but stated that
institutions would have to disclose if
changes in the compounding or crediting
frequency would occur "under any other
circumstance.” The final regulation
retains the basic disclosure regarding an
institution’s compounding and crediting
practices. (See the supplementary
information accompanying § 230.7(b) for
a discussion of crediting practices.) The
supplementary information
accompanying § 230.4(b)(6)(ii) retains
the substance of the statutory disclosure
concerning changes in compounding and
crediting frequencies, but simplifies the
regulation by locating this provision in
the paragraph dealing with early
withdrawal penalties for time accounts.
There it more plainly states that, if the
institution changes compounding and
crediting frequencies if a time
requirement is not met, the institution
must describe such changes and the
conditions under which they will occur.
The Board believes this event will rarely
occur, but is retaining the requirement in
light of the statutory provision.
Commenters asked about the degree
of precision required to describe
crediting and compounding practices.
Descriptions such as "quarterly” or
"monthly” adequately disclose the
institution’s practices. Also, institutions
need not disclose irregular crediting and
compounding periods such as if a cycle
is cut short at year end for tax reporting
purposes.
Paragraph (b)(2](ii}—E ffect o f closing
an account. Section 264(c)(9) of the act
requires institutions to provide a
statement, if applicable, that interest
that has accrued but not been credited
to the account at the time of a
withdrawal will not be paid (or credited)
due to the withdrawal. Section 287 of
the act requires institutions to calculate
interest on the full amount of principal
in the account each day and prohibits
calculating interest using methods such
as the “low balance” method. In the
proposal, the Board stated its belief that
the Congress did not intend the
disclosure provisions of section 264 to
be interpreted as overriding the general
rule regarding payment of interest. Thus,
the Board proposed (in § 230.4(b)(7))
that institutions could not fail to pay
interest on amounts withdrawn, and the
statement required by section 264(c)(9)
would be inapplicable.
Many comments were received on this
provision. As discussed in § 230.7(b)
below, commenters urged the Board to
reconsider its interpretation of the act,
particularly regarding accounts that are
closed between crediting periods. For
the reasons set forth in § 230.7, the
Board believes that institutions may
provide that if an account is closed
before interest is credited, the institution
need not pay interest that has accrued
but not been credited on the account
Thus, the regulation has been revised to
add a disclosure of this policy if it is
relevant. If an institution has contracted
to withhold interest that has accrued but
not been credited on an account that is
closed, that fact must be disclosed. (See
Model Clause B—
l(b)(iij.)
This issue was raised in the
supplementary information to the
proposed disclosure requirements for
early withdrawal penalties. However, if
an institution discloses an early
withdrawal penalty for a time account
(see paragraph (b)(6)(ii) of this section)
that encompasses that amount of
accrued but uncredited interest when all
funds are withdrawn before maturity,
such a disclosure will satisfy the
requirements of this paragraph.
Paragraph (b)(3)—Balance Information
Paragraph (b)(3)(i)—M inimum
balance requirements. The regulation
requires institutions to disclose any
minimum balance required to open the
account, to avoid the imposition of fees,
or to obtain the annual percentage yield.
Institutions must also describe how they
determine any minimum balance. A
minor revision to the proposal (changing
“fees” to “a fee") clarifies that the
minimum balance disclosure
requirement is triggered by the
imposition of a single fee (for example, a
$3 fee imposed if the average daily
balance in the account drops below
$500).
Commenters asked how to make this
disclosure if fees on one account are
tied to the balance in another account.
Such a provision must be explained. For
example, if an institution ties fees
payable on a NOW account to a
minimum balance maintained in a
savings account (or a combination of the
savings and the NOW account], the
NOW account disclosures must explain
that fact and how the balance in the
savings account (or in both accounts) is
determined. The fee need not be
disclosed in the savings account
disclosures if the fee is not imposed on
that account.
Commenters requested guidance on
describing the method used to determine
a minimum balance. Institutions may
combine their explanations of balance
computation methods required under
paragraphs (b](3)(i) and (ii) if the
methods are the same. Some
institutions, however, use different
cycles for determining minimum balance
43351
requirements for purposes of assessing
fees and for paying interest. For
example, an account’s statement cycle
may begin on the 15th of the month and
that period is used for interest
calculations. However, the institution
may assess fees based on the balance in
the account for the preceding calendar
month. In such cases, institutions must
disclose the specific cycle or time period
used for each purpose. Institutions may
assess fees by using any method they
choose.
Paragraph (b)(3)(ii’}—Balance
computation method. The regulation
requires institutions to describe the
balance computation method the
institution uses to calculate interest on
the account. Sections 230.2(d) and
230.2(i) of the final regulation contain
definitions of the two balance
computation methods permitted under
§ 230.7(a).
Paragraph (b)(3)(iii}— When interest
begins to accrue. The Board solicited
comment on whether a disclosure of
when interest on noncash items begins
to accrue should be required. The Board
received many comments on the issue.
Section 230.7(c) requires institutions to
begin paying interest no later than the
business day specified in section 606 of
the Expedited Funds Availability Act
(EFAA) and its implementing Regulation
CC. However, institutions may begin to
pay interest earlier, such as the day a
noncash deposit (typically, a check) is
received by the institution. Commenters
generally considered the information to
be important for consumers and
supported the disclosure. However,
many were unsure that the information
could be conveyed in a simple and
effective way that consumers would
readily understand. For example, the
procedures that institutions follow to
determine when interest must begin to
accrue under EFAA are very complex.
(See 12 CFR 229.14 and its
accompanying staff commentary.)
Commenters were concerned that
considerable detail would be required
and that the information would be more
confusing than helpful. Others stated
that consumers might not understand
general industry terms to describe the
balances on which interest begins to
accrue, such as “ledger” balance to
indicate that interest begins to accrue
the day a noncase deposit is received by
the institution and “collected” balance
to indicate that interest begins to accrue
no later than the business day required
by EFAA and Regulation CC. Further,
the term ‘'collected balance” does not
have a uniform meaning within the
financial services industry.
43352
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
“maintenance or activity fees." To
illustrate, institutions must disclose fees
to stop payment on a check under this
paragraph, even though the fees would
not be deemed an “activity” or
"maintenance” fee for purposes of
§ 230.8(a).
Commenters asked for specific
examples of fees that must or need not
be disclosed. The Board believes that
identifying all fees by name is not
possible, as new fees may arise and
names may differ among institutions.
Types of fees that may be assessed in
connection with an account would
include, for example, maintenance fees
(such as service fees and dormant
account fees); fees related to deposits or
withdrawals, whether by check or
electronic transfer (such as per check
fees, fees for use of the institution’s
automated teller machines (ATMs), fees
to stop payment on a check previously
issued, and fees associated with checks
returned due to insufficient funds); fees
for special account services (such as
fees for balance inquiries and fees to
certify checks); and fees to open or to
close accounts (other than early
withdrawal penalties for time accounts,
which are addressed in paragraph
(b)(6)(iii) of this section).
Paragraph (b)(4)—Fees
The proposal also required check
The act requires disclosure of fees
printing fees to be disclosed. Many
that may be assessed against the
commenters opposed the disclosure of
“account holder" as well as against the
this fee, mainly due to the difficulty in
account. The regulation requires the
describing the amount of the charges
disclosure of all fees that may be
(which vary depending on the
assessed “in connection with" the
consumer’s choice and which are in the
account which, as explained in the
control of a third party vendor).
proposal, the Board believes captures
Commenters also stated it would be
the act’s intent.
difficult to comply with an advance
The act requires the Board to specify,
change in terms notice, given that the
in the regulation, which fees must be
timing of price increases are controlled
disclosed. The proposal, however, did
by the vendor. The Board believes that
not list every fee that might be imposed, the concerns about disclosing costs for
nor did it mandate terminology for fees.
check printing are valid and therefore
The proposal provided guidance on
permits a variety of ways to make this
types of fees that would and would not
disclosure. Institutions may disclose the
be considered to be assessed in
lowest price at which checks could be
connection with an account and the
purchased and indicate that higher
Board solicited comments on the
prices may apply for the initial order
proposed approach for implementing the and when checks are reordered; they
act.
may give a range of prices; or they may
Many comments were received on this state that prices vary. (See, for example,
provision. Some suggested that the
Sample Forms B-4 and B-5 in appendix
scope of the fee disclosure be narrowed. B.) Furthermore, the Board has provided
However, the regulation retains a broad an exception in § 230.5(a)(2) from the
requirement to disclose all fees that may requirement to send an advance notice
be assessed in connection with the
of change in terms for check printing
account. The Board believes a broader
fees assessed by third parties.
definition more closely implements the
Fees that may be charged to a
statutory requirement and
consumer for services unrelated to the
Congressional intent. This broader
account are not required to be disclosed.
definition differs from the approach
This includes fees that would be
taken for advertising rules discussed in
assessed to nonaccount holders, even if
5 230.8(a) in conjunction with “free" or
the amount of the fees differs for
“no-cost" accounts. There, fees that
account and nonaccount holders.
trigger the rule are limited to
Examples are fees to purchase cashier's
The Board believes that comparison
shopping by consumers will be
enhanced if account disclosures reveal
basic differences regarding when
interest begins to accrue for noncash
deposits. Thus, the regulation requires
institutions to briefly state when interest
begins to accrue. For example,
institutions that begin to accrue interest
pursuant to EFAA could explain that
interest begins to accrue no later than
the business day when the institution
receives credit for the deposit.
Institutions that begin to accrue interest
the day a noncash deposit is received by
the institution could state that fact. (See
Model Clause B-l(e) in appendix B.)
Finally, some commenters requested
that descriptions of balance methods
under paragraphs (b)(3)(i) and (ii) of this
section distinguish balances that include
deposits from the day the deposit is
made (described as a “ledger balance”)
from those that delay inclusion
(described as a “collected balance”).
Given the additional disclosures
required by this subparagraph (3}(iii),
the regulation does not require
institutions to define balance
computation methods as being a ledger
or collected balance method.
or traveler's checks, fees to lease a safe
deposit box, fees for handling bond
coupon redemption, and wire transfer
fees. Although the proposal had
included wire transfer fees as a fee
assessed in connection with an account,
many commenters argued that the
service is provided to nonaccount
holders as well as account hclders and
should be considered unrelated to the
account. The Board has determined that
wire transfer fees are not assessed “in
connection with an account." (Of
course, as with other fees not required
to be disclosed under this paragraph,
wire transfer fees may be included with
the required disclosures.) Finally, the
following fees need not be disclosed:
fees for photocopying a statement of
interest earned for tax purposes (IRS
Form 1099), fees for name changes on an
account, fees for a midcycle periodic
statem ent and fees for wrapping loose
coins.
The regulation does not mandate
terminology for fees. Thus, different
institutions may describe the same type
of fee by different names. For example,
a monthly fee imposed regardless of the
consumer's balance or activity might be
identified as a "monthly service” fee, a
“monthly maintenance” fee, or simply
"monthly" fee, or other term, as long as
the term is used consistently throughout
the institution's disclosures.
The regulation requires institutions to
state the amount of the fee and the
“conditions” under which the fee may
be imposed. The Board believes that
typically the name and description of
the fee will satisfy this requirement For
example, if an institution charges a $5.00
monthly service fee, and describes it in
that manner, no further information
need be provided.
Under the rule stated in § 230.3(c), if
fees required to be disclosed under this
section are also required to be disclosed
under Regulation E (12 CFR 205.7),
compliance with the disclosure
requirements of Regulation E will be
deemed to be in compliance with this
section. For example, under Regulation
E an institution issuing access devices
must disclose fees assessed for
transactions at its own ATMs, but is not
required to disclose charges assessed by
another institution for the use of an
ATM owned by the other institution.
That will also suffice for this regulation.
However, this regulation covers
situations that are not covered by
Regulation E. A fee assessed for an
electronic fund transfer that is not
covered by Regulation E (for example, a
transfer of funds between accounts held
at an institution) must be disclosed
under this section.
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
Paragraph (b)(5)—Transaction
Limitations
The act requires institutions to
disclose the terms and conditions and
account restrictions applicable to
accounts. Adopted as proposed, the
regulation requires institutions to state
any limitations on the number or dollar
amount of deposits to, withdrawals
from, or checks written on an account
for any time period. If withdrawals or
deposits are not permitted on a time
account, that fact must be disclosed.
Commenters asked for clarification
regarding the disclosure of limitations
addressed by Regulation E. Regulation E
requires disclosure of limitations on the
frequency and amount of electronic fund
transfers except where confidentiality is
essential to maintain the security of the
electronic fund transfer system. (See 12
CFR 205.7(a)(4).) Institutions may rely on
Regulation ITs disclosure rules regarding
limitations on the frequency and amount
of electronic fund transfers, including
security-related exceptions in complying
with this regulation. If, however,
disclosures are required under this
paragraph, such as if an institution
limited the number of transfers from
other accounts at the institution each
month, the fact that Regulation E
exempts “intra-institutional transfers”
from its coverage would not relieve the
institution from making the Regulation
DD disclosure.
Paragraph (b)(6)—Features of Time
Accounts
Paragraph (b)(6)(i)— Time
requirements. The proposal (in
paragraph (b)(2) of this section) required
institutions to state any time
requirement that must be met to obtain
the annual percentage yield on a time
account. Commenters requested
clarification whether institutions may
disclose either a date (“March 3,1993")
or a term (“six months" or “182 days”).
The Board believes that the actual
maturity date must be given to
consumers who open new accounts to
ensure consumers know the exact date
the account matures. However,
institutions may state a term (for
example, “six months" or “182 days")
rather than a specific date when
providing disclosures in response to
requests by consumers. (See paragraph
(a)(2) of this section.) If the agreement
provides that the time account may be
redeemed at the institution's option (a
“callable” certificate of deposit), the
disclosure must state the date or the
circumstances under which the
institution may redeem the deposit (See
Model Clause B-l(h)(i) in appendix B.)
Commenters also asked whether the
maturity date stated on the time account
certificate would satisfy this disclosure
requirement. As stated earlier in
connection with § 230.3(a), the Board
believes that account disclosures—
including those for time accounts—may
consist of more than one document so
the certificate could be used. However,
all documents containing the required
disclosures must be provided to the
consumer at the same time and must be
in a form the consumer can retain. Thus,
if a disclosure is made on a certificate of
deposit that must be returned to the
institution at maturity, the disclosure
must also be provided to the consumer
in a form the consumer may retain
permanently.
Paragraph (b)(6)(H)—Early
w ithdrawal penalties. Section 284(c)(10)
of the act requires institutions to
disclose any requirement relating to the
nonpayment of interest, including any
early withdrawal penalty. The Board
proposed (in S230.4(b)(7)) to limit this
requirement to time accounts, although
the act does not explicitly do so, since
an early withdrawal contemplates a
maturity date, which exist only in time
accounts. Commenters supported this
limitation and the final regidation
reflects this position. The act and
regulation place no limitations on how
early withdrawal penalties are
calculated.
Commenters asked for clarification of
whether existing rules and contract
rights are affected. Rules relating to the
imposition of early withdrawal penalties
found in regulations such as the Board's
Regulation D are not affected by this
provision. This paragraph does not
confer upon consumers a right to
withdraw funds from a time account
even if they are willing to accept the
penalty described in their account
disclosures. It does not impair an
institution’s right to refuse to permit a
withdrawal prior to the maturity of a
time account. For institutions that
choose to permit withdrawals, this
disclosure provision also does not
regulate under what circumstances the
institution may impose an early
withdrawal penalty.
The regulation requires institutions to
disclose the conditions under which an
early withdrawal penalty will be
assessed. Some commenters asked
whether bonuses that may be
“reclaimed" must be disclosed under
this provision. The Board believes that
institutions that offer bonuses for time
accounts must disclose if the bonus may
or will be reclaimed and the
circumstances under which the
reclamation will occur, since this is a
type of early withdrawal penalty.
43353
The language of the regulation differs
from the proposal in three respects. In
response to comments from institutions
that impose early withdrawal penalties
on a case-by-case basis, the regulation
permits institutions to disclose the
possibility—rather than the certainty—
of such a penalty. Thus, institutions may
state they “may” impose a penalty if
that more accurately describes their
agreement with the consumer. Also, the
regulation clarifies that institutions must
state how the penalty is calculated. For
example, institutions may disclose a
specific dollar amount or describe the
penalty, such as “seven days’ interest.”
(If accrued but uncredited interest is
withheld as a part of, or in addition to.
the early withdrawal penalty, this must
also be disclosed.) Model Clause Bl(h)(ii) in appendix B provides examples
of how early withdrawal penalties may
be disclosed.
Also, many commenters were
concerned that the proposal seemed to
require institutions to calculate an
interest rate and an annual percentage
yield assuming that an early withdrawal
penalty will be imposed during the term
of the time account The regulation does
not require institutions to make such
calculations, and the sentence has been
deleted from the regulation. However, if
a withdrawal of some funds triggers a
change in the interest rate and annual
percentage yield that is paid on funds
remaining on deposit or a change in the
compounding or crediting frequency,
those terms must be disclosed as an
early withdrawal penalty.
Commenters requested guidance on
the disclosure of penalties associated
with withdrawals of funds from club
accounts such as “holiday club"
accounts that are time accounts. (See
discussion in § 230.2(u).) If these
accounts meet the definition of a time
account, they must disclose any early
withdrawal policy.
Paragraph (b)(6)(iii)— W ithdrawal o f
interest prior to m aturity. The proposal
has been revised to add a disclosure to
alert consumers to the effect of
withdrawing accrued interest before
additional interest begins to accrue on
that account, since the annual
percentage yield for time accounts
generally is based on the assumption
that interest remains in the account until
maturity. Institutions commonly offer
certificates of deposit that compound
interest monthly (or quarterly) and may
permit consumers to withdraw (or
transfer) accrued interest periodically or
to leave the interest in the account until
maturity. For example, assume an
institution offers the same interest rate
with mdnthly compounding to two
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consumers. Under the proposal, if one
withdrew interest monthly and the other
withdrew interest only at maturity, both
would have received identical annual
percentage yield information even
though their actual earnings would
differ. Some commenters recognized this
problem and suggested the act’s
purposes would be better served if the
Board revised its method of calculating
annual percentage yields to require
specific calculations based on the
consumer's choice when the account is
opened about whether to withdraw
interest or leave it in the account until
maturity. The Board believes, however,
that such a rule requiring different
annual percentage yields would
significantly complicate the regulation,
and possibly confuse consumers
shopping for such accounts.
Upon further analysis, the Board
believes the requirement adopted in the
final regulation will better assist
consumers. If, on a time account that
compounds interest during the term, a
consumer elects to withdraw accrued
interest, the institution must disclose
that the annual percentage yield
assumes that interest remains on
deposit until maturity and that a
withdrawal reduces the earnings on the
account. To ease compliance, this
disclosure may be provided any time
this option to withdraw interest is given,
regardless of whether the consumer
actually exercises the option or
indicates any preference about
withdrawals.
The Board believes it is appropriate to
limit the statement to time accounts,
where consumers may have a greater
expectation about the effect of
compounding on amounts deposited. In
the unusual event an institution requires
such interest withdrawals, the
disclosure would not be required since
the annual percentage yield would
reflect the effect of the interest
withdrawals. This disclosure is not
required when interest may only be
withdrawn on a time account due to rare
circumstances, such as due to the death
or incapacity of an account holder.
Paragraph (b)(6)(iv)—Renew al
policies. The act requires institutions to
disclose the “terms and conditions”
applicable to accounts generally, but
does not expressly mandate disclosure
of an institution’s policies about renewal
of time accounts. Section 264(d) of the
act, however, recognizes that the Board
may wish to require information to be
given regarding renewal policies for
time accounts. Thus, the proposal
required institutions to include a
statement of whether or not the time
account will automatically renew at
maturity and, if the account will not
automatically renew, to state whether
interest will be paid on funds not
withdrawn from the institution.
The Board believes it is important for
consumers to be informed whether a
time account will automatically renew,
since time accounts limit the consumer’s
access to his or her funds in a way other
accounts do n o t The Board also
believes it is important for consumers to
know that the consumer must contact
the institution at a later time to renew
an account and whether interest will be
paid on funds after maturity if the
consumer does not renew the account,
in the case of "non-rollover” time
accounts. Thus, the regulation requires
both of these disclosures. For example,
an institution might disclose for a nonrollover time account that “this account
will not automatically renew at maturity
and the funds will be placed in a
noninterest-bearing account” If funds
are placed in an interest-bearing
account, this disclosure does not require
institutions to state the rate that may be
paid. However, if interest is paid for
only a limited period of time, the time
period must be disclosed. (See Model
Clause B—
l(h)(iv)(2) in appendix B.)
Additionally, the Board solicited
comment on whether institutions should
be required to disclose whether an
automatically renewable account has a
“grace period” and the length of such a
period. (See § 230.2(m), defining grace
period as a period following the
maturity of an automatically renewing
time account during which the consumer
may withdraw funds without being
assessed a penalty.) Most commenters
supported a disclosure of grace periods
as important information for consumers.
Thu3, the regulation requires
institutions to inform consumers with
automatically renewable time accounts
whether or not a grace period exists and
the length of such a period. For example,
an institution might disclose, “you may
withdraw the deposited funds without
penalty for 10 calendar days after the
maturity date of this account” This
disclosure does not require institutions
to state whether or not interest will be
paid for the grace period if the funds are
withdrawn. (Rules found in the Board’s
Regulation Q and other federal financial
regulatory agencies’ regulations relating
to the payment of interest following
maturity of a time account are not
affected by this regulation. See 12 CFR
217.3, footnote 1, permitting institutions
to pay interest for up to 10 days after
maturity of a “time deposit” as that
term is defined in Regidation Q, if the
deposit is not renewed.)
Paragraph (b)(7)—Bonuses
The final regulation adds a new
disclosure requirement relating to
bonuses. (See § 230.2(f) for the definition
of "bonus.") The Board believes that the
language in section 262(a) of the act
regarding disclosures about the terms
and conditions of accounts encompasses
bonuses, and that the act’s purposes are
furthered whenconsumers receive
essential information about bonuses
offered on an account Thus, the
regulation requires that institutions
offering bonuses state the amount and
type of bonus, and disclose any
minimnm 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,
institutions need not duplicate the
disclosure for purposes of this
paragraph. The Board believes the
additional disclosure will provide
consumers with important information
without significantly increasing
compliance burdens.
Paragraph (c)—Notice to Existing
Account Holders
Paragraph (c)(1)—N otice o f
availability o f disclosures. Section
266(e) of the act requires institutions to
include a notice on or with any regularly
scheduled periodic statement sent to
existing account holders “within” 180
days of issuance of the regulation.
Account holders who receive periodic
statements must receive the notice.
Institutions are not required to provide
any notice to account holders who do
not receive periodic statements. (This
parallels the approach taken in § 230.6,
in that i f an institution sends a periodic
statement on an account the disclosure
requirements of § 230.6 are triggered.)
The act requires that the notice state
both that the account holder ha3 a right
to request disclosures and that the
consumer may wish to make such a
request. In the proposal, and in the final
regulation, the Board simply requires a
statement that the account holder may
wish to request the disclosures. The
Board believes this adequately alerts
consumers to the availability of
disclosures for their account. However,
some commenters were concerned that
consumers might misinterpret the notice
as implying that account terms had
changed. Institutions may include
additional information with the notice to
alleviate any such concerns, or to
indicate (if applicable) that the
consumer has already received similar
disclosures as required by state law.
The notice must, however, make clear
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
that the consumer may request a copy of
the disclosures. The notice required by
this paragraph need only be provided
once.
Comments received on the proposal
requested guidance on: (1) The
identification of consumer accounts
from the existing records of the
institution. (2) the need to create
disclosures for accounts no longer
offered to the public; and (3) the timing
and format of the notice.
Existing consumer accounts. The
proposal required that notice be
provided to existing account holders. All
individual consumer accounts are
covered by this provision. However, as
discussed earlier in § 230.2(a), accounts
held by an unincorporated nonbusiness
association of natural persons prior to
March 21,1993, are not covered by the
regulation unless the association notifies
the institution that it fits the “consumer”
definition. If the institution is so notified,
the institution must implement the
requirements of the regulation (for
example, beginning to accrue interest no
later than required by § 230.7(c)) within
a reasonable time after the notice is
received. If an institution is notified
before the mandatory compliance date,
institutions are not required to send the
notice required by this paragraph, but
must treat the account as a consumer
account within a reasonable time after
the notification.
Currently offered accounts. The final
rule requires that institutions provide
disclosures only for accounts that are
currently available as of March 21,1993.
(See discussion of paragraph (a)(2) of
this section.) Commenters noted that
many institutions continue to carry
accounts that are no longer offered to
the general public. For example, if an
institution acquires accounts during an
acquisition, it may maintain the
accounts as a courtesy to customers of
the acquired institution, even though the
account type will not be offered
thereafter. The Board does not believe it
was the intent of the Congress to require
tailored disclosures for each and every
existing account, regardless of whether
the account is still offered to customers.
The Board recognizes the significant
cost burden associated with designing
separate disclosures for existing
accounts that are no longer offered, and
the limited use of such disclosures in the
future (as consumers would not be able
to open such an account). The Board
also believes if disclosures for such
accounts were required, institutions
might simply change the terms of
existing accounts to conform them to
accounts currently offered. Thus, the
regulation limits the duty to provide the
notice (and disclosures) to accounts
available to the public as of the
mandatory compliance date of the
regulation.
