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Federal Reserve Bank
O F DALLAS
R O B E R T D. M C T E E R , J R .
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DALLAS. TEXAS 7 5 2 2 2
No tice 92-33
TO:
The Chief Executive Officer of each
member bank and others concerned in
the