Timing and form at requirements. In
the proposal, the Board noted that if the
statutory requirements were interpreted
literally, institutions would have to
include a notice to existing account
holders prior to the mandatory
compliance date of the regulation. The
Board solicited comment on whether it
would be preferable for all compliance
duties to begin six months after the
Board has adopted final regulations
(when compliance becomes mandatory).
Virtually all of the commenters
supported a single timing rule for
initiating compliance with the
regulation, noting the difficulty of
providing a notice and having
disclosures ready prior to the mandatory
compliance date of the regulation.
Institutions commented on the act’s
relatively short time frame to implement
operational changes based on the new
regulatory requirements (for example,
balance calculation methods), and
expressed concern that the changes may
not be in place until the mandatory
compliance date. The final rule reflects
the fact that compliance is not required
until six months after the Board adopts
final regulations.
Many commenters sought guidance on
which periodic statement must include
the notice. The final regulation clarifies
that the notice required by this section
may accompany either the first periodic
statement sent after the mandatory
compliance date or the periodic
statement for the first cycle beginning
after that date. The rule applies
regardless of the interval between
periodic statements. For example,
assume an institution’s statement cycle
begins March 15,1993, ends April 14,
and the statement is sent April 15; the
next statement cycle begins April 15,
and ends May 14, and the statement is
sent May 15. The institution may
provide the notice on either the April 15
statement, since it is the first one mailed
after the mandatory compliance date, or
the May 15 statement, since it covers the
first cycle beginning after the mandatory
compliance date.
A number of commenters expressed
interest in providing the notice before
the mandatory compliance date. As a
general matter, institutions may begin
complying with the regulation any time
after its adoption and before the
mandatory compliance date. Therefore,
institutions may provide the notice on a
periodic statement before March 21,
1993, but only if the institution is
prepared to provide account disclosures
43355
upon request as of the date the notice is
sent. This will ensure that the
Congressional intent regarding
availability of disclosures for existing
customers is met. If the institution does
comply before the mandatory
compliance date, it must establish
procedures to ensure that consumers
opening new accounts before that date,
but after the notice is provided to
existing customers, receive account
disclosures.
The final rule tracks the statutory
language by requiring that the notice be
included “on or with” the periodic
statement. The notice can be on an
insert included with the statement, but it
cannot be sent out as a separate mailing.
The notice must state that consumers
may request account disclosures
containing terms, fees, and rate
information for their account, or words
of similar meaning.
If the institution provides the notice of
availability to existing account holders
and the consumer requests disclosures,
the act does not prescribe how
institutions must respond. The proposal
stated that if the institution received a
request, it would have to provide the
account disclosures described in § 230.4,
including the current interest rate and
annual percentage yield for the
consumer’s account. The Board
recognizes that it may be difficult to
distinguish a request for disclosures by
an existing account holder from a
request by a potential customer. Thus,
the final regulation allows institutions to
treat an existing account holder's
request under this paragraph as it would
treat any consumer’s request for
disclosures under paragraph (a)(2) of
this section.
Institutions may, but are not required
to, provide a phone number or address
for existing consumers to use to make
the request for disclosures. If, however,
the request is received in a manner
other than the notice directed, the
institution is still required to provide the
disclosures as specified in paragraph
(a)(2) of this section. The Board believes
that this uniform approach to requests
for disclosures will ease compliance for
institutions and assure consumers of
convenient access to information about
their accounts whether they are existing
or potential customers.
Paragraph (c)(2)—A lternative to
notice. As an alternative to providing
the notice of availability, the final rule
permits institutions to send the account
disclosures themselves, either with the
periodic statement or in a separate
mailing. While the proposal required the
disclosures to be provided with a
periodic statement, many commenters
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Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
noted operational difficulties in
including a full set of account
disclosures with the statement mailing.
Therefore, a revision has been made to
allow a separate mailing. If disclosures
are provided separately from the
periodic statement, however, they must
be sent out no later than when the
notice of availability is required to be
sent after the mandatory compliance
date. Further, institutions that send
multiple account disclosures in lieu of
sending the notice of availability need
not identify which account the consumer
holds, and may send account
disclosures that comply with paragraph
(a)(2) of this section. The Board believes
this rule will ease compliance for those
institutions that go beyond the strict
requirements of the regulation to
provide consumers with the actual
disclosures about their accounts.
Section 230.5—Subsequent Disclosures
The heading for § 230.5 has been
revised from the proposal. As discussed
below, the Board believes that
combining rules relating to disclosures
required subsequent to the account
opening will aid compliance. Thus, the
heading is changed to identify more
accurately the section's content.
Paragraph (a)—Change in Terms
The proposal contained the
requirements for, and the exceptions
from, the advance notice of change in
terms in a single paragraph. For ease of
compliance, the final regulation
separately discusses when notices are
and are not required.
Paragraph (a)(1)—Advance notice
required. Section 266(c) of the act
requires institutions to send a 30-day
advance notice to the consumer of any
change in the items required to be
disclosed in the account disclosures if
the change might reduce the annual
percentage yield or adversely affect the
consumer. The proposal required a
written notice describing the change and
its effective date to be sent 30 days
before the effective date of the change.
The final regulation follows the act and
proposal, but establishes certain
exceptions to the advance notice
requirement, as discussed below.
The notice provision governs changes
in terms in accounts existing when
compliance with the regulation becomes
mandatory, not solely accounts opened
after that date. The regulation does not,
however, require a 30-day advance
notice for a change in terms if this
would require an institvtion to send a
notice prior to the mandatory
compliance date. For example, an
institution is not required to send an
advance notice for a change that
becomes effective March 31,1993, since
that is less than 30 days after the
mandatory compliance date.
Content. The notice requirement
applies only to items of the type
required to be included with the account
disclosures. For example, if an
institution increases the minimum
balance required to earn interest or to
avoid imposition of a fee or increases
the fee it charges for stop payment
orders, an advance notice must be
provided. Similarly, if the interest rate
on a fixed-rate account decreases, the
institution must send a notice in
advance of the scheduled rate change.
(An advance notice of an increase in the
interest rate is not required by the
regulation.) Increases in an institution’s
charge for services not related to an
account, such as for purchasing
traveler’s checks, does not trigger the
notice requirement, since it is not
required to be disclosed under
§ 230.4(b). If a single document
containing disclosures for two types of
accounts was initially provided, and the
institution later changes a term relevant
to only one of the accounts, the change
in terms notice need only be given to
consumers holding that type of account,
and not to the holders of the second type
of account.
Commenters requested guidance on
several issues relating to the notice
requirement. Regarding the format for
the disclosure, the general rules in
§ 230.3(a) apply. Institutions may
include the change in terms disclosure
on a regular periodic statement or in a
special mailing, and may combine
information concerning the changed
term with other information on the same
or separate pages. Institutions that wish
to provide an entire updated account
disclosure may do so as long as the
changes are specifically brought to the
consumer’s attention. For example,
institutions may state that “X" fee has
been changed (including, of course, the
amount of the new fee), or use an
accompanying letter that alerts the
customer to the new fee, or highlight the
changed term in some way. To ensure
that consumers understand when the
change may affect their accounts,
institutions must disclose the effective
date, for example, “as of July 15,1993."
Words similar to “in 30 days” cannot be
used unless the notice clearly indicates
the starting date.
A change in terms notice is not
triggered if changes are specifically
identified in the account disclosures
given initially. For example, if a NOW
account disclosure states that the
monthly service fee of $5.00 is waived
for employee account holders during
their employment but will be assessed
if the account holder is no longer
employed at the institution, no advance
notice is required to begin assessing the
monthly service account fee when the
consumer leaves the employment of the
institution. Similarly, if an account is
opened after an institution has sent a
change in terms notice to its existing
account holders but prior to the effective
date of the change, the institution is in
compliance if the change in terms notice
is provided to the new customers along
with the account disclosures before the
account is opened.
If a change will apply during the
subsequent term of a renewing rollover
time account it i3 not a "change in
terms” requiring a notice under this
paragraph. (See paragraph (b) of this
section, below, for disclosure
requirements for maturing time
accounts.) For time deposits longer than
one month, however, if terms change
during the term of a time account the
30-day notice sw ould have to be
provided.
Pursuant to § 230.3(c), if the term
requiring a notice to be sent is a term
that triggers a change in terms notice
under Regulation E, compliance with the
disclosure and timing requirements of
Regulation E will satisfy the
requirements of this section. (See 12
CFR 205.8, which requires change in
terms notices to be sent at least 21 days
before the scheduled change.)
Paragraph (a)(2)—No notice
required—Paragraph (a)(2)(i)—
Variable-rate changes. The Board
solicited comment on whether an
exception to the change in terms notice
requirements should be made for rate
changes that occur in variable-rate
accounts. Sections 265 and 269(a)(3) of
the act authorize the Board to make
exceptions to the act's requirements for
variable-rate accounts, and the
Committee report accompanying H.R.
2654 of the House Committee on
Banking, Finance and Urban Affairs,
September 12,1991, indicates the change
in terms requirement was not intended
to apply to changes in the interest rate
(and corresponding changes in the
annual percentage yield) for variablerate accounts. (See discussion of this
issue in connection with § 230.2(v),
above.) In the proposal, the Board
expressed concerns about the possibly
burdensome nature of an advance notice
requirement for variable-rate accounts,
and solicited comment on the
advantages and disadvantages of
creating an exception to the rule for
such accounts.
The Board received many responses
to its request for comment and virtually
all of them supported the proposed
Federal Register / Vol. 57, No. 183 / Monday, September 21. 1992 / Rules and Regulations
exception. Many commenters echoed
concerns raised by the Board in the
proposal. Commenters stated that an
advance notice requirement for changes
to the interest rate in variable-rate
accounts would be very burdensome to
administer. They suggested that if
institutions were required to send
advance notices for rate changes in a
declining rate environment, many
institutions would lower the rate more
than they otherwise might to avoid the
cost of sending frequent notices. Thus,
lower rates would be paid to consumers
than would otherwise be the case.
Others stated that such a restraint on an
institution’s ability to make timely
adjustments to its balance sheet raised
safety and soundness concerns.
Commenters also contended that the
regulation’s disclosure requirements (see
§ 230.4(b)(l)(ii)) alert consumers to the
potential for rate changes and their
possible frequency. And for those
accounts for which periodic statements
are sent (such as NOW or money market
accounts), information about the annual
percentage yield earned that is required
under § 230.6(a)(1) will reflect rate
changes that have occurred.
Thus, the Board is relying on its
exception authority in section 265(2) of
the act to farther the purposes of the a c t
For the reasons expressed in the
proposal and discussed above, the
Board finds it necessary to exempt rate
changes for variable-rate accounts from
the advance notice requirements of the
regulation.
In the proposal the Board expressed
its concern that for variable-rate
accounts where periodic statements are
not sent—such as passbook savings
accounts—considerable time may pass
before consumers learn about rate
changes on their accounts. The Board
solicited comment on whether
institutions should be required to send a
notice after the rate is decreased on a
variable-rate account if periodic
statements are not furnished.
Comments were divided, with some
supporting and others opposing afterthe-fact notices. Those who favored a
notice argued that a decrease in rates is
important information for consumers,
and that institutions should be required
to provide the information to consumers
within a reasonable period after the
change occurs. Those who opposed it
were apprehensive about the costs and
burdens involved, and suggested that
institutions would pay lower rates to
mitigate such costs. They also pointed
out that consumers were on notice of the
possibility of rate decreases and could
always contact the institution for
current rates.
Based on comments received and
upon further analysis, the regulation
does not require institutions to provide
an after-the-fact notice of a decrease in
rates for variable-rate accounts for
which no periodic statements are sent.
The Board believes that account
disclosure adequately alert consumers
to potential rate changes and that they
have easy access to current rate
information. Also, the Board recognizes
that the cost of sending notices may
cause institutions to delay or not
implement rate increases in a volatile
rate environment that otherwise might
be passed on to consumers.
Paragraphs (a)(2)(H)— Check printing
fees. The Board is creating a limited
exception to the change in terms notice
requirements for one type of fee
involved in accounts but assessed by
third parties. The Board received many
comments regarding its proposal that
check printing fees be included in the
account disclosures, which would cause
later changes in those fees to trigger the
notice requirements of this section.
Commenters objected to the proposal,
stating that institutions could not assure
compliance with the change in terms
notice provision because vendors
control when price changes become
effective and consumers control when
the fee is imposed (that is, when the
checks are ordered). In light of these
problems the Board believes that,
pursuant to section 269(a)(3) of the act,
an exception to the advance notice
requirement is necessary for fees
assessed by third parties for printing
checks. The exception is narrowly
drawn and is created to facilitate
compliance with the act. Unlike other
fees strictly within the control of
institutions, the amount of check
printing fees is in the control of vendors,
who determine the effective date of
price changes, and consumers, who
decide whether or not to purchase
checks from the vendor associated with
the institution and, if so, what style of
checks will be chosen and when the
checks will be ordered.
Paragraph (a)(2)(iii)—Short-term tim e
accounts. The Board is creating an
exception to the advance notice
requirement for changes in terms for
short-term time accounts, defined as
those with maturities of one month (a
period up to 31 days) or less. As
discussed in paragraph (c) of this
section, the Board is creating an
exception to the advance notice
requirements for rollover time accounts
with maturities of one month or less.
The Board finds a similar exception to
be appropriate for the advance notice
requirement for changes that occur after
43357
an account is opened and prior to the
next scheduled maturity date for both
rollover and nonrollover time accounts
with maturities of one month or less.
Requiring institutions to send a 30-day
advance change in terms notice for such
time accounts is impossible. It would be
burdensome for institutions without
providing meaningful benefits to
consumers holding the time accounts.
(As discussed in paragraph (c) of this
section, however, institutions are
required to send after maturity a
disclosure of any difference in the terms
of the new account as compared to the
terms for the existing account.)
Paragraph (b)—Notice Before Maturity
for Time Accounts Longer Than One
Month That Renew Automatically
Disclosure requirements for time
accounts that automatically renew
without the consumer’s request (for
example, "rollover” certificates of
deposit) were outlined in § 230.4(a)(3) of
the proposal. For ease of compliance, all
rules governing disclosures of pending
maturities and other terms for such time
accounts are contained in paragraphs
(b) and (c) of this section.
For existing rollover time accounts
that mature after the mandatory
compliance date, institutions must start
providing notices after that date, but
need not send notices prior to that time.
For example, if a rollover certificate of
deposit opened in 1992 matures five
days after the mandatory compliance
date, an institution is not required to
send a notice since this would require
an institution to send a notice prior to
the mandatory compliance date of the
regulation. However, an advance notice
would be required if the same account
matured on April 21,1993, a date more
than 30 days after the mandatory
compliance date.
The act requires account disclosures
to be provided to consumers at least 30
days prior to the maturity of a time
account that is renewable without
notice from the consumer. The proposal
required institutions to mail or deliver
the account disclosures described in
§ 230.4(b) to such consumers at least 30
days and not more than 60 days prior to
maturity. The proposal provided an
exception from the advance notice
requirement for rollover time accounts
with maturities of three months or less
(though it required disclosures to be sent
after renewal in such cases). The Board
requested comment on an exception
from the statutory requirements based
on a tiered approach: disclosures would
be sent 30 days prior to maturity for
time accounts with maturities over six
months, 15 days for time accounts with
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Federal Register / Vol. 57, No. 183 / Monday, September 21. 1992 / Rules and Regulations
maturities between one and six months,
and no advance disclosures for time
accounts with maturities less than one
month. The Board also asked for
comment on an alternative approach to
disclosing rate information since rates
typically are not known at the time the
act requires disclosures to be made.
Most comments received byihe Board
on the proposed regulation discussed
the implementation of the statutory
requirement to provide disclosures for
automatically renewable time accounts
in advance of maturity and expressed
considerable concern about the
proposed rule. In particular, comments
focused on (1) an exemption for short
term time accounts, (2) an alternative
timing rule that allows institutions to
provide the information closer to the
scheduled maturity date, and (3) the
content of disclosures, and how to
disclose the annual percentage yield and
interest rate if these rates are not known
when the account disclosures are sen t
With regard to short-term accounts,
commenters said it was impossible to
send notices 30 days in advance of the
first renewal of time accounts with
maturities under 30 days. Further, they
argued that the burden to institutions of
complying exceeded whatever benefit
consumers might receive from a notice
received after the terms had become
obsolete. Others remarked that
consumers who hold such time accounts
are often sophisticated investors who
would find frequent reminders
unnecessary.
Several hundreds of commenters
urged the Board to shorten the timing of
the advance notice for all time accounts.
Based on their institutions’ experiences,
commenters stated that a lead time of 30
days was too long for an effective notice
of maturity, and reported that
consumers preferred to receive
reminders closer to maturity so they
would be less likely to forget when the
time account automatically renewed.
Commenters also questioned whether
consumers benefited from receiving all
of the disclosures prior to maturity even
if none of the terms (other than rates)
had changed. Commenters expressed
concern about the cost and value to
consumers of sending all the disclosures,
especially for short-term time accounts.
The Board finds that creating three
exceptions to the statutory requirement
to provide account disclosures for
automatically renewable time accounts
30 days in advance of maturity is
necessary to facilitate compliance,
benefit consumers and carry out the
purposes of the a c t The final rule
provides that: (1) Disclosures may be
given closer to maturity rather than a
full 30 days in advance as long as at
least a five-day grace period is provided;
(2) maturity notices for time accounts
with maturities of one year or less need
not provide all the information
contained in an account disclosure, but
only the key information and any
changed terms; and (3) no advance
notice is required for time accounts with
maturities of one month or less. The rule
adopted by the Board differs from the
proposal. It addresses many of the
concerns voiced in the comments and
provides flexibility to institutions in
designing their prematurity notices. For
automatically renewable time accounts
with maturities of more than one year,
institutions must provide full account
disclosures as the act requires. If the
scheduled maturity date is one year or
less but more than one month,
institutions must provide key
information and any terms (other than
rates) that may be different on the
renewing account compared to those on
the existing account If the maturity date
is one month or less (a period up to 31
days), advance disclosures are
impracticable to deliver, but institutions
must provide a notice of any changed
terms (other than rates) applicable to a
renewed account within a reasonable
time after renewal.
A lternative timing rule. Many
commenters urged the Board to create
an alternative timing hile to the act’s 30day advance notice requirement that
would allow institutions to provide
advance disclosures closer in time to the
maturity date. Most commenters
believed their existing practice of
sending notices 10 to 15 days in advance
of the scheduled maturity date was
more beneficial to consumers than the
proposed 30-day advance notice. A
number of institutions reported having
changed their practices from 30 days to
a shorter time period in response to
consumer preferences. They suggested
that notices sent far in advance of
maturity are ineffective as reminders
and do not change consumers’ tendency
to begin comparison shopping much
closer to the actual maturity date (or
during the grace period where one is
given) when the renewal rate is known.
The Board agrees. Thus, the regulation
provides a timing rule for advance
disclosures as an alternative to the 30day rule—one that involves a consumer
advantage.
The alternative rule provides a
“sliding scale” of 20 calendar days
advance notice, provided at least a five
calendar day grace period is given. If an
institution provides a grace period of at
least five days on rollover time
accounts, the regulation permits
institutions to provide the required
disclosures 20 days before the end of the
grace period. Thus, if a five-day grace
period were offered, an institution must
send the required disclosures at least 15
days before the maturity date. If an
institution offers a 10-day grace period,
the advance disclosures must be sent at
least 10 days before the scheduled
maturity date. (Of course, the institution
could send the notice more than 10 days
in advance of maturity.)
This alternative provides institutions
with great flexibility in sending notices
closer to maturity. Also, the rule may
encourage institutions who do not offer
grace periods to do so. Most important,
the alternative timing rule benefits
consumers, who will be able to contact
the institution within the grace period
and leam the actual annual percentage
yield and interest rate being offered on
the renewing time account before they
are committed to the renewal. The
alternative may be used by institutions
that provide a grace period of at least
five days. Institutions that do not wish
to offer grace periods of at least five
days must provide the 30-calendar-day
advance notice.
The Board believes this alternative
benefits consumers by providing them
with notices that will be effective
reminders of the upcoming maturity of
their time accounts and useful tools for
comparison shopping at a time when
competing rates and yields are more
likely to be known. Commenters
frequently reported that they offered
grace periods of 7 to 10 days following
maturity and gave advance notices of 7
to 15 days before maturity. Thus, the
alternative rule also provides great
flexibility to many depository
institutions to maintain their existing
advance notice and grace period
schedules. For example, institutions that
currently provide notices 14 days in
advance of maturity and offer a 10-day
grace period could avail themselves of
the alternative timing rule, without
changing their practice.
Paragraph (b)(1)—M aturities o f
longer than one year. If an automatically
renewable time account has a maturity
longer than one year (more than 365
days, or more than 366 days in a leap
year), the regulation tracks the statutory
requirement that institutions provide
consumers with all applicable account
disclosures required for new accounts
(see § 230.4(a)(1)), and adds a disclosure
of the date the existing account matures.
The Board believes consumers need to
be informed of the exact date the
account matures to make timely
decisions about the account. Although
the proposal required full account
disclosures to be given to all consumers
with rollover time accounts with
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
maturities of more than three months,
many commenters urged that a cut-off of
one year was more appropriate and that
is used in the final regulation.
The regulation addresses the problem
presented when advance disclosures are
required to be sent before the interest
rate and the annual percentage yield for
the renewed time account are known.
The Board does not believe the act
requires institutions to “lock in" or
guarantee the rates for an account at the
time of the advance notice. In its
proposal, the Board raised concerns
about a consumer's ability to
comparison shop effectively and the
confiision that might result if consumers
were given the annual percentage yield
and interest rate that were in effect at
the time the notice was sent, but which
would not necessarily apply at maturity.
Commenters shared the Board's
concerns, and supported the proposal of
an alternative disclosure concerning
rate information. The regulation requires
those institutions to state that the
interest rate and the annual percentage
yield for the account have not yet been
determined, the date when they will be
determined, and a telephone number the
consumer can call to obtain the interest
rate and the annual percentage yield
that will be paid if the account renews.
The Board believes consumers are
better served by receiving the actual
annual percentage yield that will apply
to the renewed time account, even if
they must contact the institution to do
so. Furthermore, if institutions were
required to provide rates as of the date
of the notice, consumers would have to
call the institution to determine the
actual annual percentage yield at the
time of renewal anyway. Therefore, the
alternative of including the most recent
annual percentage yield appears to be of
little benefit to consumers.
Paragraph (b)(2)—M aturities o f one
year or less but longer than one month.
Many commenters agreed th a t other
than for automatically renewable time
accounts with very short maturities,
advance notices provided consumers
with a useful reminder about the
upcoming maturity. However, many
questioned the value of repeating full
account disclosures in advance, given
that the key terms of the account—the
annual percentage yield and the interest
rate—were likely to be unknown at the
time the disclosures were given.
Similarly, commenters were skeptical
about the value of providing terms that
remain unchanged, such as the balance
computation method, and pointed out
that terms of time accounts seldom
change except for the rate. They argued
that too much information may not be
helpful to consumers, and urged the
Board to consider alternative
disclosures for automatically renewable
time accounts with maturities that were
not very long.
The regulation therefore provides an
alternative to institutions offering
rollover time accounts bearing
maturities of one year (365 days, or 366
days in a leap year) or less but longer
than one month (31 days). Institutions
may give full account disclosures for
these time accounts as they do for
automatically renewable time accounts
of longer than one year. For example, if
they found it simpler to have a single
procedure, institutions could provide all
account disclosures plus the existing
account’s maturity date for all their time
accounts with maturities greater than
one month.
Alternatively, institutions may
provide an abbreviated notice for these
intermediate-Iength time accounts that
tells the consumer the date the existing
account matures and the maturity date if
the account is renewed, the interest rate
and the annual percentage yield if they
are known (or, if they are not known,
the fact that they have not yet been
determined, the date when they will be
determined, and a telephone number the
consumer can call to obtain that
information), and any change to the
terms required to be disclosed under
§ 230.4(b) when the account was
opened. (Of course, if a change occurred
that would apply to the time account
prior to its scheduled maturity, the
change in terms rules in paragraph (a) of
this section would apply.)
Thus, institutions have great
flexibility in providing disclosures for
rollover time accounts with maturities of
longer than one month and up to one
year. And, whether full or abbreviated
disclosures are provided, the
information may be sent either 30
calendar days before maturity, or 20
calendar days before the end of a grace
period (of at least five days). Thus, if an
institution wishes to offer a five-day
grace period on some automatically
renewable time accounts and a 10-day
grace period on others, this rule permits
the institution to send all notices 15
days prior to maturity, or to establish
separate mailing schedules for each
category.
Paragraph (c)—Notice for Time
Accounts One Month or Less That
Renew Automatically
The legislative history of the act
recognizes that the Board may wish to
establish special rules for short-term
accounts. (See the Committee Report
accompanying HR. 2654, of the House
Committee on Banking, Finance and
43359
Urban Affairs, September 12,1991.) The
Board finds that for automatically
renewable time accounts bearing
maturities of one month or less, the
purposes of the legislation are not
served by requiring advance disclosures
to be provided for renewing accounts. In
the case of very short-term time
accounts such as seven-day certificates
of deposit any advance timing
requirement in excess of seven days is
impossible. Also, the Board is concerned
that the cost of sending notices for
short-term rollover time accounts might
discourage institutions from continuing
to offer such accounts and this could
eliminate a useful investment vehicle for
consumers. Finally, the Board is not
persuaded that consumers benefit by
constantly receiving account
disclosures, particularly of terms that
have not changed. Thus, the regulation
does not require institutions to provide
advance disclosures relating to the
renewal of automatically renewable
time accounts bearing maturities of one
month (31 days) or less.
As proposed, institutions were
required to provide full disclosures at or
after maturity of short-term time
accounts—no later than 10 business
days after such accounts were renewed.
Commenters opposed the proposal for a
variety of reasons. They argued that
disclosures sent after maturity do not
serve as a reminder of the pending
maturity nor do they aid comparison
shopping since consumers likely would
not receive the rates applicable to the
account until after the account was
renewed. Further, commenters suggested
th a t for automatically renewable time
accounts with very short maturities such
as seven days or 30 days, the delivery
and receipt of 52—or even a dozen—
account disclosures each year were
burdensome to institutions and not
useful to consumers. Many commenters
suggested that an exception be created
from any renewal notice requirements
for automatically renewable time
accounts with very short maturities. The
Board agrees that full disclosures may
not be necessary for these short-term
accounts. However, the Board believes
that consumers should be notified if
terms other than rates have changed
since the last renewal. If this were not
required, an institution could change a
feature such as compounding frequency
or the length of a grace period and the
consumer might never receive notice.
The final regulation therefore requires
institutions to provide limited
information to consumers with rollover
time accounts with maturities of one
month (31 days) or less. Institutions are
not required to send notices in advance
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Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
of maturity. However, if a term
disclosed when the account was opened
(other than the interest rate and annual
percentage yield) changes at renewal,
institutions must send a brief notice
describing the change within a
reasonable time after the renewal of the
new account. While this notice may
rarely be sent for short-term time
accounts since non-rate terms seldom
change, the Board believes the provision
refleets Congressional intent to provide
consumers with key information while
accommodating the operational
concerns expressed by commenters.
Paragraph (d)—Notice Before Maturity
for Time Accounts Longer Than One
Year That Do Not Renew Automatically
The act requires that account
disclosures be provided to consumers
prior to the maturity of an automatically
renewable time account but does not
address whether any notice or
disclosures should be provided to
consumers prior to the maturity of a
time account that renews only upon the
consumer’s request. The proposal
required that consumers holding such
accounts with maturities of longer than
three months receive a brief advance
notice that identifies the maturity date
of the time account and explains what
happens to the funds after maturity if
the consumer chooses not to renew the
account. Consumers holding
nonrenewable time accounts with
maturities of three months or less would
not have received advance notices
under the proposal. (If they chose to
reinvest the funds in another time
account however, they would receive a
complete set of disclosures for a new
account.) The Board solicited comment
on three issues:
(1) Should an advance notice be
required for any nonrollover time
account:
(2) If so, should there be an exception
for short-term time accounts; and
(3) If so, what is the appropriate cut
off?
The Board believes it is important for
consumers with time accounts with long
maturities to receive a notice of pending
maturity, especially since a periodic
statement or other reminder may not be
provided. This view was supported by
many commenters, although some
objected to the proposed notice. Most
commenters urged that any notice
requirements for nonrollover time
accounts be consistent with the notice
requirements for automatically
renewable time accounts so that a single
procedure could be adopted for both
categories of accounts. Thus, the rules
adopted are based on the rules
governing automatically renewable time
accounts.
The regulation requires that for
nonrollover time accounts with
maturities of longer than one year (more
than 365 days, or more than 366 in a leap
year), institutions must provide a notice
that states the maturity date of the time
account and whether interest will be
paid on the funds after maturity. The
notice must be mailed at least 10
calendar days before maturity. The
timing rule thus will accommodate
whatever notice procedures an
institution adopts for rollover time
accounts. An institution, for example,
that has a 10-day grace period for its
rollover time accounts and sends
advance disclosures 10 days before
maturity can provide the notice for
nonrollover time accounts using the
same period. Of course, if the institution
sends advance disclosures a full 30 days
before a rollover time account matures,
it may also send this notice 30 days in
advance of maturity for nonrollover time
accounts.
The proposed regulation did not
require any advance notice for
nonautomatically renewable time
accounts bearing maturities of three
months or less. In response to comments
received and upon further analysis, the
Board has increased the cut-off to
maturities of one year or less. First the
notice is not mandated by the act.
Second, consumers are informed at the
time the account is opened when it
matures and whether interest will be
paid on their funds after maturity, and
can be expected to remember this
information for short- and intermediateterm time accounts. Third, the risk to the
consumer who may forget a scheduled
maturity date is not as great as it is for
rollover time accounts; funds from a
matured nonrollover time account will
not be locked in for another term if the
consumer does not act promptly after
maturity. Finally, many commenters
argued that an exemption for shorterterm accounts was desirable, but that
three months was too short a time
period. Thus, the regulation does not
require any advance notice for
nonautomatically renewable time
accounts bearing maturities of one year
or less. If consumers chose to reinvest
the funds in another time account
however, they would receive a complete
set of disclosures for the new account
under the normal timing rules. (See
discussion of S 230.4(a)(1).)
Institutions with existing nonrollover
time accounts with maturities of longer
than one year that mature after the
mandatory compliance date must start
providing notices after that date, but
need not send notices prior to that time.
(This rule parallels the transition rules
for rollover time accounts.) For example,
if an 18-month nonrollover certificate of
deposit matures five days after the
mandatory compliance date, an
institution is not required to send a
notice since this would require an
institution to send a notice prior to the
mandatory compliance date of the
regulation. To ease compliance for
institutions that wish to use a uniform
timing rule of 30 days advance notice for
maturing time accounts, the transition
rule for nonrollover time account
parallels the transition rule for rollover
time accounts with maturities of more
than one year. Thus, institutions need
not send notices under this paragraph
for accounts that mature before April 21,
1993. Nonrollover time accounts that
mature after April 21,1993, must receive
notice at least 10 days in advance of the
scheduled maturity date.
Section 230.6—Periodic Statem ent
Disclosures
Paragraph (a)—General Rule
Section 268 of the act requires
depository institutions to include
specific information on or with each
periodic statement provided to
consumers. The act does not require
periodic statements to be sent by an
institution, but requires that i f an
institution sends a periodic statement
certain information must be included.
(See the definition of “periodic
statement" in § 230.2(q) above.)
This requirement applies to periodic
statements for existing consumer
accounts as of the mandatory
compliance date of the regulation, as
well as to those for new accounts
opened on or after that date. The
disclosures required by this section must
appear on either the first periodic
statement sent on or after March 21,
1993, or the periodic statement sent for
the first cycle that begins on or after that
date. (See discussion under § 230.4(c).)
This reflects the Board's recognition that
some institutions may need to alter
current practices to comply with
requirements of the regulation (changing
balance calculation methods, for
example, from low balance to either
daily balance or average daily balance)
and such changes may not be in place
until the mandatory compliance date of
the regulation.
The disclosures in this section need
be furnished only to the extent
applicable; for example, a periodic
statement for a noninterest-bearing
account need not include either an
interest figure or an annual percentage
yield earned figure. Nor is an annual
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
percentage yield earned required to be
disclosed on the periodic statement for
an interest-bearing account when no
interest is earned during the cycle.
This section has been revised from the
proposal. A new paragraph (b) has been
added to address how disclosures
should be made on periodic statements
where institutions use the average daily
balance method and calculate interest
on a period other than the statement
period (for example, if a statement cycle
is from the 16th of September to the 15th
of October, but interest is calculated on
a calendar month basis).
Paragraph (a)(1)—Annual percentage
yield earned. The act requires that the
annual percentage yield earned be
included on the periodic statem ent The
annual percentage yield for advertising
and opening account disclosures is
calculated as an annualized rate that
reflects the frequency of compounding.
In the proposal, the Board presented and
solicited comments on several options to
determine what would be the most
appropriate way of calculating the
annual percentage yield for the periodic
statement. Based on comments received
and further analysis, the final rule
requires that the annual percentage
yield earned reflect the relation between
the actual interest accrued during the
statement period and the average daily
balance for the same period.
The annual percentage yield earned
incorporates all rate changes that
occurred during the period. It also
produces a single composite figure for
tiered-rate accounts, demonstrating the
effect of the institution's tiering method
on total earnings. Thus, institutions that
pay a lower interest rate on deposits up
to a certain level and a higher rate only
on amounts above the cut-off figure
would show a lower annual percentage
yield earned for a given balance above
the cut-off than would institutions that
pay the same higher rate for the entire
balance in the account. (See appendix
A’s description of the two methods of
tiering.) The annual percentage yield
earned will not reflect any fees imposed
or bonuses earned.
Some commenters favored other
options discussed in the proposal. For
example, several commenters supported
use of a calculation method that would
utilize the same general annual
percentage yield calculation for the
periodic statement as is used for
advertising and initial disclosures (the
third option described in the proposal).
Commenters noted that this figure
allowed consumers to compare the rate
applied to the balance for the period
with currently advertised rates. In
addition, some commenters were
concerned that consumers would be
confused if annual percentage yields
were calculated using different methods
for periodic statements and for
advertisements and account disclosures.
A small number of commenters
favored requiring an annual percentage
yield earned to represent a net earnings
figure including the total interest paid
during the period, adding cash bonuses
paid, subtracting all fees imposed during
the period and dividing the difference by
the average daily balance for the period
to obtain a percentage figure (the second
option in the proposal). These
commenters believed that this figure
provided the most authentic yield figure.
The Board recognizes that the method
chosen for the final rule will not provide
a figure the consumer can use to directly
verify earnings for the period if multiple
interest rates are applied dining the
period. (The third option in the proposal
would not have allowed such direct
verification either unless additional
detail regarding balances and accrual
policies were also required.) The single
figure will not show the actual rate
fluctuations during the period, though
any changes would be captured by the
figure. The Board believes, however,
that this method will most effectively
communicate to consumers the
appropriate information on earnings for
the statement period. It will show in a
single figure how well the consumer’s
account performed during the statement
period, reflecting the true rate earned on
tiered accounts, the impact of rate
changes, and the effect of minimum
balance requirements, while avoiding
the difficulties that could be produced if
fees and bonuses were factored in.
Some commenters stated they would
like to include additional information
about rates on the periodic statement.
For example, some institutions may
want to include a listing of the interest
rates paid during the period, as well as
other information the consumer could
use to verify interest earnings for the
period, such as the periodic interest rate
and daily balances. Neither the act nor
the final rule prohibits including
additional information on or with the
periodic statement. For example, the
interest rates and the periodic interest
rates applied during the period may be
stated.
The Board solicited comment on
whether the rate on the periodic
statement should be identified as the
“annual percentage yield earned" rather
than the “annual percentage yield."
Most commenters favored use of a
distinct term to differentiate the figure
from the "annual percentage yield” used
for both advertisements and opening
account disclosures, although some
commenters argued for consistent
43361
terminology. The Board believes
consumers benefit from a term that
alerts them to the fact the figure on the
periodic statement differs from an
annual percentage yield shown in other
disclosures. Thus, the final rule requires
use of the term "annual percentage yield
earned" on periodic statements.
Paragraph (a)(2)—Amount o f in terest
The act requires that the periodic
statement disclose the amount of
interest “earned" during the period. The
proposed regulation would have
required the periodic statement to
include a dollar figure for the amount of
interest that had been paid during the
statement period. That figure would not
have included accrued interest that had
not been credited to the account during
the period. Many commenters were
concerned that the proposed disclosure
would confuse consumers holding
accounts where the statement cycle is
shorter than the crediting cycle. For
example, where consumers receive
monthly statements on accounts that
credit interest quarterly, the first two
monthly statements in a quarter would
not reflect either an interest amount or
an annual percentage yield earned as no
interest would yet be credited. The third
statement would show interest earned
for the three month period, artificially
inflating the annual percentage yield
earned. Commenters argued this
approach would not provide useful
information to consumers, as the yield
figure would bear little resemblance to
rates advertised or what is actually
being earned during the period. The
Board agrees with this view. Thus, the
final rule requires institutions to show
interest earned during the statement
period, without regard to whether such
interest has been credited to the
account. (See the special rule in
paragraph (b), however, dealing with
institutions that use the average daily
balance method and calculate interest
on a period other than the statement
period.)
The Board solicited comment on
whether cash bonuses paid to the
consumer during the statement period
should be included in the total interest
figure. The majority of commenters
supported the proposed exclusion of
bonuses from the interest figure, given
that the definition of “interest”
(§ 230.2(h)) specifically excludes
bonuses. The final rule maintains this
position. The value of a bonus (or of any
de m inim is consideration of $10 or less
that is excluded from the definition of a
bonus) can be shown separately on the
statement as additional information, but
it cannot be included in the total interest
figure.
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Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
The Board solicited comment on
whether the regulation should require
use of the term “interest” for purposes of
this disclosure. Based on comments
received and upon further analysis, the
final rule does not mandate use of the
word “interest." The Board believes that
the term is widely used in the industry;
thus, requiring the term seems an
unnecessary addition to the regulation.
Also, the Board believes it may be
desirable for institutions to describe
more specifically the treatment of
interest during the period. For example,
if an institution credits interest at the
end of the statement cycle, it could
disclose the figure as the "interest
earned," “interest paid," or "interest
credited.” If an institution shows
interest that was earned during the
statement cycle but which has not yet
been credited (for instance, where it
sends monthly statements credits
quarterly), it may wish to alert the
consumers to this fact so they do not
believe they can access those funds.
Paragraph (a)(3)—Fees imposed.
Section 268(3) of the act requires that
the periodic statement disclose the
amount of any fees or charges imposed
on the account The proposal would
have required the periodic statement to
include all fees of the type required to
be disclosed under § 230.4(b)(4) that,
were imposed during the statement
period Many commenters noted the
difficulty of including fees for services
which the consumer paid for in cash at
the time of the transaction. The final
rule therefore requires that the
institution disclose fees (of the type
required to be disclosed under
§ 230.4(b)(4)) that have actually been
debited from the account during the
period. At the institution's option, fees
that are not imposed in connection with
the account for example, fees paid for a
cashier’s check or for the lease of a safe
deposit box, be included in the periodic
statement as additional information.
The act does not specify whether the
fees should be totaled or itemized. The
Board discussed different methods for
disclosing fees in the proposal, and
proposed requiring an itemization of
fees. Many commenters supported a
flexible rule which would allow
institutions to choose the method of
disclosure. They pointed out for
example, that Regulation E permits
institutions to disclose fees on the
periodic statement as either a total
dollar figure or by itemizing them in part
or in full, at the institution’s option. A
number of commenters noted, however,
that providing only a total dollar figure
for fees imposed during the period
without any explanation would provide
little useful information to consumers.
The final regulation requires
institutions to provide an itemization of
fees by type. The Board believes that a
single figure for all fees would not be as
helpful to consumers as a listing of the
types and amounts of fees imposed
during the cycle. The more summary
approach taken in Regulation E is not
appropriate here where fees cover a
much wider array of services than those
solely relating to electronic funds
transfers.
The regulation does not mandate a
particular format for this disclosure.
Institutions may group together fees of
the same type that were imposed more
than once in the period. For example, all
fees imposed for writing checks during
the period could be stated either as a
single figure, or shown as separate
items. An institution could not, however,
group fees together that are not the same
type—for example providing a single
figure to represent monthly maintenance
fees and excess activity fees. If fees are
grouped, the description must make
clear that the dollar figure represents
more than a single fee, for example,
“total of per-check fees this period.”
Institutions may continue to comply
with the requirements of Regulation E
for fees related to electronic fund
transfers (for example, totaling all
electronic funds transfer fees in a single
figure), but must follow the provisions of
this section with regard to disclosure of
all other account fees.
There is no requirement to segregate
the itemization of fees from the
statement of account activity. Thus,
institutions may integrate the fee
disclosure with other account activity
information reflected on the statement.
The statement must provide sufficient
detail to enable the consumer to identify
the fee. Institutions may use a code to
identify a particular fee on the periodic
statem ent if codes are explained either
on the periodic statement or in
documents accompanying the statem ent
At its option, the institution may also
include the date the fee was debited
from the account
Many commenters requested guidance
regarding disclosure of fees associated
with “tied" or “bundled” accounts. For
example, an institution may require the
consumer to maintain a certain balance
in Account A to avoid the imposition of
a minimum balance fee on Account B
(which, if imposed, is debited from
Account B). Institutions should disclose
the fees on the periodic statement for
the account against which the fees are
actually debited (Account B in this
case).
The Board solicited comment on
whether the regulation should also
require the periodic statement to include
a total fees figure or a net earnings
figure—that is, the total interest earned
less any fees imposed. Most commenters
indicated these additional disclosures
added little to the information provided
to consumers, and presented an
unnecessary burden to institutions. The
final rule does not require either a total
fees figure or a net earnings figure.
Paragraph(a)(4)—Length o f period.
The proposal closely tracked die
statutory language and required that the
total number of days in the statement
period be given on the periodic
statement. The Board solicited comment
on whether providing the beginning and
ending dates for the period would
provide adequate information to
consumers (assuming it is clear whether
or not both of these days are included as
part of the period).
Most commenters supported the
flexibility of being able to choose the
method of disclosing the days in the
period. Many commenters noted that
consumers need to know the beginning
and ending dates for the period to
determine whether a transaction
occurred during the period, possibly
making it a better disclosure than
merely providing the number of days.
The final rule allows institutions to
provide either the total number of days
in the period, or the beginning and
ending dates of the cycle, as long as it is
clear whether or not both of these days
are included in the period. For example,
stating “April 1 through April 30" would
clearly indicate that both April 30 are
included in the period. Several
commenters noted their current
procedure is to provide the ending dates
for both the current and the preceding
cycle (for example, if a statement period
begins May 1 and ends May 31, the
disclosure would be that the preceding
statement ended April 30 and the
current statement ends May 31). This
method would also be acceptable, since
the consumer could readily determine
the number of days in the period.
Paragraph (b)—Special Rule for Average
Daily Balance Method
In response to requests for guidance,
the final regulation contains a new
paragraph addressing how the
disclosures should be made on periodic
statements if interest is determined by
using the average daily balance method
and is calculated based on a period
other than the statement period
Commenters noted that in most cases
interest is calculated and credited for a
period that exactly coincides with the
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
period covered by the statement; in such month, but credits interest quarterly,
would use the rule in this paragraph. In
cases, the calculation and disclosures
are straightforward. In some cases,
such a case, interest earned in each of
however, interest is calculated for a
the three months would be shown on
three succeeding monthly statements
period that differs from the period
(since an average daily balance figure is
covered by the statement. For example,
used to calculate interest each monthly
interest may be calculated for a
statement period); the statement for the
calendar month, whereas the statement
may cover a period from the 16th of one third month of the quarter may, but is
not required to, indicate the interest
month to the 15th of the next month. A
credited for the quarter, in addition to
similar case exists where the statement
the interest earned during the third
is provided covering a calendar month
month. If an institution calculates
but interest is calculated on a quarterly
interest on an average daily balance for
basis. If an institution uses the daily
the quarter, however, an interest figure
balance method, the Board believes
cannot be stated on the monthly
disclosures must be made for the
statements for either of the first two
statement period, since interest is
months of the period since no average
earned for each day of the period, even
daily balance is used to calculate
though it may be credited on a date
interest for those times. Consequendy,
beyond the last day of the statement
no annual percentage yield earned and
period. However, commenters that use
no interest earned figures would be
the average daily balance method to
disclosed on the statements for the first
compute interest asked how to disclose
two months of the quarter. In such a
the amount of interest earned and the
case, the interest earned and the annual
annual percentage yield earned if, for
percentage yield earned provided on the
example, a statement period covers
third monthly statement would be based
April 16th to May 15th, but interest is
on the entire quarterly period.
calculated on a calendar month basis.
This paragraph (and appendix A part (Examples have been added to appendix
II] provides a special rule in these cases: A, part II demonstrating these rules.)
the amount of interest earned for the
Section 230.7—Paym ent o f Interest
interest calculation period and the
Paragraph (a)—Permissible Methods
annual percentage yield earned based
on the average daily balance for that
Paragraph (a)(1)—Balance on which
period shall be disclosed on the
interest is calculated. Section 267(a) of
statement for the period in which the
the act provides that interest on interestinterest calculation period ends. For
bearing accounts shall be calculated by
example, assume an institution uses the institutions “on the fu ll amount o f
average daily balance method based on principal in the account fo r each day of
a calendar month period, and that $5.25
the stated calculation period” at the rate
interest was earned during April, $6.00
disclosed (emphasis added). The
interest was earned during May, and the legislative history states that the
institution sends a statement for the
provision is intended to prohibit
period April 16 through May 15. That
institutions from using certain balance
statement would disclose $5.25 as the
computation methods, such as the "low
interest earned and an annual
balance” or “investable balance”
percentage yield earned based on that
method of computing interest. Although
interest and the average daily balance
a literal reading of this language might
in the account during the month of April. appear to require institutions to
If an institution uses this alternate rule,
calculate interest by using the daily
the length of the interest calculation
balance calculation method (also known
period must be disclosed in addition to
as the day-in-day-out method or day-ofthe length of the statement period. For
deposit-to-day-of-withdrawal method),
example, a statement could disclose the the legislative history confirms that the
statement period of April 16 through
Congress considered the average daily
May 15 and further state that “the
balance method an acceptable
interest earned and the annual
alternative to the daily balance method.
percentage yield earned are based on
The Board proposed to allow both
your average daily balance for the
methods, and, based on further analysis
period April 1 through April 30. ”
and review of the comment letters, is
This special rule applies only if the
adopting this approach in the final rule.
average daily balance on which the
The overwhelming majority of
interest is calculated is known by the
commenters urged the Board to permit
end of the statement cycle. For example, institutions to use the average daily
an institution that sends a statement
balance method as an alternative to the
each calendar month for an account and daily balance method. The Board
calculates interest based on the average believes permitting institutions to use
daily balance method for a calendar
either the daily balance method or the
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average daily balance method is
consistent with the purpose of the
legislation, which is to require that
consumers be paid interest on the full
amount of principal in the account each
day. In addition, the act requires
disclosure of the balance computation
method, which would be unnecessary if
only one method were allowed.
Both methods require institutions to
compute interest by applying a periodic
rate to the full amount of principal in the
account each day. Assuming the same
compounding and crediting frequency,
interest calculated under either method
would be identical in an account with
little or no account activity in the period.
As explained in detail in the
supplementary information to proposed
§ 230.7(a), in most cases, even where
there is significant account activity, both
methods will produce the same or
substantially the same amount of
interest. In some instances the daily
balance method produces a slightly
higher return, and in other situations the
average daily balance method produces
a slightly higher return. As described in
the proposal, in tiered-rate accounts, the
two methods can produce more
significant differences in interest,
depending on account activity—in
particular, depending on whether the
average daily balance falls above or
below the break point in the tiers. In all
cases, however, under the annual
percentage yield earned calculation for
a periodic statem ent any differences in
these methods would be captured.
The final regulation permits
institutions to use either the daily
balance or the average daily balance
method, for several reasons. First, in
most cases the two methods produce the
same or a substantially similar return.
Second, where the results differ, neither
one consistently produces a higher
return. Third, the annual percentage
yield earned calculation for the periodic
statement will capture any differences
between these methods. Fourth,
institutions will be required to disclose
the method they use under § 230.4(b) so
that consumers who prefer one method
over the other will have the necessary
information on which to base their
choices. Fifth, the legislative history
accompanying the legislation
contemplates the use of either method.
Finally, requiring institutions to use the
daily balance method could impose
significant costs on institutions that
would have to change from their current
use of the average daily balance method
without producing any real benefit to
consumers.
"Collected" and "ledger” balances.
Many commenters asked whether the
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Federal Register / Vol. 57, No. 183 / Monday, September 21. 1992 / Rules and Regulations
regulation would permit institutions to
accrue interest (whichever balance
method is used) by using a “collected”
balance method, or whether a "ledger"
balance method must be used. The
Board believes the act does not prohibit
use of a “collected" balance method of
accruing interest. (Section 287(c) of the
act provides that institutions must begin
to accrue interest on deposits no later
than the business day set forth in
section 606 of the EFAA.) Thus,
institutions may begin accruing interest
when the funds are deposited into the
account or a later date as provided by
the EFAA and Regulation CC. (See
§ 230.4(b)(3)(iii) which requires a
disclosure of this policy.)
Use of365-day basis and leap year. In
the proposal the Board stated that the
act requires institutions to pay interest
calculated on each day funds remain on
deposit. For example, for a one-year
time account, interest must be paid on a
365-day basis. Since interest must be
paid each day funds remain on deposit,
the Board believes a daily rate of at
least 1/365 of the interest rate must be
applied to the balance. A footnote has
been added to this siection to reflect this.
Institutions may, however, apply a daily
periodic rate that is greater than 1/365
of the interest rate. For example, an
institution may use a daily periodic rate
of 1/360 of the interest rate, as long as it
is applied 365 days a year.
Some commenters inquired whether
they could continue to compute interest
using a “360/360” basis (that is, using a
periodic rate of 1/360th of the interest
rate and applying that figure to only 360
days in a one-year account). They stated
that currently they use this technique to
enable them to send out uniform
monthly interest payments on some
accounts, such as certificates of deposit.
The Board believes this practice, which
pays interest for only 360 days in a year
and not 365 days, is not permissible
because it fails to apply the disclosed
rate each day of the year.
The Board solicited comment on
whether institutions should be permitted
to use a periodic rate of 1/365 of the
annual rate and a 365-day basis in leap
years that have 366 days. Numerous
commenters urged the Board to adopt
this approach. They argued that
requiring institutions to change their
systems to 1/366 of the annual rate for
those accounts in which February 29
will occur would require significant
modification at great expense for very
little practical difference. Other
commenters urged the Board to permit
institutions to use a 366-day basis when
appropriate. The footnote to this section
clarifies that institutions are permitted
to apply 1/365 of the interest rate for 385
days in a leap year, in light of the
concerns raised. In addition, institutions
are permitted to apply a periodic rate of
1/366 (or 1/365) of the interest rate for
366 days in a leap year, when an "extra"
day of interest will be paid for the
account.
Commenters raised several questions
about the scope of § 230.7(a). A number
of commenters asked whether § 230.7
requires institutions to pay interest
during any grace period offered by an
institution for an automatically
renewable time account if the consumer
decides during the grace period not to
roll over the funds. Commenters also
asked whether, for nonrollover time
accounts, institutions must pay interest
after the account has m atured
Institutions are not required to pay
interest in either of these circumstances.
The Board believes that the act does not
require institutions to pay interest after
the existing account relationship has
ended. Thus, if a consumer with an
automatically renewable time account
chooses not to renew the deposit, the
institution may pay interest for a period
of time after maturity even though the
time account is not renewed, or the
institution may consider the account to
be noninterest-bearing following
maturity. Similarly, institutions may, but
are not required to, pay interest
following the maturity of a time account
that does not automatically renew. (See
footnote 1 of § 217.3 in the Board’s
Regulation Q which permits institutions
to pay interest for up to 10 calendar
days past the maturity of a time deposit
if the time deposit is renewed within 10
calendar days of maturity.)
The Board also believes that
institutions are not required to pay
interest on any principal or interest left
in an account after an account is closed.
Several commenters noted that
consumers may “close out” an account
by mail but unintentionally leave in a
small amount of funds. The Board does
not believe institutions must continue to
pay interest on any such amount if the
account relationship has ended
Commenters also requested that the
Board state that institutions are not
required to send any such remaining
balance to the consumer. Whether the
institution must do so is a question that
must be determined by reference to
state or other law. This regulation does
not address that issue.
Paragraph (a)(2)—Determination o f
minimum balance to earn interest. The
Board believes the Congress did not
intend for institutions to be barred from
establishing minimum balance
requirements that must be met for the
consumer to earn interest, or to earn a
specified rate for tiered balance
accounts. The act expressly requires a
disclosure of any minimum balance
required to earn interest. This provision
would be unnecessary if institutions
were not permitted to establish
minimum balance levels to earn interest.
Under the final regulation, an
institution using a daily balance method
may choose to pay interest on an
account for only those days a minimum
balance is maintained. (Similarly, an
institution using an average daily
balance method may choose to pay
interest for the period only if a specified
average daily balance for the period is
met.) If this practice were not permitted,
the Board believes significant and
fundamental pricing changes would be
made to accounts many of which could
be adverse to the interests of consumers.
For example, tiered-rate and high
minimum balance accounts that
typically pay a higher rate of interest
might not be as available to consumers.
Therefore, the regulation permits an
institution that uses a daily balance
method to provide that it will not pay
interest on the account for those days
the balance drops below the required
daily minimum balance. (Similarly, a
minimum average daily balance may be
established for institutions using that
method)
On the other hand, the Board does not
believe that the act permits an
institution to provide that the consumer
does not earn any interest for a given
period unless the consumer maintains a
minimum balance each day of the entire
period. Most, though not all, commenters
agreed with this position. The Board
believes section 267(a) of the act
prohibits use of this “low balance” type
of method to determine if a consumer
has met a minimum balance requirement
to earn interest.1 For example, an
institution may not provide that a
consumer will earn a 5.00% interest rate
only if the consumer maintains a
minimum balance of $500 for each day
of a specified period or cycle. Such a
practice, in effect, uses a low balance
computation method to calculate
whether interest is earned on an account
at all for the whole period. Permitting
such a practice would enable an
institution to refuse to pay interest even
if a consumer maintained a $10,000
balance for 29 days in a cycle, but
1 The discussion of this provision addresses only
the payment of interest as it relates to the minimum
balance requirement. The supplementary
information accompanying i 230.4(bM*l discusses
the fact that Institutions are not so limited regarding
the assessment of fees and minimum balance
requirements.
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
permitted the balance to drop below
$500 for one day in the same cycle.
Similarly, institutions may not refuse
to pay interest on a portion of a balance
once a consumer has met any required
minimum balance. If an institution sets
its minimum daily balance requirement
to earn interest, for example, at $300 and
a consumer deposits $500, the institution
must pay the stated interest rate on the
full $500, and may not pay interest only
on $200 of that deposit. The Board
believes this practice is contrary to the
statutory requirement and the intent of
the Congress to require payment of
interest at the disclosed rate on the fu ll
amount of principal in the account each
day.
A related issue arises regarding
tiered-rate accounts that use a daily
balance method to determine whether a
minimum balance requirement has been
met. For example, assume an institution
pays and discloses a 5.00% interest rate
on balances below $5,000, and a 6.00%
interest rate on balances of $5,000 and
above. The institution may not pay only
5.00% for the entire cycle if the balance
dropped below $5,000 for a few days
during the cycle—for example, if a
consumer maintained a $10,000 balance
for 29 days in a cycle, but permitted the
balance to drop to $4,999 for two days.
The Board does not believe the act
permits the institution to pay only 5.00%
on $10,000 for 29 days, since the full
amount of principal in the account for 29
days was actually $10,000 and should
earn the stated 8.00% rate.
The Board solicited comment on a
number of technical points. The Board
asked whether institutions should be
required to use a daily balance method
to determine whether a minimum
balance requirement to earn interest has
been met, or may an average daily
balance method be used instead.
Comment also was requested on
whether institutions should be permitted
to use both a daily balance and an
average daily balance measurement in
determining whether a consumer has
met the minimum balance requirement
to earn interest. For example, the Board
asked whether an institution should be
permitted to apply both a $500 daily
balance and a $700 average daily
balance requirement to determine
whether interest is paid on an account
for a particular day. The Board also,
asked whether institutions should be
permitted to determine the balance on
which they calculate interest using one
method and establish the minimum
balance using a different method. For
example, comment was requested on
whether an institution should be
permitted to use the daily balance
method to compute interest but to
require a consumer to meet a minimum
balance by averaging a month’s daily
balances.
Commenters expressed a wide variety
of views on these questions. Many
commenters urged the Board to adopt a
simple, standardized rule. For example,
a number of commenters requested that
the Board require institutions that
calculate interest using the daily
balance method to use the same method
to determine the minimum balance
needed to earn interest Commenters felt
such an approach would provide simple
and clear rules, and consumers would
be able to better understand such an
approach.
Other commenters urged the Board to
permit greater flexibility in the final
regulation, and permit any combination
of methods. Commenters stated that this
was beneficial to institutions and fair to
consumers since the methods used
would be disclosed. These commenters
were concerned with the ability of
institutions to structure accounts with
the greatest flexibility possible.
The Board believes that the act places
limits on the use of certain minimum
balance methods. As noted in the
proposal, the Board does not believe an
institution that uses an average daily
balance method to determine the
balance needed to earn interest is
permitted to refuse to pay interest on the
average balance if the consumer fails to
maintain a daily balance of, for
example, $500 for each day of the cycle.
This is similar to using a low balance
method of computing interest.
The Board believes there are
significant benefits to requiring
institutions to use the same balance
method to calculate interest and to
determine the balance that must be met
to earn interest. Consumers would find
the disclosures easier to understand,
and institutions would have a clear and
simple rule that minimizes potential
compliance errors and civil liability
concerns.
On the other hand, the Board
recognizes the advantages of permitting
institutions to use combinations of the
two methods when the combination
benefits consumers. This would provide
more choices to consumers and more
flexibility to institutions in structuring
accounts. Many commenters requested
that the final regulation permit
institutions to provide that interest is
earned on an account if the consumer
meets either a daily balance or average
daily balance requirement. For example,
institutions that use a daily balance
method for interest calculation asked to
43365
be permitted to offer accounts that pay
interest if the consumer maintains a
$500 daily balance or maintains a S400
(or $600) average daily balance amount
for a specified time period. They argued
such an approach would always benefit
the consumer. While this approach adds
an additional level of complexity to the
regulation, the Board believes this
approach provides benefits to
consumers and greater flexibility to
institutions and should be adopted.
Thus, this section of the final
regulation provides that an institution
must use the same method to determine
any minimum balance required to earn
interest as it uses to determine the
balance on which interest is calculated.
The regulation also provides that an
institution may use an additional
method to determine the minimum
balance to earn interest as long as that
second method is unequivocally
beneficial to the consumer. This means
an institution that uses a daily balance
method to compute interest could
require a consumer to meet either a
specific daily minimum balance to earn
interest or a specific average daily
balance requirement to earn interest.
(Similarly, an institution that uses an
average daily balance method could
require the consumer to meet a specific
average daily balance requirement or a
specific daily balance requirement.)
Thus, an institution using a daily
balance method could choose to pay
interest only for those days the daily
balance was $500 or more. In addition,
the institution could agree to pay
interest to the consumer for those days a
consumer did not maintain a $500 daily
balance, b u t for example, maintained
an average daily balance for a month of
$400 (or $600).
However, institutions are not
permitted under the regulation to require
consumers to maintain both a daily
minimum balance and an average daily
balance to earn interest. For example,
the regulation does not permit
institutions to pay interest (whether they
compute it using a daily balance or
average daily balance method of
accruing interest) only if the consumer,
for example, maintains a $500 daily
balance and a $400 (or $600) average
daily balance. The Board believes
requiring consumers to meet both
requirements to earn interest i&contrary
to the requirement to pay interest on the
full balance in the account, since an
institution, in effect would be using a
low balance method to determine if
interest is paid.
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Federal Register / VoL 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
the Board is revising its position, and
Paragraph (b)—Compounding and
believes that institutions may reserve
Crediting Policies
The substance of this paragraph of the the right not to pay accrued but
uncredited interest for an account if a
regulation is unchanged from the
consumer closes the account prior to the
proposal, though the Board has revised
time accrued interest is credited to the
one interpretation about crediting
account. However, the Board believes
policies, as discussed below. This
section does not mandate the frequency that institutions must pay all accrued
interest to consumers even if some funds
of any compounding. Thus institutions
are withdrawn prior to the crediting
may compound bi-annually, annually,
date, as long as the consumer does not
quarterly, monthly, daily, continuously,
or on any other basis. The compounding close the account. Otherwise, the effect
would be substantially the same as
frequency is required to be disclosed
permitting institutions to pay interest
under § 230.4(b)(2) and is factored into
based on the low balance method, a
the computation of the annual
result clearly unintended by the
percentage yield. (See the discussion of
Congress. Although institutions may not
the annual percentage yield in the
fail to pay accrued interest on
supplementary information
withdrawn funds if the account remains
accompanying appendix A.)
open, institutions need not post or credit
Section 230.7 also does not mandate a
the accrued interest until the established
specific crediting policy. Thus,
posting or crediting date, nor must they
institutions may credit interest earned
permit the consumer to withdraw
on the account on an annual, semi
interest that is earned but not yet
annual, quarterly, monthly, daily or
credited. If the consumer withdraws
other basis. The institution’s crediting
funds before interest is credited (but
policy must be disclosed under
does not close the account), the
§ 230.4(b)(2). An institution may credit
institution may delay payment of the
or post interest to the account at any
accrued interest until the crediting date,
frequency, thus establishing the
but may not refuse to pay the consumer
intervals at which the consumer can
the accrued interest This provision, of
withdraw such interest
course, does not require an institution to
In the proposal, the Board stated that
pay interest for those days the consumer
establishing crediting policies does not
fails to meet a minimum balance
permit an institution to treat accrued but requirement.
uncredited interest as unearned. The
proposal stated that because the act and Paragraph (c)—Date Interest Begins to
proposed regulation require that interest Accrue
accrue based on the full balance in the
Section 267(c) of the act requires that
account each day, the consumer’s
institutions must begin to accrue interest
underlying right to such interest cannot
for all accounts no later than the
be altered. A number of commenters
business day specified in section 608 of
expressed concerns about this
the EFAA (12 U.S.C. 4005), subject to
interpretation, and asked the Board to
subsections 806(b) and 806(c). Thus, the
reconsider its interpretation, particularly Truth in Savings Act provides that the
for accounts that are closed by the
accrual of interest rules in the EFAA
consumer prior to a date accrued
apply to nontransaction accounts, such
interest is credited to an account They
as certificates of deposit, as well as to
believed the Board was interpreting the
transaction accounts covered by the
statutory provision too broadly and
EFAA. The EFAA and the Board’s
stated the Board should give effect to
implementing Regulation CC (12 CFR
section 284(c)(9) of the a c t
part 229) generally require an institution
Based on comments received and
to begin accruing interest when the
upon further analysis, the Board
institution receives credit The Board
believes the duty to pay interest on the
believes a consistent rule is essential for
full balance in the account does not
determining the principal balance on
require institutions to pay interest that
which interest accrues. The final rule, as
has accrued but not been credited if the did the proposal, therefore requires
account is closed by the consumer
institutions to use the methods set forth
between crediting dates. (See paragraph in Regulation CC for determining the
(a)(1) of this section.) Further, as
principal balance. In addition,
discussed in § 23.4(b)(2)(ii), the Board
institutions should rely on Regulation
believes that section 284(c)(9) of the act
CC for determining when a deposit (for
(requiring institutions to state if accrued example, at an ATM) is received. If an
but uncredited interest will not be paid
institution accrues interest on funds
in the event funds are withdrawn from
represented by a deposited check that is
the account), if applied narrowly, is
later returned due to insufficient funds
consistent with the duty to pay interest
on deposit or for another reason, the
on the full balance of the account. Thus, institution would not be required to pay
interest for the time period the check
was outstanding.
While the EFAA establishes the time
institutions must begin to accrue
interest, because of the general rule in
section 267(a) of the act that interest
must be computed on the full amount of
principal in the account for each day,
paragraph (c) of this section also
provides that institutions must accrue
interest on funds until funds are
withdrawn from the account. Thus, if a
check written by the consumer on an
account is debited from the account by
the account-holding institution on a
Wednesday, the institution must accrue
interest on those funds on deposit
through Tuesday. (Because the check is
debited on Wednesday, the balance in
the account that day has been reduced.
Thus, the institution need not pay
interest for Wednesday.)
Section 230.8—Advertising
This section of the regulation
incorporates the advertising provisions
of section 263 of the a c t While the act’s
disclosure rules apply to accounts of all
depository institutions, section 263(a) of
the act’s advertising provisions dealing
with general disclosure rules is phrased
in terms of accounts offered by insured
depository institutions. (Section 263(b)
and (c) of the advertising provisions,
which address special rules for
broadcast media and misleading
advertisements, are not limited to
insured depository institutions.) The
Board’s final rule applies the advertising
provisions to all depository institutions,
whether insured or n o t The Board
believes that the act’s purposes are
furthered if advertisements for deposit
accounts at all depository institutions
are covered by the same rules.
As addressed in § § 230.2(a) and
230.2(k), the advertising rules apply to
deposit brokers, in addition to
depository institutions. Thus, if a broker
places an advertisement that offers to
consumers an interest in an account at
an institution, the advertisement is
covered by this section, even if the
account is held by or on behalf of the
broker. Of course, this section also
covers any advertisement placed by a
broker in which the account at the
institution will be held directly by the
consumer.
The Board requested comment on
whether certain provisions in the
Board’s Regulation Q (12 CFR part 217)
dealing with advertising rules should be
included in this regulation and removed
from Regulation Q. Commenters strongly
endorsed the idea of consolidating the
requirements of these two regulations.
Based on comments received and upon
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
further analysis, the Board is amending
Regulation Q to eliminate its advertising
provisions, effective on the mandatory
compliance date of this regulation. (See
Docket R-0775 elsewhere in today’s
Federal Register.) Institutions that begin
compliance with this regulation prior to
the mandatory compliance date may
rely solely on compliance with the
advertising rules of this regulation.
“maintenance or activity” fee might be
imposed on the account. In response to
commenters who pointed out that the
act limits the prohibition to "regular”
transaction or service fees, the final rule
limits the scope of a maintenance or
activity fee to such charges as, for
example, periodic service charges and
fees imposed to deposit, withdraw or
transfer funds (including per check
charges and fees to use the institution’s
Paragraph (a)—Misleading or Inaccurate
ATMs). A maintenance fee also includes
Advertisements
fees imposed if a minimum balance
The act prohibits institutions from
requirement is not met or if a
making misleading or inaccurate
transaction limit is exceeded. A
advertisements. The proposal solicited
maintenance or activity fee does not
comment on whether examples of what
include fees imposed by a third party to
constitute “misleading or inaccurate
print checks for an account; stop
statements” in an advertisement should payment fees; fees for copies of checks;
be provided with the final rule. Some
fees for checks returned for insufficient
commenters felt examples would be
funds; or fees unrelated to the account
helpful, some felt otherwise, but few
such as a fee for purchasing a cashier’s
offered any specific examples. As
check or traveler's checks.
discussed below, the Board is providing
Many commenters expressed
one example of a misleading
concerns that the Board’s rule, as
advertisement—stating the term "profit” proposed, would unduly restrict the
in conjunction with a deposit account
ability of depository institutions to
Use o f the term "profit"prohibited.
advertise useful cost information to
Section 217.6(f) of the Board’s
consumers because some maintenance
Regulation Q and the deposit account
or activity fees could be imposed. The
advertising rules of the other federal
Board is providing greater flexibility in
financial regulatory agencies for some
response to concerns raised. The act
time have prohibited use of the term
prohibits a reference to an “account” as
“profit” when advertisements refer to
free. Under the final regulation,
interest paid on deposit accounts. The
institutions may refer to a specific
Board requested comment in the
service as "free” or “no cost” (or use
proposed regulation on whether
words of similar meaning). For example,
institutions should be permitted to refer institutions that offer free transactions
to interest paid on an account as
at their ATMs could advertise that fact
“profit," or if the use of the term in
If an account or an account service is
advertisements could mislead
free only for a limited time—for
customers. The overwhelming majority
example, for the first year that an
of commenters agreed that the use of
account is open—this limitation must be
this term would mislead consumers,
stated. The Board believes this approach
since the term implies a return on an
reflects the requirement of the a c t yet
investment—something typically
allows institutions to provide accurate
associated with nondepository
and useful cost information to
investments. Commenters recommended consumers about account features or
that the Board’s final rule retain the
services.
prohibition. The final rule retains this
Potential loss o f principal. Although
prohibition, as the Board believes such a the issue is not addressed in the a c t the
reference would be misleading.
Board's proposed rule contained
Advertising “free" accounts. Section
disclosure requirements for
283(c) of the act prohibits an institution
advertisements regarding deposits that
from advertising an account as a “free”
involve the risk of loss of principal, such
or “no-cost” account if: (1) A regular
as those denominated in a foreign
service or transaction fee may be
currency. As discussed in the
imposed; (2) a fee may be imposed if any supplementary information for
minimum balance requirement is not
§ 230.4(b), the Board believes that such
met; or (3) a fee is imposed if the
information is important but that it
consumer exceeds a specified number of appears the industry currently alerts
transactions. The final regulation
consumers to the risks associated with
reflects these rules, though it provides a such accounts. Thus, the final rule does
different organizational approach from
not require the additional advertising
that in the act.
disclosure.
Under the final rule, institutions are
Paragraph
(b)—Permissible Rates
not permitted to refer to or describe any
account as “free” or “no cost” (or
Section 263(a) of the act provides that
contain a similar term) if any
a reference to a specific interest rate,
43367
yield, or rate of earnings in an
advertisement triggers a duty to state
certain additional information, including
the annual percentage yield. The final
rule, like the proposed regulation,
requires that if any rate or yield is
stated it must be the “annual percentage
yield,” using that term.
Except for the interest rate, no other
rate or yield (such as an “average” or
“aggregate” percentage yield) may be
included in an advertisement. The Board
believes that allowing institutions to
state such other rates or yields would
conflict with the act’s stated purpose of
providing uniform disclosures to enable
consumers to compare accounts. Also,
the Board is concerned that permitting
other rates to be stated would result in
advertisements with a confusing array
of terms and numbers.
The Board’s final rule allows the
"interest rate,” using that term, to
appear in conjunction with (but not
more conspicuously than) the annual
percentage yield. In a minor change to
the proposal (addition of the words “to
which it relates"), the final rule makes
clear that if an interest rate is stated it
must be the one that corresponds to the
particular annual percentage yield
provided.
Special rules fo r tiered-rate accounts.
If an institution states an annual
percentage yield in an advertisement for
a tiered-rate. account it must state all of
the annual percentage yields for each
tier, including those required to be
shown as a range, as well as the
corresponding minimum balance
requirements. (See appendix A for
annual percentage yield calculations for
tiered-rate accounts.) If interest rates
are stated, each interest rate must
appear in conjunction with the
applicable annual percentage yield.
For example, assume an institution
pays a stated interest rate only on that
portion of the balance within the
following specified balance levels (that
is, Tiering Method B described in
appendix A), and compounds interest
daily:
Interest
rate
(per
cent)
Deposit balance required to earn rate
5.25------ Up to but not exceeding $2,500.
5.50------ Above $2,500 but not exceeding
*15,000.
5.75____ Above $15,000 but not exceeding
*100,000.
Computing the figures in accordance
with appendix A, the institution would
have to state the following annual
percentage yields in the advertisements:
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Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
Annual
percentage
yietd {percent)
Balance required
5.39.... ..... ........ Up to but not exceeding $2,500.
5.39 to 5.61___ Above $2,500 but not exceeding
*15,000.
5.61 to 5.87 _
Above $15,000 but not exceeding
*100,000.
Abbreviations. The Board solicited
comment on whether institutions should
be permitted to use the abbreviation
"APY" in advertisements—especially
given the space and time constraints
typically involved in advertisements.
Many commenters felt that
abbreviations of both the annual
percentage yield and the interest rate
should be allowed.
The Board does not believe consumers
will be familiar with the abbreviation
“APY” in advertisements, without
additional explanation. The Board
recognizes, however, that printing or
stating the full term “annual percentage
yield" every time such a rate is provided
in an advertisement could restrict the
use of certain types of media o r impose
significant costs, particularly when
advertising multiple accounts.
The regulation as adopted permits
institutions to abbreviate the annual
percentage yield as "APY’ i f the term is
printed out or stated in full at least once
in an advertisement. For example, if an
advertisement states "we offer a
5.25%Annual Percentage Yield (APY)," it
may refer to that rate as the "APY"
elsewhere in the advertisement.
The final rule does not permit an
abbreviation of “interest rate.” Since
institutions are not required to provide
this rate in advertisements, the Board
does not believe special rules for use of
abbreviations are needed. In addition,
the terminology has been shortened
from “simple interest rate,” as proposed,
to “interest rate,” which the Board
believes will diminish concerns about
using the full term.
Paragraph (c)—When Additional
Disclosures Are Required
Section 283(a) of the act requires
additional information to be provided if
the advertisement refers to a specific
rate of interest yield, or rate of earnings.
The act also imposes special format
rules for tiered-rate accounts. As in the
proposed rule, the final regulation
organizes the rules in a different manner
than contained in the act.
There is no requirement that deposit
account advertisements state an annual
percentage yield figure (unless a bonus
is stated). However, the regulation
provides that a reference to an annual
percentage yield (or a bonus) “triggers”
certain additional advertising
disclosures. If a trigger term is stated,
the advertisement must provide the
disclosures listed in paragraph (c) of this
section in a clear and conspicuous
manner. The Board solicited comment
on whether an institution stating other
information in advertisements—such as
“one, three, and five year CDs
available” or “high rates available”—
should trigger the duty to state the other
terms of the account. Commenters
stated that these types of statements
should not be considered to be triggering
terms, due to the lack of specific
information regarding applicable rates.
The Board agrees. The Board also
requested comment on whether a
reference to a rate such as "we pay the
rate available for 90-day U.S. Treasury
bills” is so closely akin to stating a
specific rate that the advertising
disclosures should be triggered.
Commenters were nearly equally
divided. Based on commenta received
and upon further analysis, the Board
believes the better approach treats such
a statement as a trigger term only when
a specific margin also is stated. Thus, a
reference to a specific index which is
easily determinable and the margin is so
closely akin to stating a rate that
advertising disclosures are required.
Paragraph (c)(1)— Variable rates. The
final regulation requires institutions that
advertise variable-rate accounts to state
that the rate may change after the
account is opened. Although the act
does not expressly require the
statement, section 265(2) authorizes the
Board to prescribe modifications for
advertising rules relating to the annual
percentage yield on variable-rate
accounts. Thus, the Board proposed that
a statement be required for variable-rate
accounts advising consumers that the
rate may change after the account is
opened. Commenters generally agreed
that such a statement would be
appropriate and it is incorporated in the
final regulation.
Paragraph (c)(2)— Time annual
percentage yield is offered. The act and
final regidation require that
advertisements that state the annual
percentage yield also state the period
during which accounts with that annual
percentage yield will be offered. For
example, if an institution only
guarantees a rate for a w eek its
advertisement might state “this annual
percentage yield is available for
accounts opened from June 1 through
June 7." If an advertisement does not
indicate a date through which the
institution guarantees a specific rate, it
must state that the rate is currently
offered “as o f’ a specified recent date.
Paragraph (c)(3)—Minimum balance.
The act requires that advertisements
contain a statement of the applicable
minimum account balance requirements
to obtain the advertised annual
percentage yields. Further, in the case of
tiered-rate accounts, the regulation
tracks the specific statutory requirement
that each annual percentage yield and
the associated minimum balance must
be in close proximity and have equal
prominence. The final rule follows the
act, but in response to comments
received, is revised slightly from the
proposal for clarity, without any change
in substance.
Paragraph (c)(4)—M inimum opening
deposit For clarity, the heading of the
paragraph has been revised slightly
(adding the word "opening”) without
any change in substance of the
paragraph itself.
Paragraph (c)(5)—Effect o f fees. The
heading of the paragraph has been
revised slightly (adding the words
"effect o f’) to better reflect its content.
The act requires deposit account
advertisements to contain a statement
that “fees or other conditions” could
reduce the “yield” on the account. As in
the proposed rule, the final regulation
uses the term "earnings” rather than
yield. The Board believes the term
"earnings” more accurately conveys the
impact of fees on the account, since the
annual percentage yield does not
include fees. Virtually no comments
were received on the Board’s proposal
to limit the scope of the disclosure
requirement to the imposition of
maintenance and activity fees, so it is
adopted as proposed. (See paragraph (a)
of this section discussing "free”
accounts.) Thus, for example, the
statement would appear on
advertisements for interest-bearing
transaction accounts that impose a
monthly service charge, a per-check
charge, or a fee if a minimum balance is
not maintained. However, if the only
fees imposed on the account were fees
other than a maintenance or activity fee
(for example, a stop payment fee or a
fee for a check returned for insufficient
funds), the statement would not be
required.
In response to comments solicited on
the issue, the Board has determined that
the phrase "or other conditions” should
not be retained as part of this notice,
since it appears that the “other
conditions” that affect earnings are
already covered by other parts of the
advertising rules (for example, minimum
balance and time requirements).
Paragraph (c)(6)—Features o f time
accounts. Paragraph (c)(6) has been
revised from the proposal to group
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
together the rules dealing with time
accounts. The final rule reflects the
deletion of one proposed requirement,
which dealt with time accounts with
stated maturities of less than one year.
The proposal required such
advertisements to include a statement
that the disclosed annual percentage
yield assumes all funds will be on
deposit for a full year at the initial
interest rate. Many commenters felt that
this statement is unnecessary. They
argued that the assumption is implicit in
the concept of an annual percentage
yield. They also pointed out that
providing such a statement for a time
account but not, for example, a NOW
account, could raise questions about the
basis of the annual percentage yield on
the latter. Given these concerns and the
fact that the statement is not expressly
required by the act, the Board is not
adopting the proposed rule.
Paragraph (c)(6)(i)— Time
requirements. The act requires that
advertisements state any time
requirement necessary to earn the
advertised yield. Commenters agreed
with the Board’s proposal to limit this
provision to time accounts—since time
requirements to obtain a specific annual
percentage yield are typical only of such
accounts. The wording has been revised
and simplified from the proposal to state
that this provision requires a disclosure
of the term of the time account Thus, if
an institution states an annual
percentage yield in an advertisement for
a one-year certificate of deposit it must
state that time period.
The proposal also required
advertisements to state any lower
annual percentage yield that would have
been earned if funds are withdrawn
prior to meeting the minimum time
requirement. This provision is currently
required by the Board’s Regulation Q.
Many commenters noted that the
requirement would add greater
complexity to the advertising rules
required by the act, and urged the Board
not to incorporate this rule. The Board
has not added this provision to the
regulation.
The Board also solicited comment on
whether to incorporate the current rule
contained in Regulation Q (12 CFR
217.6(d)) that addresses deposits with
time requirements greater than one year.
That rule requires that an advertisement
must state such a time requirement in
equal prominence to the interest rate,
along with any lower interest rate that
will apply if funds are withdrawn prior
to maturity. The Board has not
incorporated this requirement in the
regulation. The Board believes that
consumers are adequately protected
when institutions clearly and
conspicuously state any time
requirement for an annual percentage
yield; thus, drawing special attention to
a time requirement in such cases is
unnecessary.
Paragraph (c)(6)(H)—Early
withdrawal penalties. The act requires
that advertisements include a statement
that an interest penalty will be imposed
for early withdrawal. The act is not
limited to time accounts, and the Board
requested comment on whether this
statement should be required only for
time accounts. Most commenters felt it
should be limited to time accounts.
However, some commenters felt that
consumers should be alerted to the
possibility of penalties for an early
withdrawal from a non-time account,
such as when a bonus is “reclaimed” if
funds are withdrawn before an agreedupon date, or a fee is assessed if an
account is closed within 30 days of
account opening. On balance, the Board
believes that the early withdrawal
penalty provisions should be limited to
time accounts. Information on bonuses
and fees is already provided pursuant to
other advertising provisions;
furthermore, consumers will get
additional, more detailed information
about bonuses and fees when they open
accounts.
The regulation has been revised to
refer to whether a penalty "may or will"
be imposed for early withdrawal. The
change responds to comments from
institutions that impose early
withdrawal penalties on a case-by-case
basis, and permits institutions to
disclose the possibility—rather than the
certainty—of such a penalty. Thus,
institutions may state they “may”
impose a penalty if that more accurately
describes the account they are offering.
The terminology referring to an early
withdrawal penalty is similar to that
found in the a c t but does not include the
word “interest” or the word
“substantial.” Although both terms are
required in § 217.6(e) of the Board’s
Regulation Q, commenters pointed out
that, due to recent changes in the
Board’s Regulation D (12 CFR part 204),
penalties no longer need be
“substantial.” Likewise, commenters
were generally in agreement that the
term “interest” should not be used,
given the possibility of a forfeiture of
principal (for example, if funds are
withdrawn a few days after an account
is opened.)
Paragraph (d)—Bonuses
Although the act does not expressly
require the bonus disclosures found in
the regulation, the Board believes the
additional information is consistent with
43369
the act’s purpose to provide uniform
disclosures to assist in comparing
accounts, particularly when “earnings”
are being advertised. Commenters were
divided on the issue of whether the
statement of a bonus should trigger the
annual percentage yield and the other
disclosures indicated. Many felt, as the
Board does, that consumers may be
misled if full information is included in
advertisements about interest earnings
while bonus “earnings” are not
explained.
As in the proposal, the final regulation
treats bonuses as a trigger term.
However, because the definition of
bonus has been revised in the final rule
(see § 230.2(f)), the advertising
disclosures are not "triggered” unless
the consumer receives something worth
over $10 for a year. This will permit
institutions to offer and advertise
merchandise of a nominal value without
triggering the duty to state other
information.
If a bonus is advertised, institutions
must state any minimum balance that
must be deposited initially or
maintained to obtain the bonus, any
time requirement and when the bonus
will be paid or provided to the
consumer, so that an accurate sense of
the feature is conveyed. Additionally,
the advertisement must state the annual
percentage yield and other applicable
disclosures required by paragraph (c) of
this section. If no interest is paid on the
account no rate information need be
stated in the advertisement. If minimum
balance and time requirements for the
bonus are the same as those otherwise
required to be stated, the disclosures
may be combined.
Paragraph (e)—Exemption for Certain
Advertisements
Section 283(b) of the act authorizes
the Board, if it finds the disclosures to
be unnecessarily burdensome, to exempt
“broadcast and electronic media and
outdoor advertising” from stating any
initial deposit requirement or stating
that fees or other conditions could
reduce the return. The Board solicited
comment on whether such an exemption
should be made, and, if so, whether
these disclosures would place an
unnecessary burden on depository
institutions. The Board also solicited
comment on whether there were
comparable situations (such as “lobby
boards” within depository institutions)
that should be exempted from some of
the advertising provisions and whether
other disclosures could be omitted.
Virtually all commenters expressed
concern that the act’s exemptions were
too limited. Commenters stated that
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Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
without a further relaxation of the
advertising rules, institutions would be
discouraged from advertising products
via broadcast and electronic media,
outdoor advertising, telephone response
machines, and lobby boards, a result
they argued was unintended by the
Congress and detrimental to consumers.
Many commenters noted that presenting
all the required terms on broadcast
media, for example, would involve
significant costs th at in addition to the
potential for civil liability to account
holders for violations of the advertising
rules, imposed a substantial burden
institutions might choose to avoid.
Further, commenters argued that
advertisements that convey so much
detail in a limited time or space are
difficult to comprehend, and, thus, do
not further the Congressional purpose of
helping consumers use information in
advertisements.
Similarly, commenters felt additional
exemptions were appropriate for "lobby
boards"—boards located in the lobby of
an institution which state the current
rates and other key terms for various
deposit accounts. Commenters noted
that abbreviated disclosures would not
harm consumers because their presence
in the lobby ensured that staff were
available to answer any questions about
the details of an account, and to provide
written disclosures upon request. For the
same reasons, commenters also
requested that an exemption be made
for telephone response machines, which
are often used to provide up-to-date
recorded rate information to customers
who initiate a call for that specific
purpose or who are waiting to speak
with staff on unrelated matters.
Based on issues raised by the
commenters and upon further analysis,
the Board is exercising its exception
authority under section 269(a)(3) of the
act to establish a limited exemption
from several of the advertising
provisions for broadcast or electronic
media, such as television or radio;
outdoor media, such as billboards;
telephone response machines; and lobby
boards facing inside an institution or the
offices of a deposit broker. The Board
recognizes the inherent limitations of
time or space in certain media, and
believes the purposes of the act would
be frustrated if burdensome disclosure
requirements caused institutions to
place fewer advertisements that
consumers may use to comparison shop.
The final rule provides that
advertisements made by the use of these
media will remain subject to the
prohibition regarding misleading or
inaccurate advertisements. Rate
information must be disclosed as an
A number of commenters requested
annual percentage yield. In addition, if
additional guidance on the record
an annual percentage yield is stated,
retention requirements. Institutions must
these advertisements must state any
minimum balances required to earn that keep evidence that disclosures were
provided. They may meet this duty by
yield. For time accounts, the term must
demonstrating that they have
also be stated. Although space
constraints may limit the likelihood that established and maintained procedures
for providing disclosures to every
bonuses are mentioned, any
advertisement in these media that states consumer entitled to them under the
a bonus triggers the disclosures required timing rules set forth in the regulation; in
such cases, they must retain sample
by this paragraph, as well as a
disclosures for each account offered to
statement regarding the conditions
consumers. (And, of course, a sample
under which the bonus will be paid and
the time it will be paid. With these rules, notice of any change to the terms of an
consumers will have the key information account would have to be retained.)
Institutions following these procedures
about accounts in all advertisements.
are not required to keep a copy of each
Finally, in the case of lobby boards
disclosure provided to every consumer.
inside a depository institution or a
The Board believes that evidence that
deposit broker’s office, a notice must
an institution has established
also appear on the board advising
procedures for providing disclosures,
consumers that they can obtain further
has followed them, and has retained
information about those accounts. For
sample disclosures will establish
example, the statement could read "ask
compliance with this section.
us for further information about these
A number of commenters asked
accounts,” or words of similar meaning.
whether institutions were required to
Lobby boards placed primarily for
keep a list of consumer requests for
viewing by the general public rather
than consumers inside the institution or information. The Board is not requiring
institutions to keep a “log” of each
deposit broker's office are not exempt
consumer request made for disclosures
from the advertising provisions of this
to comply with the recordkeeping rules
section, since consumers are less likely
Again, maintenance of procedures for
to receive details about the account
providing disclosures upon request and
from customer service representatives.
retention of copies of sample disclosures
Section 230.9—Enforcement and Record will be sufficient.
Retention
Institutions must keep copies of
printed advertisements and of the text
Paragraph (c)—Record Retention
of advertisements that are conveyed by
electronic or broadcast media.
The Board has left unchanged from
Institutions need not retain a copy of
the proposal the language in the
regulation dealing with record retention, each periodic statem ent as long as the
specific information on each statement
but is clarifying a number of issues
(such as the fees, interest and annual
raised by commenters. The regulation
percentage yield earned) can be
requires institutions to retain records
retrieved. Sufficient rate and balance
regarding compliance with their
information must be retained to enable
responsibilities for a minimum of two
examiners to verify the interest paid on
years after disclosures are required to
an account. For periodic statements and
be made or actions are required to be
other disclosures, records may be stored
taken. While the act does not specify a
by use of microfiche, microfilm,
time period, two years is the period
commonly used under the Board’s other magnetic tape, or other methods capable
of accurately retaining and reproducing
consumer regulations (for example,
information (for example, from a
Regulations Z and G). Furthermore,
computer file). The institution need not
given the frequency of examinations by
retain disclosures in hard copy, as long
the enforcement agencies, a record
as it retains enough information to
retention requirement of this length
reconstruct the required disclosures or
should allow examiners adequate
other records.
review of pertinent documentation
during periodic examinations. The
Appendix A —Annual Percentage Yield
record retention requirements apply to
Calculation
all aspects of compliance, including
Appendix A establishes the rules that
advertising provisions. In light of the
institutions must use to calculate the
fact that institutions are subject to civil
liability for violations of the advertising annual percentage yield. The appendix
contains two main parts: Part I
rules the Board believes it is essential
discusses the calculations for account
for the agencies to be able to examine
disclosures and advertisements, and
advertisements as well as disclosures
Part II deals with periodic statement
for compliance.
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
calculations. Part I contains only two
annual percentage yield formulas: A
"general” formula that can be used for
all types of accounts and a “simple”
formula that can be used for those
accounts that have a maturity of one
year, or that have an unstated maturity.
The appendix provides several
examples to illustrate how these
formulas work. The appendix explains
the general rules and describes how
they should be applied in more
complicated accounts, such as steppedrate and tiered-rate accounts. If an
account has two types of features, such
as variable and tiered rates, all
applicable rules must be followed. Part
II contains a single formula for
calculating the annual percentage yield
earned on periodic statements, with no
special rules for multiple rate accounts.
The formulas that appeared in the
proposed appendix provided that the
annual percentage yield reflected only
interest, and did not include the value of
any bonuses. The majority of
commenters supported the proposal,
particularly the exclusion of bonuses
from the formulas. Many commenters
felt that adding bonuses to the formulas
would significantly increase the
complexity of the annual percentage
yield calculation. They were concerned
about determining the value of bonuses
to be used in the calculation, and the
potential for liability if the value was
later disputed.
However, some commenters felt
bonuses should be included in the
calculation of the annual percentage
yield. They believed an annual
percentage yield that included bonuses
would help consumers compare
accounts offering bonuses and those
that do n o t They felt institutions
offering bonuses as part of their
marketing strategy would be placed at a
competitive disadvantage if the annual
percentage yield could not be used to
distinguish the institution from an
institution that does not offer bonuses.
Based on comments received and
upon further analysis, the Board is
adopting the position reflected in the
proposal. The Board believes that
excluding the value of any bonuses from
the calculation of the annual percentage
yield and the annual percentage yield
earned is the better approach. The
Board believes the difficulty of
determining the value of bonuses for
calculating the yields, especially in light
of the potential liability for violations of
the regulation, would significantly
complicate compliance with the
regulation.
As in the proposal, footnote 1 of the
appendix excludes from the calculation
of the annual percentage yield any
43371
As proposed, the final version
provides an accommodation for annual
percentage yield calculations for time
accounts that are offered in multiples of
months. Institutions may base the
number of days on either the actual
numbers of days during the applicable
period, or the number that would occur
in any actual sequence of that many
calendar months. For example, if an
institution offers a six-month certificate
of deposit the institution may calculate
the annual percentage yield based on
the number of days in a particular sixmonth period, or in any six-month
period. This rule is intended to minimize
the need of institutions to recalculate
the annual percentage yield on an
ongoing basis. The regulation requires
institutions that choose to use this
permissive rule to use the same number
of days to calculate the dollar amount of
interest that will be earned on the
account in the annual percentage yield
formula (where “Interest” is divided by
"Principal”). Thus, the institution with
the six-month certificate of deposit
above may base the annual percentage
yield calculation on any number of days
from 181 to 184, since various six-month
periods could contain that range of days.
If the institution chose to use 181 days
Part I. Annual Percentage Yield for
as the "Days in term,” it must also use
Account Disclosures and Advertising
181 days to compute the "Interest" figure
Purposes
used in the formula. An institution may
A. General rules. Commenters who
not use 181 as the "Days in Term” and
addressed this part of the proposed
use an “Interest” figure based on 183
appendix generally agreed with the
days. (The amount of interest paid by
approach taken, and the final version is
the institution must be based on the
adopted very much as proposed, with
actual number of days in the account
revisions as noted below. A few special
due to the requirement to pay interest on
cases were described by commenters
the principal in the account each day.
and guidance was requested on how
(See § 230.7(a) of the regulation.))
they should be handled.
B. Stepped-rate accounts (different
Many institutions permit consumers to
rates apply in succeeding periods).
withdraw accrued interest from time
Several commenters suggested that the
accounts, for example, on a monthly
basis. The Board believes that requiring rules regarding stepped-rate accounts
should apply only to time accounts. For
different annual percentage yield
calculations based on specific consumer example, they questioned whether the
rules should apply to an interest rate on
decisions about whether to withdraw
a transaction account opened by a
interest or leave it in the account until
maturity would significantly complicate consumer but will decrease at some
compliance with the regulation. Thus, if definite future date. While a steppedrate feature typically is offered for time
consumers are permitted but not
accounts, the Board believes a
required to withdraw accrued interest
consistent rule should apply to any
from time accounts, institutions must
account with a stepped-rate feature.
calculate the annual percentage yield
C. Variable-rate accounts. The Board
assuming the interest is not withdrawn
proposed that variable-rate accounts
from the account. (See § 230.4(b)(8)(iii)
with an introductory premium or
for a disclosure of this policy.) If
accrued interest m ust be withdrawn
discount rate must be treated like
stepped-rate accounts. This is, the
from an account that compounds
interest (that is, if an institution does not calculation of the annual percentage
yield must reflect the introductory
permit a consumer to leave accrued
interest rate for the length of time
interest in the account) the annual
percentage yield calculation must reflect provided for in the deposit contract and
the variable interest rate that (but for
such a requirement This is reflected in
the introductory rate) would have been
new footnote 3.
amounts that are determined by
circumstances that may or may not
occur. For example, if an institution
chooses to pay .01% additional interest
for each point scored in a future sporting
event, that potential is not reflected in
the annual percentage yield in
advertisements and account disclosures.
(Of course, if the higher rate is in fact
later paid that would be taken into
account in the annual percentage yield
earned on a periodic statem ent)
Similarly, earnings on an account based
on changes in a stock market indicator
(from the date an account is opened to
the date it matures or is closed, for
example) or in foreign currency
exchange rates would not be reflected in
the annual percentage yield.
The Board proposed that the annual
percentage yield would be calculated by
rounding the figure to the nearest onehundredth of one percentage point and
showing it to two decimal places. The
Board solicited comment on whether a
tolerance should be provided for
calculating the annual percentage yield.
These provisions were supported by
commenters and have been moved to a
new section. (See § 230.3(f) and its
accompanying explanation.)
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Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
in effect when the account was opened
or advertised for the remainder of the
385-day year.
Several commenters asked for
guidance on how to compute the annual
percentage yield for an introductory
premium or discount rate where the
variable interest rate "that would have
been in effect" but for the premium or
discount is not tied to an index, or is not
otherwise known by the institution at
the time the account is advertised or
offered to a consumer.
The final rule addressed this situation.
If, after the introductory rate ends, the
succeeding variable rate will be tied to
an index, the index-based rate in effect
at the time the disclosure is made must
be used for the remainder of the year. If
the succeeding rate is not tied to an
index, the rate currently in effect for
existing consumers holding the same
account who are not receiving the
introductory interest rate must be used
as the assumed rate for the remainder of
the year. If the succeeding rate is not
tied to an index and the “introductory”
rate is offered to both new and existing
consumer account holders with the same
account, the account is simply a
variable-rate account and the steppedrate rules would not apply.
D.Tiered-rate accounts (different
rates apply to specified balance levels).
As in the proposal, the final rule
contains special rules for tiered-rate
accounts {in which two or more interest
rates are applicable to specified balance
levels^ to enable consumers to compare
annual percentage yields for such
accounts. The appendix sets out the two
basic methods of tiering used by
institutions to calculate the interest they
will pay on such accounts.
Tiering M ethod A. In the first method
(shown in the appendix as “Tiering
Method A”), an institution pays the
applicable “tiered” interest rate on the
entire amount of the deposit For
accounts of this type, institutions must
state the annual percentage yield that
applies to each balance tier. In the
example given in the appendix, this
results in disclosure of three separate
annual percentage yields—one for each
tier. Although multiple annual
percentage yields must be stated for
these types of accounts, each annual
percentage yield is calculated according
to the general rule in the appendix.
When annual percentage yields are
computed on this type of tiered-rate
account only one annual percentage
yield figure will apply to any single tier.
Several commenters requested
clarification regarding the amount of the
account balance that institutions should
assume in computing the annual
percentage yield on these types of
accounts. As stated in the final
regulation, within each tier, the annual
percentage yield will not vary within the
amount of principal assumed to have
been deposited. Therefore, for these
types of tiered-rate accounts,
institutions may use any balance
amount within a particular tier in order
to determine the interest amount that
would be paid on balances within that
tier.
Tiering M ethod B In the second
method of calculating interest on tieredrate accounts (shown in the appendix as
‘Tiering Method B”), institutions pay the
applicable tiered interest rate only on
the portion of the deposit balance that
falls within each specified tier, rather
than on the entire amount of the deposit
For institutions that compute interest in
this manner, a range of annual
percentage yields must be provided for
each tier, other than for the first tier—to
accurately reflect how interest is paid.
The low end of each range is figured on
the lowest balance in the tier and the
high end is figured on the highest
balance in the tier.
This approach requires an institution
to use a maximum balance amount that
would apply in order to figure the high
end of the annual percentage yield range
for the highest tier. If the account has no
maximum balance amount, an assumed
balance is required.
The proposed appendix was written
with an assumed high balance of
$100,000 for accounts not otherwise
having a maximum balance amount. The
Board solicited comment on the best
approach for determining the maximum
balance amount of the highest tier, and
suggested the following alternatives:
(1) $100,000, which is the current
amount for which accounts are federally
insured:
(2) Any amount, unless the account
agreement 3ets a maximum limit: or
(3) Any maximum limit set forth in the
account agreement.
Many commenters favored a uniform
rule assuming $100,000 as the maximum
balance. Some commenters expressed
concern that in the absence of a uniform
standard, comparisons of accounts
among institutions would be- more
difficult and consumers could be misled
by annual percentage yields for the
highest tier that assume a very high
maximum balance that consumers are
unlikely to maintain. However, others
felt that an artificial ceiling placed
institutions allowing higher maximum
balances at a competitive disadvantage,
since the higher annual percentage yield
based on the higher maximum balance
could not be disclosed.
Based on the comments received and
upon further analysis, the final
regulation provides that if an institution
limits the maximum balance on an
account that figure should be used as
the highest balance in the highest tier.
Thus, if the maximum balance that can
be on deposit in a tiered-rate account i3
$100,000, institutions would use that
number to figure the annual percentage
yield for the high end of the top tier. If
the tiered account has no maximum
balance, however, the institution may
assume any amount as the maximum
balance am ount The Board believes
th a t while there may be some value in
uniformity for the maximum balance
figure of a tiered-rate account limiting
the maximum balance to a single figure
might not be helpful to consumers. Since
an institution may choose noi to limit
the amount of a deposit requiring the
use of a single figure could be
misleading.
Part IL Annual Percentage Yield Earned
for Periodic Statements
The calculation for the annual
percentage yield earned that appears on
a periodic statement is similar to the
calculation for the annual percentage
yield that appears in advertisements
and account disclosures. The difference
between the two formulas in that the
annual percentage yield earned is tied
directly to the interest and account
balance for the period reflected on the
statement; the annual percentage yield
in account disclosures and
advertisements is not tied to the
consumer’s exact account balance.
In the Board’s proposal, the annual
percentage yield earned reflected “the
relationship between the interest
actually paid and credited to the
consumer’s account during the period
and the average daily balance in the
account for the period" (emphasis
added). Commenters urged the Board to
modify this language. They were
concerned that such a rule would
confuse consumers whose accounts
provide periodic statements more
frequently than they credit interest (for
example, monthly statements with
interest credited quarterly). (See the
discussion accompanying § 230.8.) They
believed that the Congress did not
intend for consumers with such
accounts to receive two monthly
statements during the quarter showing
no interest earnings, and a final monthly
statement showing the interest for all
three months, and an annual percentage
yield earned that reflects three months’
worth of interest paid during the month.
In light of these concerns, the Board
has modified the language in this part of
the appendix (as well as that in § 230.6).
Under the final rule, the annual
Federal Register / Vol. 57, No. 133 / Monday, September 21, 1992 / Rules and Regulations
percentage yield earned is an
annualized rate that reflects the
relationship between the amount of
interest earned on the consumer's
account during the statement period and
the average balance in the account for
the statement period.
Several commenters requested
clarification regarding the proposal’s
requirement that the annual percentage
yield earned relates the amount of
interest earned on a consumer’s account
during the statement period to the
“average daily balance in the account
for the period” (emphasis added).
Commenters were concerned that,
despite the choice of calculation
methods offered in § 230.7(a), the
regulation required the use of the
average daily balance method to comply
with § 230.6. The calculation required by
Part II does not impair an institution’s
choice of balance calculation methods
for the payment of interest. The interest
figure used in the calculation 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.
A number of commenters raised the
problems presented when the statement
period does not coincide exactly with
the interest accrual period. Several
commenters stated that they calculate
interest using a calendar month rather
than the period covered by the
statement cycle. This poses a particular
problem when the average daily balance
method is used. For example, a periodic
statement might cover the period from
June 16 through July 15, and reflect
transactions that occurred during that
period. The institution, however, accrues
interest based on the average daily
balance in the account during the month
of June. The final rule provides that
institutions that use an average daily
balance method and calculate interest
for a period other than the statement
period must reflect on the statement (for
the period during which the interest
calculation period ends) the interest
earned on the account during that other
period (and not during the statement
period) Furthermore, they must base the
annual percentage yield earned on the
balance information that corresponds to
the interest earned. For example, if a
3.50% interest rate (with daily
compounding) is paid on an average
daily balance of $500 in June, interest of
$1.44 is earned in June. The annual
percentage yield earned would be 3.56%,
based on the average daily balance in
the account during June ($500). If the
periodic statement covers June 16
through July 15, the institution would
show the interest earned and the annual
percentage yield earned in June on that
periodic statement. (See discussion of
§ 230.6(b).)
Commenters also asked the Board to
address the situation in which a monthly
statement is issued, but interest is
calculated on a quarterly basis. For
institutions that use the daily balance
method, the final regulation requires
institutions to calculate the annual
percentage yield earned based on
interest earned for the monthly period,
even if the interest is calculated or
credited in a different period. If,
however, an institution calculates
interest on the average daily balance for
the quarter, the average daily balance
cannot be determined when statements
are prepared for the first two months of
the quarter. Therefore, no interest
earned or annual percentage yield
earned would be disclosed on the first
or second monthly statements. The
interest earned for the quarter would be
shown on the statement for the third
month and the annual percentage yield
earned would be figured on the basis of
the quarter. The third example in Part II
of the appendix shows this annual
percentage yield earned calculation.
Appendix B—M odel Clauses and
Sample Forms.
The model clauses and sample forms
in appendix B are intended for optional
use by depository institutions to aid
compliance with the disclosure
requirements of § § 230.4 (account
disclosures), 230.5 (subsequent
disclosures), and 230.8 (advertisements).
Section 269(b) of the act provides that
institutions that use these clauses will
be in compliance with the disclosure
provisions of the act. In addition, use of
any modified version of a model clause
will also be considered in compliance as
long as the institution does not delete
information required by the act or
rearrange the format so as to affect the
substance, clarity, or meaningful
sequence of the disclosure.
As discussed in the supplementary
information to § 230.3(a), the final rule
provides for flexibility in designing the
format of the disclosures Institutions
can choose to prepare a single document
or brochure that incorporates
disclosures for all accounts offered, or
prepare different documents for each
type of account. Institutions may also
use inserts to a document (see Sample
Form B-4) or fill in blanks (see Sample
Forms B-5, B-6 and B-7 which use
double underlining to indicate terms that
have been filled in) to show current
rates, fees or other terms.
43373
The sample forms included in
appendix B illustrate the information
that must be provided to a consumer
when an account is opened under
I 230.4(a)(1). Institutions are given even
greater flexibility in disclosing the
annual percentage yield, the interest
rate, and the maturity of a time account
in responding to a consumer’s request
under § 230.4(a)(2). For disclosures sent
in response to a request the disclosure
may identify the date when the rate and
yield were accurate and provide a
telephone number for consumers to call
to obtain current rate information. In
addition, the maturity of a time account
can be stated as a term, rather than a
date. (See Model Clause B -l (h)(i).)
The regulation allows institutions to
satisfy their requirements under
Regulation DD with disclosures that
meet the requirements of Regulation E
(see § 230.3(c)). The model clauses and
sample forms do not include examples
of disclosures which would be covered
by both this regulation and Regulation E
(for example, disclosing the amount of a
fee for ATM usage). Depository
institutions should consult appendix A
to Regulation E for appropriate model
clauses.
The Board requested comment on
what additional model clauses and
sample forms should be included in
appendix B. Although a number of
commenters requested that the Board
provide a model periodic statement, the
majority of commenters did not believe
including a statement was either
necessary or desirable. Most
commenters encouraged the Board to
allow institutions to independently
develop a periodic statement that meets
the needs of their customers, so long as
it also meets the requirements of the
regulation. The final rule does not
contain model clauses for a periodic
statement.
The Board also requested comment on
whether sample advertisements should
be included in the final rule and whether
the samples provided in the proposal
were useful. Commenters were divided
on whether sample advertisements
should be included. Some supported
including the samples to provide
guidance to institutions on exactly how
to comply with the advertising
requirements of the regulation. These
commenters believed including the
sample advertisements would help to
insulate institutions from civil liability.
Other commenters urged the Board to
delete the sample advertisements. They
believed that providing advertisements
would open institutions up to challenge
by both regulators and consumers when
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Federal Register / VoL 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
an advertisement does not match the
sample form.
The Board believes that since civil
liability may occur due to violations of
the advertising requirements, many
institutions will benefit from including
the samples in the final rule. Other
sample advertisements have not been
added, however.
In the model clauses, italicized words
indicate the type of disclosure an
institution should insert in the space
provided (for example, an institution
might insert "March 25,1993” in the
blank for a “(date)” disclosure).
Brackets and “/ ” indicate an institution
must choose the alternative that
describes its practice (for example,
[daily balance/average daily balance)).
1. B -l M odel Clauses
Clause (a)(i) contains the model
clause describing fixed-rate accounts.
While the proposal required institutions
to disclose the period of time the
interest rate would be in effect for both
fixed- and variable-rate accounts, the
final rule clarifies such a disclosure is
only necessary for fixed-rate accounts.
(See § 230.4(b)(l)(i).)
Clause (a)(ii) contains models for
disclosing a variable-rate account The
proposal included a model clause that
described changing rates based on
“market or other factors,” Many
commenters questioned the usefulness
of such a model as many institutions
determine rate changes internally.
Accordingly, the final rule includes
language describing rate changes made
at the institution’s discretion.
Clause (a)(iii) provides a model clause
to describe a stepped-rate account If a
stepped-rate account is aUo a variablerate account, the institution must
provide the variable-rate disclosures, as
applicable. (See Clause (a)(ii).)
Clause (a)(iv) contains alternative
language for describing tiered-rate
accounts. As explained in appendix A
there are two types of tiered-rate
accounts. The first type (Tiering Method
A) pays the stated interest rate that
corresponds to the applicable deposit
tier on the full balance in the account.
The second type of tiered-rate account
(Tiering Method B) pays the stated
interest rate only on that portion of the
balance within the specified tier. An
institution must provide the disclosure
that describes its method of calculating
interest
Institutions must also disclose
whether a tiered-rate account is a fixedrate or variable-rate account For
example, if it is a fixed-rate account, the
disclosure must include the time period
the rates will be in effect. (See Clause
(a)(i).) If the tiered-rate account is a
variable-rate account the institution
must also provide the variable-rate
disclosures. (See Clause (a)(ii).)
Clause (b)(ii) has been added to
address the situation where the
institution will not pay accrued interest
when the consumer closes the account
before that interest has been credited to
the account
Clauses (c) (i}—(iii) contain models for
disclosing any minimum balance
requirements associated with the
account The regulation requires that the
disclosures state any minimum balance
that is required to open the account
avoid the imposition of fees or obtain
the annual percentage yield disclosed. If
a fee is incurred for not maintaining a
minimum balance, it may be stated
either with this disclosure or with other
fees (or both). The clauses related to the
minimum balance to avoid the
imposition of a fee provide examples
based on the daily balance and the
average daily balance methods.
Institutions are not limited, however, to
those two methods when determining
the minimum balance for imposing a fee.
The disclosure describing the
minimum balance to avoid the
imposition of a fee should specify the
frequency with which the fee may be
assessed. For example, a minimum
balance fee might be assessed monthly,
even if the institution looks at whether
the consumer maintained a certain
balance each day of the month. In such
a case, the disclosure must state the fee
is imposed on a monthly basis.
Clauses (d) (i) and (ii) track the
definitions for daily balance method
(§ 23Q.2(i)) and average daily balance
method {§ 230.2(d)), respectively.
Clause (e) contains models for
disclosing when interest begins to
accrue on noncash deposits. Section
230.7(c) requires institutions to accrue
interest no later than the business day
specified for interest-bearing accounts
in the EFAA and Regulation CC.
Institutions may, however, begin to
accrue interest on the day an item is
deposited (or at some time before being
required to by Regulation CC). The
institution may also disclose additional
information, for example, that deposits
received after 2 p.m. will be credited on
the next business day.
Clause (f) contains a model format for
use in disclosing fees. Section 230.4(b)(4)
requires institutions to disclose either
the amount of any fee that may be
imposed in connection with the account
or provide an explanation of how the fee
will be determined. In addition, the
disclosure must state the conditions
under which the fee may be imposed if
that is not d ea r from the name and
description of the fee. (See discussion of
§ 230.4(b)(4) regarding examples of fees
that may be assessed in connection with
the account.)
Clause (h) contains model language
for the additional disclosures required
by § 230.4(b)(6) for time accounts.
Clause (h)(i) contains alternative
disclosures for describing the maturity
date of a time account The first
alternative (stating a specific date) is
appropriate for a disclosure when an
account is opened. The second can be
used only when providing disclosures in
response to a consumer’s request
The model disclosure in clause (h)(iii)
may be used if an institution compounds
interest and allows consumers to
withdraw interest during the term of the
time account As discussed in
§ 230.4(b)(6)(iii), this disclosure alerts
consumers that the annual percentage
yield assumes interest remains on
deposit until maturity and that if interest
is withdrawn, earnings will be reduced.
The proposal did not require
disclosures for bonuses paid on
accounts. The final rule requires that
institutions offering bonuses state the
bonus and disclose any minimum
balance or time requirement to obtain
the bonus and when the bonus will be
paid. Clause (i) contains the model
clauses for the disclosure requirements
relating to bonuses. The clauses may be
used for both cash and merchandise
bonuses.
2. B-2 M odel Clauses
Model clauses for change in terms
notices are found in B-2. The second
clause, describing a future decrease in
the interest rate and annual percentage
yield is only applicable to fixed-rate
accounts.
3. B-3 M odel Clauses
Commenters requested that model
clauses for the pre-maturity notices for
time accounts be added to the final rule.
The model clauses illustrate the
requirements in § 230.5(b)(2) and
230.5(d). Institutions should refer to
model clauses in B-l and B-2 for other
applicable disclosures.
4. B-4 Sample Form
This sample form illustrates use of a
disclosure form for multiple accounts.
The form has been marked with an “X”
to indicate it is for a NOW account. The
sample form includes both a fee
schedule insert and a rate sheet insert.
The sample thus shows that institutions
may provide current rates on an insert
sheet when the disclosure is given to the
consumer.
The fees shown in this sample (as
well as in B-5 and B-6) where chosen at
Federal Register / Vol. 57, No. 183 / Monday, September 21. 1992 / Rules and Regulations
random and are not intended to
represent any required pricing
standards.
In the rate sheet insert, the
calculations of the annual percentage
yield for the 3-month and 8-month
certificates are based on 92 days and
181 days, respectively.
5. B-6 Sample Form
The proposal did not contain a sample
form for a tiered-rate account. Sample
Form B-6 illustrates a tiered-rate
account which uses Tiering Method A
(discussed in appendix A and Clause
(a)(iv)) to calculate interest The form
uses a narrative description of a tieredrate account Institutions can use a
different format (for example, a chart
similar to the one in B-4), so long as all
of the necessary information for each
tier is clearly presented The form does
not contain a separate disclosure of the
minimum balance required to obtain the
annual percentage yield, as the tieredrate disclosure itself provides that
information.
6. Sample Forms B-6 and B-B
These samples illustrate the
requirements for advertisements found
in § 230.8(c} of the regulation.
Specifically, the samples demonstrate
how certificates of deposit and money
market accounts could be advertised in
compliance with the regulation. The
advertisement for the money market
account (B-9) is for a tiered-rate account
that uses Tiering Method A. This
advertisement does not contain the
disclosure related to a minimum deposit
to open the account (§ 230.8(c)(4)). This
indicates the opening deposit is not
greater than the minimum balance
necessary to obtain the advertised
annual percentage yield.
The final rule does not require as
many advertising disclosures as the
proposal did and the sample
advertisements reflect such changes (see
§ 230.8(c)). In addition, the final rule
allows institutions to use the
abbreviation "APY" if the term is
printed out or stated in full at least once
in an advertisement (see § 230.8(b)).
Finally, while the proposal required that
an advertisement state the period of
time the annual percentage yield is in
effect, the final rule allows the
institution the alternative of providing a
statement that the annual percentage
yield is accurate as of a specified date.
(See § 230.8(c)(2) and Sample Form B-9.)
Appendix C—E ffect on State Laws
This appendix outlines the standards
and process used for state law
determinations. It has been revised to
reflect the fact that the final regulation
applies the inconsistency standard to
state laws requiring actions (for
example, use of particular balance
calculation methods) as well as to state
disclosure laws. (See discussion in
§ 230.1(d).)
Appendix D—Issuance o f S ta ff
Interpretations
The regulation retains the same
method of providing official staff
interpretations to the regulation as is
used for Regulations B, E, and Z—that
is, through a commentary. The Board
proposed to follow the schedule
established for updating several of its
consumer regulation commentaries:
publish changes for public comment in
the autumn, with final rules effective the
following spring, but compliance
optional until the next October. The
Board solicited comment on whether
this approach would be helpful, or
whether issuance of so many proposals
at the same time would be difficult to
deal with, so as to make a different
schedule for this regulation preferable.
Few comments were received on the
issue. The Board therefore plans to
follow its established pattern for other
staff commentaries. An official staff
commentary is expected to be issued in
proposed form in the fall of 1993, and
adopted in final form in the spring of
1994, after an opportunity for public
comment. Thereafter, yearly updates of
the commentary, as needed, would be
contemplated.
Transition Rules
The effective date of the regulation is
September 21.1992, and the mandatory
compliance date is March 21,1993.
Institutions will have to provide
disclosures to any consumer who opens
an account on or after March 21,1993.
Institutions also will have to provide
disclosures for time accounts renewed
thereafter, including automaticallyrenewable accounts that were opened
prior to that date. Similarly, periodic
statement disclosures and change in
term notices would have to be provided
thereafter, as applicable, for consumer
accounts—including those accounts
opened prior to the mandatory
compliance date. Finally, the
substantive provisions regarding the
payment of interest will apply to
consumer accounts existing as of the
mandatory compliance date; they are
not limited to new account holders.
Commenters raised a number of
concerns about the mandatory
compliance date of the regulation, and
particularly about the need for transition
rules for certain existing accounts. To
ensure an orderly introduction of the
protections intended by the Congress
43375
without undue disruption of existing
relationships, the Board is providing a
number of special rules.
Commenters raised concerns about
time accounts opened prior to the
mandatory compliance date. A number
of commenters stated that their existing
practice is to calculate interest based on
a 360-day year (1/360 of the annual rate
paid for 360 days a year). For time
accounts opened prior to the mandatory
compliance date, institutions are not
required to change to a 365-day year
during the remaining term of the
account. Of course, if an account is
renewed on or after the mandatory
compliance date (including
automatically renewable time accounts),
all aspects of the regulation wiil apply at
that point.
Sections 230.5(b), 230.5(c) and 230.5(d)
require institutions to send notices prior
to maturity for rollover and nonrollover
time accounts, but institutions need not
send any notice prior to the mandatory
compliance date. Thus, institutions do
not have to send the prematurity notice
for any existing time account (rollover
or nonrollover) that will automatically
renew within 30 days after the
mandatory compliance date.
Section 230.4(c) requires a notice
about the availability of disclosures to
be given to existing consumer account
holders who receive periodic
statements. Special transition rules
dealing with this section are set forth in
the supplementary information
accompanying that section.
Special transition rules dealing with
accounts held by unincorporated
nonbusiness associations on the
mandatory compliance date and the
duty to provide information on periodic
statements are discussed in the
supplementary information
accompanying § | 230.2(a) and 230.8,
respectively.
(3) Economic impact statement
The Board’s Division of Research and
Statistics has prepared an economic
impact statement on the proposed
regulation. A copy of the analysis may
be obtained from Publications Services,
Board of Governors of the Federal
Reserve System, Washington, DC. 20551,
or by telephone at (202) 452-3245.
(4) Paperwork Reduction Act
In accordance with section 3507 of the
Paperwork Reduction Act of 1980 (44
U.S.C. 35; 5 CFR 1320.13), the
information collection was reviewed by
the Board under the authority delegated
to the Board by the Office of
Management and Budget after
43376
Faderal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
considering comments received during
the public comment period.
A number of commenters believed
that complying with Regulation DD
would place significant paperwork
burdens on institutions, particularly
small institutions. They questioned
whether consumers wanted to receive
such detailed information and stated
that the expense of providing the
disclosures would be passed on to
consumers through decreased interest
rates.
A few commenters reacted to the
specific burden estimates that appeared
in the Federal Register notice for
proposed Regulation DD. They generally
believed that the estimates under
reported the burden, particularly the
time associated with providing complete
disclosures to consumers who are
opening new accounts, and explaining
those disclosures.
The Board recognizes that Regulation
DD will require institutions to perform
annual percentage yield calculations for
the various products offered,
calculations that the institutions
otherwise may not make. In addition,
institutions will have to prepare updated
disclosures as frequendy as needed to
incorporate any movement of interest
rates. To more fully reflect these
responsibilities, the Board has increased
the burden estimates for providing
complete disclosures, whether as part of
opening a new account or in response to
a consumer request.
A detailed description of the
disclosure and recordkeeping
requirements (including the reasons for
them, the institutions that would be
subject to them, and how frequendy
disclosures my be required) is contained
elsewhere in this notice.
The information collection is
mandatory (105 Stat. 2236, 2334). The
requirements will apply to both large
and small institutions. The impact on
small institutions will depend on the
extent and variety of their product
offerings and dieir choice of the various
compliance options offered by the
regulations. Model disclosure forms in
the regulation should somewhat ease
compliance burdens on these
institutions.
The following information about
paperwork burden relates only to the
effect of the regulation on state member
banks. Institutions that will be subject
to Regulation DD other than, state
member banks are supervised by other
federal agencies: the Federal Deposit
Insurance Corporation, the Office of the
Comptroller of the Currency, and the
Office of Thrift Supervision. For
purposes of the Paperwork Reduction
Act, these agencies will report their own
estimates of the paperwork burden
imposed by the Truth in Savings
requirements.
The Board estimates that the
disclosure requirement will result in a
one-time reporting burden of
approximately 200.000 hours and an
annual reporting burden of
approximately 1.7 million hours for state
member banks.
Information Collection
Report title: Recordkeeping and
Disclosure Requirements in
Connection with Regulation DD (Truth
in Savings)
Report num ber n/a
OMB docket number: 7100-0255
Frequency: As needed (or on occasion)
Reporters: State member banks
No. of records
subject to
requirement
Notice to existing account holders(one-time burden)_____ _______ _____________________________
Complete disclosures (Upon request and newaccounts)..................................... ......... .................................
Rollover CDs....................... ...................... .........................................................................................................
Notice for nonrollovar CDs....................... ............. .................................................. ......................... ..... .. ......
Change in terms................................. ....... .................................................................... .............. .....................
Periodic statem ents........................... ................................................................ ............................... ...... .........
Acf/ertismg.............................................................. ..................................................................................... .....
List of Subjects in 12 CFR Part 230
Advertising, Banks, banking.
Consumer protection, Federal Reserve
System, Reporting and recordkeeping
requirements. Truth in savings.
For the reasons set forth in the
preamble and pursuant to authority
granted in section 269 of the Truth in
Savings Act (12 U.S.C. 4301 et seq.;
Public Law 102-242; 105 Stat. 2236), the
Board is amending 12 CFR chapter D by
adding part 230 to read as follows:
PART 230—TRUTH IN SAVINGS
(REGULATION DD)
Sec.
230.1 Authority, purpose, coverage, and
effect on state laws.
230.2 Definitions.
230.3 General disclosure requirements.
230.4 Account disclosures.
230.5 Subsequent disclosures.
230.8 Periodic statement disclosures.
Sec.
230.7 Payment of interest.
230.8 Advertising.
230.9 Enforcement and record retention.
Appendix A to Part 230—Annual Percentage
Yield Calculation
Appendix B to Part 230—Model Clauses and
Sample Forms
Appendix C to Part 230—Effect on State
Laws
Appendix □ to Part 230—Issuance of Staff
Interpretations
Authority: 12 U.S.C. 4301 et seq.
§ 230.1 Authority, purpose, coverage, and
effect on state taws.
(a)
Authority. This part, known as
Regulation DD, is issued by the Board of
Governors of the Federal Reserve
System to implement the Truth in
Savings Act of 1991 (the act), contained
in the Federal Deposit Insurance
Corporation Improvement Act of 1991
8,240,000
3,657,000
800,000
267,000
1,100,000
82,500,000
12,000
Estimated time
per response
1.5 m n.-------5 min.---------1 min...............
1 min.................
1 m ia .~ .......—
1 nun.----------60 min........... —
_
Estimated
total No. ot
hours of
annual
reporting
burden
206,000
304,750
13,334
4,450
18,334
1,375,000
12,000
(12 U.S.C. 4301 et seq., Pub. L. 102-242.
105 Stat. 2236). Information collection
requirements contained in this part have
been approved by the Office of
Management and Budget under the
provisions of 44 U.S.C. 3501 et seq. and
have been assigned OMB No. 7100-0255.
(b) Purpose. The purpose of this part
is to enable consumers to make
informed decisions about accounts at
depository institutions. This part
requires depository institutions to
provide disclosures so that consumers
can make meaningful comparisons
among depository institutions.
(c) Coverage. This part applies to
depository institutions except for credit
unions. In addition, the advertising rules
in § 230.8 of this part apply to any
person who advertises an account
offered by a depository institution,
including deposit brokers.
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
(a) Effect on state laws. State law
requirements that are inconsistent with
the requirements of the act and this part
are preempted to the extent of the
inconsistency. Additional information
on inconsistent state laws and the
procedures for requesting a preemption
determination from the Board are set
forth in appendix C of this part.
43377
Rico, and any territory or possession of
any of the legal public holidays
the United States.
specified in 5 U.S.C. 6103(a).
(h) Consumer means a natural person
(s) Stepped-rate account means an
who holds an account primarily for
account that has two or more interest
personal, family, or household purposes, rates that take effect in succeeding
or to whom such an account is offered.
periods and are known when the
The term also includes an
account is opened.
unincorporated nonbusiness association
(t) Tiered-rate account means an
of natural persons. The term does not
account that has two or more interest
include a natural person who holds an
rates that are applicable to specified
§230.2 Definitions.
account for another in a professional
balance levels.
For purposes of this p a rt the
capacity.
(u) Time account means an account
following definitions apply:
(i) D aily balance m ethod means the
with a maturity of at least seven days in
(a) Account means a deposit account
application of a daily periodic rate to
which the consumer generally does not
at a depository institution that is held by
the full amount of principal in the
have a right to make withdrawals for six
or offered to a consumer. It includes
account each day.
days after the account is opened unless
time, demand savings, and negotiable
(j) Depository institution and
the deposit is subject to an early
order of withdrawal accounts. For
withdrawal penalty of at least seven
purposes of the advertising requirements institution mean an institution defined
in section 19(bj(l)(A)(i)-(vi) of the
in § 230.8 of this part, the term also
days' interest on amounts withdrawn.
Federal
Reserve Act (12 U.S.C. 461),
includes an account ai a depository
(v) Variable-rate account means an
institution that is held by or on behalf of except credit unions defined in section
account
in which the interest rate may
19(b)(l)(A)(iv).
a deposit broker, if any interest in the
change after the account is opened,
(k)
Deposit
broker
means
any
person
account is held by or offered to a
unless the institution contracts to give-at
consumer. The term does not include an who is a deposit broker as defined in
least 30 calendar days advance written
section
29(g)
of
the
Federal
Deposit
existing account held by an
notice of rate decreases.
unincorporated nonbusiness association Insurance Act (12 U.S.C 1831f(g)).
(1) Fixed-rate account means an
§ 230.3 General disclosure requirements.
of natural persons prior to March 21,
account for which the institution
1993, unless the association notifies the
(a) Form. Depository institutions shall
institution that it meets the definition of contracts to give at least 30 calendar
make the disclosures required by
days
advance
written
notice
of
“consumer."
§ § 230.4 through 230.6 of this part, as
decreases in the -interest rate.
(b) Advertisem ent means a
applicable, clearly and conspicuously in
(m)
Grace
period
means
a
period
commercial message, appearing in any
writing and in a form the consumer may
following the maturity of an
medium, that promotes directly or
keep. Disclosures for each account
automatically renewing time account
indirectly the availability of, or a
offered by an institution may be
during which the consumer may
deposit in, an account.
presented separately or combined with
withdraw funds without being assessed
(c) Annual percentage yield means a
disclosures for the institution’s other
a penalty.
percentage rate reflecting the total
accounts, as long as it is clear which
(n) Interest means any payment to a
amount of interest paid on an account,
disclosures are applicable to the
consumer
or
to
an
account
for
the
use
of
based on the interest rate and the
consumer’s account.
frequency of compounding for a 365-day funds in an account, calculated by
(b) General. The disclosures shall
application
of
a
periodic
rate
to
the
period and calculated according to the
reflect
the terms of the legal obligation
balanca The term does not include the
rules in appendix A of this part.
of the account agreement between the
payment of a bonus or other
(d) Average daily balance method
consumer and the depository institution.
means the application of a periodic rate consideration worth $10 or less given
during a year, the waiver or reduction of Disclosures may be made in languages
to the average daily balance in the
other than English, provided the
a fee, or the absorption of expenses.
account for the period. The average
disclosures
are available in English
(o) Interest rate means the annual rate
daily balance is determined by adding
upon request
of interest paid on an account which
the full amount of principal in the
(c) Relation to Regulation E (12 CFR
does not reflect compounding. For the
account for each day of the period and
p a rt205). Disclosures required by and
purposes of the account disclosures in
dividing that figure by the number of
provided in accordance with the
days in the period.
§ 230.4(b)(l)(i) of this part, the interest
rate may, but need not, be referred to as Electronic Fund Transfer Act (15 U.S.C.
(e) Board means the Board of
Governors of the Federal Reserve
the “annual percentage rate” in addition 1601) and its implementing Regulation E
(12 CFR part 205) that are also required
System.
to being referred to as the “interest
by this part may be substituted for the
(f) Bonus means a premium, gift,
rate.''
award, or other consideration worth
(p) Passbook savings account means a disclosures required by this p art
(d) M ultiple consumers. If an account
more than $10 (whether in the form of
savings account in which the consumer
is held by more than one consumer,
cash, credit, merchandise, or any
retains a book or other document in
disclosures may be made to any one of
equivalent) given or offered to a
which the institution records
the consumers.
consumer during a year in exchange for
transactions on the account.
opening, maintaining, renewing, or
(q) Periodic statem ent means a
(e) Oral response to inquiries. In an
increasing an account balance. The term statement setting forth information
oral response to a consumer’s inquiry
does not include interest, other
about an account (other than a time
about interest rates payable on its
consideration worth $10 or less given
account or passbook savings account)
accounts, the depository institution shall
during a year, the waiver or reduction of that is provided to a consumer on a
state the annual percentage yield. The
a fee, or the absorption of expenses.
regular basis four or more times a year.
interest rate may be stated in addition
(g) Business day means a calendar
(r) State means a state, the District of to the annual percentage yield. No other
day other than a Saturday, a Sunday, or Columbia, the commonwealth of Puerto
rate may be stated.
43378
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
(f) Rounding and accuracy rules for
rates and yields—(1) Rounding. The
annual percentage yield, the annual
percentage yield earned, and the interest
rate shall be rounded to the nearest onehundredth of one percentage point (.01%)
and expressed to two decimal places.
For account disclosures, the interest rate
may be expressed to more than two
decimal places.
(2) Accuracy. The annual percentage
yield (and the annual percentage yield
earned) will be considered accurate if
not more that one-twentieth of one
percentage point (.05%) above or below
the annual percentage yield (and the
annual percentage yield earned)
determined in accordance with the rules
in appendix A of this part.
§ 230.4 Account disclosures.
(a) Delivery o f account disclosures—
(1) Account opening. A depository
institution shall provide account
disclosures to a consumer before an
account is opened or a service is
provided, whichever is earlier. An
institution is deemed to have provided a
service when a fee required to be
disclosed is assessed. If the consumer is
not present at the institution when the
account is opened or the service is
provided and has not already received
the disclosures, the institution shall mail
or deliver the disclosures no later than
10 business days after the account is
opened or the service is provided,
whichever is earlier.
(2) Requests, (i) A depository
institution shall provide account
disclosures to a consumer upon request.
If the consumer is not present at the
institution when a request is made, the
institution shall mail or deliver the
disclosures within a reasonable time
after it receives the request.
(ii) In providing disclosures upon
request, the institution may:
(A) Specify an interest rate and
annual percentage yield that were
offered within the most recent seven
calendar days; state that the rate and
yield are accurate as of an identified
date: and provide a telephone number
consumers may call to obtain current
rate information.
(B) State the maturity of a time
account as a term rather than a date.
(b) Content o f account disclosures.
Account disclosures shall include the
following, as applicable:
(1) Rate information—(i) Annual
percentage yield and interest rate. The
"annual percentage yield” and the
“interest rate,” using those terms, and
for fixed-rate accounts the period of
time the' interest rate will be in effect.
(ii) Variable rates. For variable-rate
accounts:
(A) The fact that the interest rate and
annual percentage yield may change:
(B) How the interest rate is
determined;
(C) The frequency with which the
interest rate may change; and
(D) Any limitation on the amount the
interest rate may change.
(2) Compounding and crediting—(i)
Frequency. The frequency with which
interest is compounded and credited.
(ii) Effect o f closing an account. If
consumers will forfeit interest if they
close the account before accrued
interest is credited, a statement that
interest will not be paid in such cases.
(3) Balance information—(i) Minimum
balance requirements. Any minimum
balance required to:
(A) Open the account;
(B) Avoid the imposition of a fee; or
(C) Obtain the annual percentage
yield disclosed.
Except for the balance to open the
account, the disclosure shall state how
the balance is determined for these
purposes.
(ii) Balance computation method. An
explanation of the balance computation
method specified in § 230.7 of this part
used to calculate interest on the
account.
(iii) When interest begins to accrue. A
statement of when interest begins to
accrue on noncash deposits.
(4) Fees. The amount of any fee that
may be imposed in connection with the
account (or an explanation of how the
fee will be determined) and the
conditions under which the fee may be
imposed.
(5) Transaction lim itations. Any
limitations on the number or dollar
amount of withdrawals or deposits.
(6) Features o f tim e accounts. For time
accounts:
(i) Time requirements. The maturity
date.
(ii) Early withdrawal penalties. A
statement that a penalty will or. may be
imposed for early withdrawal, how it is
calculated, and the conditions for its
assessment.
(iii) W ithdrawal o f interest prior to
maturity. If compounding occurs during
the term and interest may be withdrawn
prior to maturity, a statement that the
annual percentage yield assumes
interest remains on deposit until
maturity and that a withdrawal will
reduce earnings.
(iv) Renew al policies. A statement of
whether or not the account will renew
automatically at maturity. If it will, a
statement of whether or not a grace
period will be provided and, if so, the
length of that period must be stated. If
the account will not renew
automatically, a statement of whether
interest will be paid after maturity if the
consumer does not renew the a c c o u n t
must be stated.
(7) Bonuses. The amount or type of
any bonus, when the bonus will be
provided, and any minimum balance
and time requirements to obtain the
bonus.
(c) N otice to existing account
holders—(1) N otice o f availability o f
disclosures. Depository institutions shall
provide a notice to consumers who
receive periodic statements and who
hold existing accounts of the type
offered by the institution on March 21,
1993. The notice shall be included on or
with the first periodic statement sent on
or after March 21,1993 (or on or with the
first periodic statement for a statement
cycle beginning on or after that date).
The notice shall state that consumers
may request account disclosures
containing terms, fees, and rate
information for their account. In
responding to such a request,
institutions shall provide disclosures in
accordance with paragraph (a)(2) of this
section.
(2) A lternative to notice. As an
alternative to the notice described in
paragraph (c)(1) of this section,
institutions may provide account
disclosures to consumers. The
disclosures may be provided either with
a periodic statement or separately, but
must be sent no later than when the
periodic statement described in
paragraph (c)(1) is sent.
§ 230.5 Subsequent disclosures.
(a) Change in terms—(1) Advance
notice required. A depository institution
shall give advance notice to affected
consumers of any change in a term
required to be disclosed under § 230.4(b)
of this part if the change may reduce the
annual percentage yield or adversely
affect the consumer. The notice shall
include the effective date of the change.
The notice shall be mailed or delivered
at least 30 calendar days before the
effective date of the change.
(2) No notice required. No notice
under this section is required for:
(i) Variable-rate changes. Changes in
the interest rate and corresponding
changes in the annual percentage yield
in variable-rate accounts.
(ii) Check printing fees. Changes in
fees assessed by third parties for check
printing.
(iii) Short-term time accounts.
Changes in any term for time accounts
with maturities of one month or less.
(b) N otice before m aturity fo r time
accounts longer than one month that
renew automatically. For time accounts
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
with a maturity longer than one month
that renew automatically at maturity,
institutions shall provide the disclosures
described below before maturity. The
disclosures shall be mailed or delivered
at least 30 calendar days before
maturity of the existing account.
Alternatively, the disclosures may be
mailed or delivered at least 20 calendar
days before the end of the grace period
on the existing account, provided a
grace period of at least five calendar
days is allowed.
(1) M aturities o f longer than one year.
If the maturity is longer than one year,
the institution shall provide account
disclosures set forth in § 230.4(b) of this
part for the new account, along with the
date the existing account matures. If the
interest rate and annual percentage
yield that will be paid for the new
account are unknown when disclosures
are provided, the institution shall state
that those rates have not yet been
determined, the date when they will be
determined, and a telephone number
consumers may call to obtain the
interest rate and the annual percentage
yield that will be paid for the new
account.
(2) M aturities o f one year or less but
longer than one month. If the maturity is
one year or less but longer than one
month, the institution shall either:
(i) Provide disclosures as set forth in
paragraph (b)(1) of this section; or
(ii) Disclose to the consumer
(A) The date the existing account
matures and the new maturity date if the
account is renewed;
(B) The interest rate and the annual
percentage yield for the new account if
they are known (or that those rates have
not yet been determined, the date when
they will be determined, and a
telephone number the consumer may
call to obtain the interest rate and the
annual percentage yield that will be
paid for the new account); and
(C) Any difference in the terms of the
new account as compared to the terms
required to be disclosed under § 230.4(b)
of this part for the existing account.
(c) N otice fo r tim e accounts one
month or less that renew automatically.
For time accounts with a maturity one
month or less that renew automatically
at maturity, institutions shall disclose
any difference in the terms of the new
account as compared to the terms
required to be disclosed under S 230.4(b)
of this part for the existing account,
other than a change in the interest rate
and corresponding change in the annual
percentage yield. The notice shall be
mailed or delivered within a reasonable
time after the renewal.
(d) N otice before m aturity fo r time
accounts longer than one year that do
not renew automatically. For time
accounts with a maturity longer than
one year that do not renew
automatically at maturity, institutions
shall disclose to consumers the maturity
date and whether interest will be paid
after maturity. The disclosures shall be
mailed or delivered at least 10 calendar
days before maturity of the existing
account.
§ 230.6 Periodic statement disclosures.
(a) General rule. If a depository
institution mails or delivers a periodic
statement, the statement shall include
the following disclosures:
(1) Annual percentage yield earned.
The “annual percentage yield earned”
during the statement period, using that
term, calculated according to the rules in
Appendix A of this part.
(2) Am ount o f interest. The dollar
amount of interest earned during the
statement period.
(3) Fees imposed. Fees required to be
disclosed under § 230.4(b)(4) of this part
that were debited to the account during
the statement period. The dollar
amounts of the fees shall be itemized by
type and dollar amounts.
(4) Length o f period. The total number
of days in the statement period, or the
beginning and ending dates of the
period.
(b) Special rule fo r average daily
balance method. In making the
disclosures described in paragraph (a) of
this section, institutions that use the
average daily balance method and that
calculate interest for a period other than
the statement period shall calculate and
disclose the annual percentage yield
earned and amount of interest earned
based on that period rather than the
statement period. The information in
paragraph (a)(4) of this section shall be
stated for that period as well as for the
statement period.
43379
method that is unequivocally beneficial
to the consumer.
(b) Compounding and crediting
policies. This section does not require
institutions to compound or credit
interest at any particular frequency.
(c) Date interest begins to accrue.
Interest shall begin to accrue not later
than the business day specified for
interest-bearing accounts in section 608
of the Expedited Funds Availability Act
(12 U.S.G. 4005 et seq.) and
implementing Regulation CC (12 CFR
part 229). Interest shall accrue until the
day funds are withdrawn.
§ 230.8 Advertising.
(a) M isleading or inaccurate
advertisements. An advertisement shall
not be misleading or inaccurate and
shall not misrepresent a depository
institution's deposit contract. An
advertisement shall not refer to or
describe an account as "free” or "no
cost" (or contain a similar term) if any
maintenance or activity fee may be
imposed on the account. The word
“profit" shall not be used in referring to
interest paid on an account.
(b) Perm issible rates. If an
advertisement states a rate of return, it
shall state the rate as an “annual
percentage yield” using that term. (The
abbreviation “APY" may be used
provided the term "annual percentage
yield” is stated at least once in the
advertisement.) The advertisement shall
not state any other rate, except that the
“interest rate," using that term, may be
stated in conjunction with, but not more
conspicuously than, the annual
percentage yield to which it relates.
(c) When additional disclosures are
required. Except as provided in
paragraph (e) of this section, if the
annual percentage yield is stated in an
advertisement, the advertisement shall
state the following information, to the
extent applicable, clearly and
§ 230.7 Payment of Interest
conspicuously:
(a) Perm issible methods—(1) Balance (1) Variable rates. For variable-rate
on which interest is calculated.
accounts, a statement that the rate may
Institutions shall calculate interest on
change after the account is opened.
the full amount of principal in an
(2) Time annual percentage yield is
account for each day by use of either the offered. The period of time the annual
daily balance method or the average
percentage yield will be offered, or a
daily balance method.1
statement that the annual percentage
(2) Determination o f minimum
yield is accurate as of a specified date.
balance to earn interest An institution
(3) M inimum balance. The minimum
shall uss the same method to determine
balance required to obtain the
any minimum balance required to earn
advertised annual percentage yield. For
interest as it uses to determine the
tiered-rate accounts, the minimum
balance on which interest is calculated.
balance required for each tier shall be
An institution may use an additional
stated in close proximity and with equal
prominence to the applicable annual
1 Institutions shall calculate interest by use of a
percentage yield.
daily rate of at least V4«« of the interest rate. In a
(4) M inimum opening deposit The
leap year a daily rate of Vs«« of the interest rate
minimum deposit required to open the
may be used.
43380
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
account, if it is greater than the
minimum balance necessary to obtain
the advertised annual percentage yield.
(5) Effect o f fees. A statement that
fees could reduce the earnings on the
account.
(6) Features o f tim e accounts. For time
accounts:
(i) Time requirements. The term of the
account.
(ii) Early withdrawal penalties: A
statement that a penalty will or may be
imposed for early withdrawal.
(d) Bonuses. Except as provided in
paragraph (e) of this section, if a bonus
is stated in an advertisement, the
advertisement shall state the following
information, to the extent applicable,
clearly and conspicuously:
(1) The “annual percentage yield,"
using that term;
(2) The time requirement to obtain the
bonus;
(3) The minimum balance required to
obtain the bonus;
(4) The minimum balance required to
open the account, if it is greater than the
minimum balance necessary to obtain
the bonus; and
(5) When the bonus will be provided.
(e) Exemption fo r certain
advertisements. If an advertisement is
made through one of the following
media, it need not contain the
information in paragraphs (c)(1), (c)(2),
(c)(4), (c)(5), (c)(6)(ii), (d)(4), and (d)(5) of
this section:
(1) Broadcast or electronic media,
such as television or radio;
(2) Outdoor media, such as billboards;
(3) Telephone response machines; or
(4) Lobby boards inside a depository
institution or deposit broker (provided
they contain a notice advising
consumers to contact an employee for
further information).
§ 230.9 Enforcement and record retention.
(a) Adm inistrative enforcement.
Section 270 of the act contains the
provisions relating to administrative
sanctions for failure to comply with the
requirements of the act and this part.
Compliance is enforced by the agencies
listed in that section.
(b) Civil liability. Section 271 of the
act contains the provisions relating to
civil liability for failure to comply with
the requirements of the act and this part.
(c) Record retention. A depository
institution shall retain evidence of
compliance with this part for a m in im um
of two years after the date disclosures
are required to be made or action is
required to be taken. The administrative
agencies responsible for enforcing this
part may require depository institutions
under their jurisdiction to retain records
for a longer period if necessary to carry
out their enforcement responsibilities
under section 270 of the a c t
Appendix A to Part 230—Annual
Percentage Yield Calculation
The annual percentage yield measures the
total amount of interest paid on an account
based on the interest rate and the frequency
of compounding.1 The annual percentage
yield is expressed as an annualized rate,
based on a 365-day year.2 Part I of this
appendix discusses the annual percentage
yield calculations for account disclosures and
advertisements, while Part II discusses
annual percentages yield earned calculations
for periodic statements.
Part /. Annual Percentage Yield for Account
Disclosures and Advertising Purposes
In general, the annual percentage yield for
account disclosures under § § 230.4 and 230.5
and for advertising under § 230.8 is an
annualized rate that reflects the relationship
between the amount of interest that would be
earned by the consumer for the term of the
account and the amount of principal used to
calculate that interest. Special rules apply to
accounts with tiered and stepped interest
rates.
A. General Rules
The annual percentage yield shall be
calculated by the formula shown below.
Institutions shall calculate the annual
percentage yield based on the actual number
of days in the term of the account. For
accounts without a stated maturity date (such
as a typical savings or transaction account),
the calculation shall be based on an assumed
term of 365 days. In determining the total
interest figure to be used in the formula,
institutions shall assume that all principal
and interest remain on deposit for the entire
term and that no other transactions (deposits
or withdrawals) occur during the term.3 For
time accounts that are offered in multiples of
months, institutions may base the number of
days on either the actual number of days
during the applicable period, or the number of
days that would occur for any actual
sequence of that many calendar months. If
institutions choose to use the latter rule, they
must use the same number of days to
calculate the dollar amount of interest earned
on the account that is used in the annual
percentage yield formula (where "Interest” is
divided by "Principal”).
The annual percentage yield is calculated
by use of the following general formula
1 The annual percentage yield reflects only
interest and does not include the value of any bonus
(or other consideration worth $10 or less) that may
be provided to the consumer to open, maintain,
increase or renew an account. Interest or other
earnings are not to be included in the annual
percentage yield if such amounts are determined by
circumstances that may or may not occur in the
future.
1 Institutions may calculate the annual percentage
yield based on a 365-day or a 366-day year in a
leap year.
9 This assumption shall not be used if an
institution requires, as a condition of the account
that consumers withdraw interest during the term.
In such a case, the interest (and annual percentage
yield calculation) shall reflect that requirement
(“APY” is used for convenience in the
formulas):
APY=100 ((^Interest/P rincipal)'384' 0*” 111
nnn>_ i]
"Principal” is the amount of funds assumed
to have been deposited at the beginning of
the account
"Interest” is the total dollar amount of
interest earned on the Principal for the term
of the account.
“Days in term" is the actual number of
days in the term of the account. When the
"days in term” is 365 (that is, where the
stated maturity is 365 days or where the
account does not have a stated maturity), the
annual percentage yield can be calculated by
use of the following simple formula:
APY=100 (Interest/Principal)
Examples
(1) If an institution pays $61.68 in interest
for a 365-day year on $1,000 deposited into a
NOW account, using the general formula
above, the annual percentage yield is 6.17%:
APY=100[(1+61.68/1,000) <“ »/S65> - 1 )
APY=6.17%
Or, using the simple formula above (since,
as an account without a stated term, the term
is deemed to be 365 days):
APY=100(61.68/1,000)
APY=6.17%
(2) If an institution pays $30.37 in interest
on a $1,000 six-month certificate of deposit
(where the six-month period used by the
institution contains 182 days), using the
general formula above, the annual percentage
yield is 6.18%:
APY=100((1+30.37/1,000)<M4/ 18S> - 1 ]
APY=6.1856
B. Stepped-Rate Accounts (Different Rates
Apply in Succeeding Periods)
For accounts with two or more interest
rates applied in succeeding periods (where
the rates are known at the time the account is
opened), an institution shall assume each
interest rate is in effect for the length of time
provided for in the deposit contract.
Examples
(1) If an institution offers a $1,000 6-month
certificate of deposit on which it pays a 5%
interest rate, compounded daily, for the first
three months (which contain 91 days), and a
5.5% interest rate, compounded daily, for the
next three months (which contain 92 days),
the total interest for six months is $26.68 and,
using the general formula above, the annual
percentage yield is 5.39%:
APY-= 100[(1 + 26.68/1,000)<J6S' 1M» - 1 )
APY=5.39%
(2) If an institution offers a $1,000 two-year
certificate of deposit on which it pays a 6%
interest rate, compounded daily, for the first
year, and a 6.5% interest rate, compounded
daily, for the next year, the total interest for
two years is $133.13, and, using the general
formula above, the annual percentage yield is
6.45%:
APY=100{(l-t-133.13/1.000)
-1 ]
APY=6.45%
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
C. Variable-Rate Accounts
For variable-rate accounts without an
introductory premium or discounted rate, an
institution must base the calculation only on
the initial interest rate in effect when the
account is opened (or advertised), and
assume that this rate will not change during
the year.
Variable-rate accounts with an
introductory premium (or discount) rate must
be calculated like a stepped-rate account.
Thus, an institution shall assume that: (1) The
introductory interest rate is in effect for the
length of time provided for in the deposit
contract; and (2) the variable interest rate
that would have been in effect when the
account is opened or advertised (but for the
introductory rate) is in effect for the
remainder of the year. If the variable rate is
tied to an index, the index-based rate in
effect at the time of disclosure must be used
for the remainder of the year. If the rate is not
tied to an index, the rate in effect for existing
consumers holding the same account (who
are not receiving the introductory interest
rate) must be used for the remainder of the
year.
For example, if an institution offers an
account on which it pays a 7% interest rate,
compounded daily, for the first three months
(which, for example, contain 91 days), while
the variable interest rate that would have
been in effect when the account was opened
was 5%. the total interest for a 365-day year
for a $1,000 deposit is $56.52 (based on 91
days at 7% followed by 274 days at 5%). Using
the simple formula, the annual percentage
yield is 5.65%:
APY=100(56.52/1,000)
APY = 5.65%
D. Tiered-Rate Accounts (Different Rates
Apply to Specified Balance Levels)
For accounts in which two or more interest
rates paid on the account are applicable to
specified balance levels, the institution must
calculate the annual percentage yield in
accordance with the method described below
that it uses to calculate interest. In all cases,
an annual percentage yield (or a range of
annual percentage yields, if appropriate)
must be disclosed for each balance tier.
For purposes of the examples discussed
below, assume the following:
Interest
rate
(per
cent)
5.25
5.50
5.75
Deposit balance required to earn rate
Up to but not exceeding $2,500.
Above $2,500 but not exceeding $15,000.
Above $15,000.
Tiering Method A. Under this method, an
institution pays on the full balance in the
account the stated interest rate that
corresponds to the applicable deposit tier.
For example, if a consumer deposits $8,000,
the institution pays the 5.50% interest rate on
the entire $8,000.
When this method is used to determine
interest, only one annual percentage yield
will apply to each tier. Within each tier, the
annual percentage yield will not vary with
the amount of principal assumed to have
been deposited.
For the interest rates and deposit balances
assumed above, the institution will state
three annual percentage yields—one
corresponding to each balance tier.
Calculation of each annual percentage yield
is similar for this type of account as for
accounts with a single interest rate. Thus, the
calculation is based on the total amount of
interest that would be received by the
consumer for each tier of the account for a
year and the principal assumed to have been
deposited to earn that amount of interest.
First tier. Assuming daily compounding, the
institution will pay $53.90 in interest on a
$1,000 deposit. Using the general formula, for
the first tier, the annual percentage yield is
5.39%:
APY=100[(1+ 53.90/1,000)(M5/369 - 1 ]
APY=5.39%
Using the simple formula:
APY=100(53.90/1.000)
APY=5.39%
Second tier. The institution will pay $452.29
in interest on an $8,000 deposit. Thus, using
the simple formula, the annual percentage
yield for the second tier is 5.65%:
APY=100(452.29/8,000)
APY=5.65%
Third tier. The institution will pay $1,183.61
in interest on a $20,000 deposit. Thus, using
the simple formula, the annual percentage
yield for the third tier is 5.92%:
APY=100(1,183.61/20,000)
APY=5.92%
Tiering Method B. Under this method, an
institution pays the stated interest rate only
on that portion of the balance within the
specified tier. For example, if a consumer
deposits $8,000, the institution pays 5.25% on
$2,500 and 5.50% on $5,500 (the difference
between $8,000 and the first tier cut-off of
$2,500).
The institution that computes interest in
this manner must provide a range that shows
the lowest and the highest annual percentage
yields for each tier (other than for the first
tier, which, like the tiers in Method A, has the
same annual percentage yield throughout).
The low figure for an annual percentage yield
range is calculated based on the total amount
of interest earned for a year assuming the
minimum principal required to earn the
interest rate for that tier. The high figure for
an annual percentage yield range is based on
the amount of interest the institution would
pay on the highest principal that could be
deposited to earn that same interest rate. If
the account does not have a limit on the
maximum amount that can be deposited, the
institution may assume any amount.
For the tiering structure assumed above,
the institution would state a total of five
annual percentage yields—one figure for the
first tier and two figures stated as a range for
the other two tiers.
First tier. Assuming daily compounding, the
institution would pay $53.90 in interest on a
$1,000 deposit. For this first tier, using the
simple formula, the annual percentage yield
is 5.39%:
APY=100(53.90/1,000)
APY = 5.39%
43381
Second tier. For the second tier, the
institution would pay between $134.75 and
$841.45 in interest, based on assumed
balances of $2,500.01 and $15,000,
respectively. For $2,500.01. interest would be
figured on $2,500 at 5.25% interest rate plus
interest on $.01 at 5.50%. For the low end of
the second tier, therefore, the annual
percentage yield is 5.39%, using the simple
formula:
APY=100(134.75/2,500)
APY = 5.39%
For $15,000, interest is figured on $2,500 at
5.25% interest rate plus interest on $12,500 at
5.50% interest rate. For the high end of the
second tier, the annual percentage yield,
using the simple formula, is 5.61%:
APY=100(841.45/15,000)
APY=5.61%
Thus, the annual percentage yield range for
the second tier is 5.39% to 5.61%.
Third tier. For the third tier, the institution
would pay $841.45 in interest on the low end
of the third tier (a balance of $15,000.01). For
$15,000.01, interest would be figured on $2,500
at 5.25% interest rate, plus interest on $12,500
at 5.50% interest rate, plus interest on $.01 at
5.75% interest rate. For the low end of the
third tier, therefore, the annual percentage
yield (using the simple formula) is 5.61%:
APY=100 (841.45/15,000)
APY=5.61%
Since the institution does not limit the
account balance, it may assume any
maximum amount for the purposes of
computing the annual percentage yield for the
high end of the third tier. For an assumed
maximum balance amount of $100,000,
interest would be figured on $2,500 at 5.25%
interest rate, plus interest on $12,500 at 5.50%
interest rate, plus interest on $85,000 at 5.75%
interest rate. For the high end of the third tier,
therefore, the annual percentage yield, using
the simple formula, is 5.87%.
APY=100 (5,871.79/100,000)
APY = 5.87%
Thus, the annual percentage yield range
that would be stated for the third tier is 5.61%
to 5.87%.
If the assumed maximum balance amount
is $1,000,000 instead of $100,000, the
institution would use $985,000 rather than
$85,000 in the last calculation. In that case,
for the high end of the third tier the annual
percentage yield, using the simple formula, is
5.91%:
APY=100 (59134.22/1,000,000)
APY = 5.91%
Thus, the annual percentage yield range
that would be stated for the third tier is 5.61%
to 5.91%.
Part 11. Annual Percentage Yield Earned for
Periodic Statements
The annual percentage yield earned for
periodic statements under § 230.6(a) is an
annualized rate that reflects the relationship
between the amount of interest actually
earned on the consumer's account during the
statement period and the average daily
balance in the account for the statement
period. Pursuant to § 230.6(b), however, if an
institution uses the average daily balance
43382
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1392 / Rules and Ragulations
method and calculates interest for a period
other than the statement period, the annual
percentage yield earned shall reflect the
relationship between the amount of interest
earned and the average daily balance in the
account for that other period.
The annual percentage yield earned shall
be calculated by using the following formula
(“APY Earned" is used for convenience in the
formulas):
APY Eamed=100 [(1 + Interest earned/
Balance)*3S6' D,,,• “
—lj
"Balance" is the average daily balance in
the account for the period.
“Interest earned" is the actual amount of
interest earned on the account for the period.
“Days in period" is the actual number of
days for the period.
Examples
(1) Assume an institution calculates
interest for the statement period (and uses
either the daily balance or the average daily
balance method), and the account has a
balance of $1,500 for 15 days and a balance
of $500 for the remaining 15 days of a 30-day
statement period. The average daily balance
for the period is $1,000. The interest earned
(under either balance computation method) is
$5.25 during the period. The annual
percentage yield earned (using the formula
above) is 6.58%:
APY Earned=100 [(l+5-25/l,000)<M1,3'* -l]
APY Eamed=6.58%
(2) Assume an institution calculates
interest on the average daily balance for the
calendar month and provides periodic
statements that cover the period from the
16th of one month to the 15th of the next
month. The account has a balance of $2,000
September 1 through September 15 and a
balance of $1,000 for the remaining 15 days of
September. The average daily balance for the
month of September is $1,500, which results
in $6.50 in interest earned for the month.The
annual percentage yield earned for the month
of September would be shown on the periodic
statement covering September 16 through
October 15. The annual percentage yield
earned (using the formula, above) is 6.69%:
APY Earned = 100 [(6.50/l,500),365,M* - l]
APY Earned=6.69%
(3) Assume an institution calculates
interest on the average daily balance for a
quarter (for example, the calendar months of
September through November), and provides
monthly periodic statements covering
calendar months. The account has a balance
of $1,000 throughout the 30 days of
September, a balance of $2,000 throughout the
31 days of October, and a balance of $3,000
throughout the 30 days of November. The
average daily balance for the quarter is
$2,000, which results in $21 in interest earned
for the quarter. The annual percentage yield
earned would be shown on the periodic
statement for November. The annual
percentage yield earned (using the formula
above) is 4.28%:
APY Earned = 100 [(l+2l/2,000)(M» '» » -l]
APY Earned=4.28%
A ppendix B to P art 230— M odel C lauses
an d Sam ple Form s
Table o f contents
B-l—Model Clauses for Account Disclosures
(Section 230.4(b))
B-2—Model Clauses for Change in Terms
(Section 230.5(a))
B-3—Model Clauses for Pre-Maturity Notices
for Time Accounts (Section 230.5(b)(2)
and 230.5(d))
B-4—Sample Form (Multiple Accounts)
B-5—Sample Form (Now Account)
B-6—Sample Form (Tiered Rate Money
Market Account)
B-7—Sample Form (Certificate of Deposit)
B-8—Sample Form (Certificate of Deposit
Advertisement)
B-9—Sample Form (Money Market Account
Advertisement)
B -l—Model Clauses for Account Disclosures
(a) Rate information
(i) Fixed-rate accounts
The interest rate on your account i s ___ %
with an annual percentage yield o f----- %.
You will be paid this rate [for (time period)/
until (date)/ for at least 30 calendar days].
(ii) Variable-rate accounts
The interest rate on your account i s ___ %
with an annual percentage yield o f___ %.
Your interest rate and annual percentage
yield may change.
Determination o f Rate
The interest rate on your account is based
on (name of index) (plus/minus a margin of
----- ]•
or
At our discretion, we may change the
interest rate on your account.
Frequency o f Rate Changes
We may change the interest rate on your
account [every (time period)/at any time].
Limitations on Rate Changes
The interest rate for your account will
never change by more th a n ___ % each (time
period).
The interest rate will never by [less/more]
th a n ___ %.
or
The interest rate will never (exceed___ %
above/drop more than___ % below] the
interest rate initially disclosed to you.
(iii) Stepped-rate accounts
The initial interest rate for your account is
___ %. You will be paid this rate [for (time
period)/until (date)]. After that time, the
interest rate for your account will b e ___ %,
and you will be paid this rate [for (time
period)/until (date)]. The annual percentage
yield for your account i s __ %.
(iv) Tiered-rate accounts
Tiering Method A
• If your [daily balance/average daily
balance] is $___ or more, the interest rate
paid on the entire balance in your account
will b e ___ % with an annual percentage
yield o f ___ %.
• If your [daily balance/average daily
balance] is more than $__ but less than
$___ _ the interest rate paid on the entire
balance in your account will b e ----- % with
an annual percentage yield o f----- %.
• If your [daily balance/average daily
balance] is S___ or less, the interest rate
paid on the entire balance will b e ___ % with
an annual percentage yield o f----- %.
Tiering Method B
• An interest rate o f___ % will be paid
only for that portion of your [daily balance/
average daily balance] that i9 greater than
$____The annual percentage yield for this
tier will range from___ % to ___ %.
depending on the balance in the account.
• An interest rate o f ___ % will be paid
only for that portion of your [daily balance/
average daily balance] that is greater than
$___ , but less than $____The annual
percentage yield for this tier will range from
___ % to ___ %, depending on the balance in
the account.
• If your [daily balance/average daily
balance] is $___ or less, the interest rate
paid on the entire balance will b e ___ % with
an annual percentage yield o f----- %.
(b) Compounding and crediting
(i) Frequency
Interest will be compounded [on a ----basis/every (time period)]. Interest will be
credited to your account [on a ----- basis/
every (time period)].
(ii) Effect of closing an account
If you close your account before interest is
credited, you will not receive the accrued
interest.
(c) Minimum balance requirements
(i) TO open the account
You must deposit $_____ to open this
account.
(ii) To avoid imposition of fees
A minimum balance fee of $-------- will be
imposed every (time period) if the balance in
the account falls below $-------- any day of
the (time period).
A minimum balance fee of $ ------- will be
imposed every (time period) if the average
daily balance for the (time penod) falls below
a
The average daily balance is
calculated by adding the principal in the
account for each day of the period and
dividing that figure by the number of days in
the period.
(iii) To obtain the annual percentage yield
disclosed
You must maintain a minimum balance of
$_____ in the account each day to obtain the
disclosed annual percentage yield.
You must maintain a minimum average
daily balance of $_____ to obtain the
disclosed annual percentage yield. The
average daily balance is calculated by adding
the principal in the account for each day of
the period and dividing that figure by the
number of days in the period.
(d) Balance computation method
(i) Daily balance method
We use the daily balance method to
calculate the interest on your account. This
method applies a daily periodic rate to the
principal in the account each day.
(ii) Average daily balance method
We use the average daily balance method
to calculate interest on your account This
method applies a periodic rate to the average
daily balance in the account for the period.
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
The average daily balance is calculated by
adding the principal in the account for each
day of the period and dividing that figure by
the number of days in the period.
(e) Accnlal of interest on noncash deposits
Interest begins to accrue no later than the
business day we receive credit for the deposit
of noncash items (for example, checks),
or
Interest begins to accrue on the business
day you deposit noncash items (for example,
checks).
(f) Fees
The following fees may be assessed against
your account:
S
S
$
(conditions for imposing fee)
$ -----------------------------
___ % o f_______
(g) Transaction limitations
The minimum amount you may [withdraw/
write a check for] is $_____ _
You may m ake-----------[deposits into/
withdrawals from] your account each (time
period).
You may not make [deposits into/
withdrawals from] your account until the
maturity date.
(h) Disclosures relating to time accounts
(i) Time requirements
Your account will mature on (date).
Your account will mature in (time period).
(ii) Early withdrawal penalties
We [will/may] impose a penalty if you
withdraw [any/all] of the [deposited funds/
principal] before the maturity date. The fee
imposed will equal_____ days/week[s]/
month[s] of interest,
or
We [will/may] impose a penalty of $ _ ---- .
if you withdraw [any/all] of the [deposited
funds/principal] before the maturity date.
If you withdraw some of your funds before
maturity, the interest rate for the remaining
funds in your account will b e ____ % with
an annual percentage yield o f ____ %■
(iii) Withdrawal of interest prior to
maturity
The annual percentage yield assumes
interest will remain on deposit until maturity.
A withdrawal will reduce earnings.
(iv) Renewal policies
(1) Automatically renewable time accounts
This account will automatically renew at
maturity.
You will have [_____ calendar/business]
days after the maturity date to withdraw
funds without penalty,
or
There is no grace period following the
maturity of this-account to withdraw funds
without penalty.
(2) Non-automatically renewable time
accounts
This account will not renew automatically
at maturity. If you do not renew the account,
your deposit will be placed in [an interestbearing/a noninterest-bearing] account
(i) Bonuses
You will [be paid/receive] [$_____ /
(description of item)] as a bonus [when you
open the account/on (date)_____ ].
43383
You must maintain a minimum [daily
balance/average daily balance] of $—-------to
obtain the bonus.
To earn the bonus. [$-------- /your entire
principal] must remain on deposit [for (time
period)/until (date)____ ].
B-2—Model Clauses for Change in Terms
On (date), the cost of (type of fee) will
increase to $_____ _
On (date), the interest rate on your account
will decrease to _____ % with an annual
percentage yield o f____ %.
On (date), the minimum [daily balance/
average daily balance] required to avoid
imposition of a fee will increase to 3--------B-3—Model Clauses for Pre-Maturity Notices
for Time Accounts
(a) Automatically renewable time accounts
with maturities of one year or less but longer
than one month
Your account will mature on (date).
If the account renews, the new maturity
date will be (date).
The interest rate for the renewed account
will b e _____ % with an annual percentage
yield o f_____ %.
or
The interest rate and annual percentage
yield have not yet been determined. They
will be available on (date). Mease call (phone
number) to learn the interest rate and annual
percentage yield for your new account.
(b) Non-automatically renewable time
accounts with maturities longer than one year
Your account will mature on (date).
If you do not renew the account, interest
[will/will not] be paid after maturity.
BILLING CODE 6210-01-M
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Federal Register / Vol. 57, No. 183 / Monday, September 21,1992 / Rules and Regulations
B ~t - S A M P L E F O R M (M U L T IP L E A C C O U N T S)
BANK ABC
DISCLOSURE OF ACCOUNT TERMS
This disclosure contains information about your:
X NOW Account
■
■
■
■
Your interest rate and annual percentage yield may change.
At our discretion, we may change the interest rate on your account daily.
The interest rate for your account will never be less than 2.00%.
Interest begins to accrue on the business day you deposit noncash items
(for example, checks).
Interest is compounded daily and credited on the last day of each month.
If you close your account before interest is credited, you will not receive
the accrued interest.
We use the daily balance method to calculate the interest on your account.
This method applies a daily periodic rate to the principal in the account
each day.
Passbook Savings Account
■
■
■
■
The interest rate on your account will be paid for at least 30 days.
Interest begins to accrue on the business day you deposit noncash items
(for example, checks).
Interest is compounded daily and credited on the last day of each month.
If you close your account before interest is credited, you will not receive
the accrued interest.
We use the daily balance method to calculate the interest on your account.
This method applies a daily periodic rate to the principal in the account
each day.
Additional disclosures for your account are included on the attached sheets.
Federal Register / VoL 57, No. 183 / Monday, September 21,1992 / Rules and Regulations
__Money Market Account
■
■
a
■
■
Your interest rate and annual percentage yield may change.
At our discretion, we may change the interest rate on your account daily.
The interest rate on your account will never be less than 3.00%.
You may make six (6) transfers from your account, but only three (3)
may be payments by check to third parties.
Interest begins to accrue on the business day you deposit noncash items (for example,
checks).
Interest is compounded daily and credited on the last day of each month.
If you close your account before interest is credited, you will not receive
the accrued interest.
We use the daily balance method to calculate the interest on your account.
This method applies a daily periodic rate to the principal in the account
each day.
Certificates of Deposit
■
a
■
■
■
■
■
The interest rate for your account will be paid until the maturity
date of your certificate (_________________ ).
Interest is compounded daily and will be credited to your account
monthly.
Interest begins to accrue on the business day you deposit noncash items
(for example, checks).
Tnis account will automatically renew at maturity. You will have
ten (10) calendar days from the maturity date to withdraw your funds
without being charged a penalty.
After the account is opened, you may not make deposits into or
withdrawals from this account until the maturity date.
We use the daily balance method to calculate the interest on your account.
This method applies a daily periodic rate to the principal in the account
each day.
If any of the deposit is withdrawn before the maturity date, a penalty as
shown below will be imposed:
Term
3-month CD
6-month CD
1-year CD
2-year CD
Early Withdrawal
Penalty
30 days interest
90 days interest
120 days interest
180 days interest
Additional disclosures for your account are included on the attached sheets.
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Federal Register / Vol. 57, No. 183 / M onday, Septem ber 21. 1992 / Rules a n d R egulations
(Fee Schedule Insert)
BANK ABC
FEE SCHEDULE
NOW Account
■ Monthly minimum balance fee if the daily balance
..........................$ 7.50
Passbook Savings Account
■ Monthly minimum balance fee if the daily balance
..........................$ 6.00
■ You may make three (3) withdrawals per quarter
..........................$2 .0 0
Money M arket Account
■ Monthly minimum balance fee if the daily balance
drops below $ 1,000 any day of the month .............................
..........................$ 5 .0 0
O ther Account Fees
■
■
■
■
■
■
Deposited checks re tu rn e d ..............................................................................................$ 5.00
Balance inquiries (at a branch or at an ATM) ............................................................ $ 1.00
Check printing ♦
................................................... (Fee depends on style of check ordered)
Your check returned for insufficient funds (per check) ♦ ........................................ $ 16.00
Stop payment request (per request) ♦
.......................................................................... $ 12.50
Certified check (per check) ♦ ........................................................................................ $ 10.00
♦
Fee does not apply to Passbook Savings Accounts or Certificates o f Deposit.
Additional disclosures for your account are included on the attached sheet
(Rate Sheet Insert)
ACCOUNT
TYPE
MINIMUM DEPOSIT
MINIMUM BALANCE*
TO OPEN
TO OBTAIN
ANNUAL PERCENTAGE YIELD
ACCOUNT
INTEREST
RATE
ANNUAL
PERCENT/
YIELD
NOW
$ 500
$2,500
4.00%
4.08%
PASSBOOK
SAVINGS
$
100
$ 500
3.50%
3.56%
MONEY MARKET
$1,000
$1,000
4.15%
4.24%
3-MONTH CD
$ 1,000
$1,000
4.20%
4.29%
6-MONTH CD
$1,000
$ 1,000
4:25%
4.34%
1-YEAR CD
$1,000
$ 1,000
5.20%
5.34%
2-YEAR CD
$1,000
$ 1,000
5.80%
5.97%
* Dally balance (the amount of principal in the account each day)
Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
BANK ABC
RATE SHEET
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Federal Register / Vol. 57, No. 183 / Monday/September 21,1992 / Rules and Regulations
B-5 - SAMPLE FORM (NOW ACCOUNT)
BANK XYZ
DISCLOSURE OF INTEREST, FEES AND ACCOUNT TERMS
NOW ACCOUNT
Fee schedule
■
■
■
■
■
Monthly minimum balance fee if the daily balance
drops below $1,000 any day of the m o n th ...........................................................$
Fee to stop payment of a c h e ck ..........................................................................$
Fee for check returns (insufficient funds —per c h e c k )................................... $
Certified check (per check)..................................................................................$
Fee for initial check printing (per 2 0 0 ) ............................................................ $
(Cost for check printing varies depending on the style of checks ordered.)
7.00
12.50
16.00
10.00
12.00
Rate information
•
The interest rate for your account is 4.00 % with an annual percentage yield of
4.08 %. Your interest rate and annual percentage yield may change. At our
discretion, we may change the interest rate for your account at any time. The interest
rate for your account will never be less than 2% each year.
Minimum balance requirements
•
.You must deposit $500 to open this account.
•
You must maintain a minimum balance of $2,500 in the account each day to obtain the
annual percentage yield listed above.
Balance computation method
•
We use the daily balance method to calculate the interest on your account. This method
applies a daily periodic rate to the principal in the account each day.
Compounding and crediting
•
Interest for your account will be compounded dailyand
last day of each month.
credited to your account on the
Accrual of interest on deposits other than cash
•
Interest begins to accrue on the business day you deposit noncash items (for example,
checks).
Federal Register / Vol. 57, No. 183 / Monday, September 21,1992 / Rules and Regulations
B-6 - SAMPLE FORM (TIERED-RATE MONEY MARKET ACCOUNT)
BANK ABC
DISCLOSURE OF INTEREST, FEES AND ACCOUNT TERMS
MONEY MARKET ACCOUNT
Fee schedule
■
■
■
■
Check returned for insufficient funds (per check)
$16.00
Stop payment request (per req u est).................... ...................................................... $12.50
Certified check (per check) ............................... ...................................................... $ 10.00
Check printing
(Fee depends on style of checks ordered)
Rate information
■
■
■
■
■
■
If your daily balance is $15,000 or more, the interest rate paid on the entire balance in
your account will be 5.75 % with an annual percentage yield of 5.92 %.
If your daily balance is more than $2,500, but less than $15,000, the interest rate paid
on the entire balance in your account will be 5.50 % with an annual percentage yield
of 5.65 96.
If your daily balance is $2,500 or less, the interest rate paid on the entire balance will
be 5.25 % with an annual percentage yield of 5.39 %.
Your interest rate and annual percentage yield may change. At our discretion, we may
change the interest rate for your account at any time. The interest rate for your account
will never be less than 2.00%.
Interest begins to accrue on the business day you deposit noncash items (for example,
checks).
Interest is compounded daily and credited on the last day of each month.
Minimum balance requirements
■
You must deposit $1,000 to open this account.
■
A minimum balance fee of $5.00 will be imposed every month if the balance in your
account falls below $1,000 any day of the month.
Balance computation method
■
We use the daily balance method to calculate the interest on your account. This method
applies a daily periodic rate to the principal in the account each day.
Transaction limitations
■
You may make six (6) transfers from your account, but only three (3) may be payments
by check to third parties.
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Federal Register / Vol. 57, No. 183 / Monday, September 21, 1992 / Rules and Regulations
B-7 - SAMPLE FORM (CERTIFICATE OF DEPOSIT)
XYZ SAVINGS BANK
1 YEAR CERTIFICATE OF DEPOSIT
Rate information
The interest rate for your account is 5.20 % with an annual percentage yield of 5.34 %.
You will be paid this rate until the maturity date of the certificate. Your certificate will
mature on September 30. 1993 . The annual percentage yield assumes interest remains on
deposit until maturity. A withdrawal will reduce earnings.
Interest for your account will be compounded daily and credited to your account on the last
day of each month.
Interest begins to accrue on the business day you deposit any noncash item (for example,
checks).
Minimum balance requirements
You must deposit $1,000 to open this account.
You must maintain a minimum balance of $1,000 in your account every day to obtain the
annual percentage yield listed above.
Balance computation method
We use the daily balance method to calculate the interest on your account. This method
applies a daily periodic rate to the principal in the account each day.
Transaction limitations
After the account is opened, you may not make deposits into or withdrawals from the
account until the maturity date.
Early withdrawal penalty
If you withdraw any principal before the maturity date, a penalty equal to three montns
interest will be charged to your account.
Renewal policy
This account will be automatically renewed at maturity. You have a grace period of ten (10)
calendar days after the maturity date to withdraw the funds without being charged a penalty.
Federal Register / Vol. 57, No. 133 / Monday, September 2 1 ,1S92 / Rules and Regulations
B-8 - SAMPLE FORM (CERTIFICATE O F DEPOSIT ADVERTISEMENT)
BANK XYZ
ALWAYS OFFERS YOU COMPETITIVE CD RATES!!
CERTIFICATES OF DEPOSIT
ANNUAL PERCENTAGE
YIELD (APY)
5 YEAR
6.31%
4 YEAR
6.07%
3 YEAR
5.72%
2 YEAR
5.52%
I YEAR
4.54%
6 MONTH
4.34%
90 DAY
4.21%
APYs are offered on accounts opened
from 5/9/93 through 5/18/93.
The minimum balance to open an account and obtain the APY is $1,000.
A penalty may be imposed for early withdrawal.
For more information call:
202 123-1234
-
43391
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Federal Register / Vol. 57, No. 183 / M onday. S eptem ber 21. 1992 / Rules an d R egulations
B-9 - SAMPLE FORM (MONEY MARKET ACCOUNT ADVERTISEMENT)
BANK XYZ
ALWAYS OFFERS YOU COMPETITIVE RATES!!
MONEY MARKET ACCOUNTS
ANNUAL PERCENTAGE
YIELD (APY)
5.07%*
Accounts with a
balance of $5,000 or less
Accounts with a
balance over $5,000
APYs are accurate
as of April 30, 1993
5.57%*
*The rates may change after the
account is opened.
Fees could reduce the earnings on the account.
For more information call:
202-123-1234
BILLING COOE 6210-01-C
Federal Register / Vol. 57, No. 183 / Monday, September 21. 1392 / Rules and Regulations
Appendix C to Part 230—Effect on State
Laws
(a) Inconsistent Requirements
State law requirements that are
inconsistent with the requirements of the act
and this part are preempted to the extent of
the inconsistency. A state law is inconsistent
if it requires a depository institution to make
disclosures or take actions that contradict the
requirements of the federal law. A state law
is also contradictory if it requires the use of
the same term to represent a different amount
or a different meaning than the federal law,
requires the use of a term different from that
required in the federal law to describe the
same item, or permits a method of calculating
interest on an account different from that
required in the federal law.
(b) Preemption Determinations
A depository institution, state, or other
interested party may request the Board to
determine whether a state law requirement is
inconsistent with the federal requirements. A
request for a determination shall be in
writing and addressed to the Secretary,
Board of Governors of the Federal Reserve
System, Washington, DC 20551. Notice that
the Board intends to make a determination
(either on request or on its own motion) will
be published in the Federal Register, with an
opportunity for public comment unless the
Board finds that notice and opportunity for
comment would be impracticable,
unnecessary, or contrary to the public
interest and publishes its reasons for such
decision. Notice of a final determination will
be published in the Federal Register and
furnished to the party who made the request
and to the appropriate state official.
(c) Effect o f Preemption Determinations
After the Board determines that a state law
is inconsistent, a depository institution may
not make disclosures using the inconsistent
term or take actions relying on the
inconsistent law.
(d) Reversal o f Determination
The Board reserves the right to reverse a
determination for any reason bearing on the
coverage or effect of state or federal law.
Notice of reversal of a determination will be
published in the Federal Register and a copy
furnished to the appropriate state official.
Appendix D to Part 230—Issuance of
Staff Interpretations
Officials in the Board’s Division of
Consumer and Community Affairs are
authorized to issue official staff
interpretations of this part. These
interpretations provide the protections
afforded under section 271(f) of the act.
Except in unusual circumstances,
interpretations will not be issued separately
but will be incorporated in an official
commentary to this part, which will be
amended periodically. No staff
interpretations will be issued approving
depository institutions' forms, statements, or
calculation tools or methods.
By order of the Board of Governors of the
Federal Reserve System, September 11,1992.
William W. Wiles,
Secretary o f the Board.
(FR Doc. 92-22478 Filed 9-18-92; 8:45 ami
BtLUNO COOC 6210-01-M
43393
FEDERAL RESERVE BANK OF DALLAS
STATION K
DALLAS, TEXAS 7 5 2 2 2
ADDRESS CORRECTION REQUESTED
B U L K R A TE
U.S. P O S T A G E
PAI D
DALLAS, TEXAS
P e r m it No. 151
@FedFRASER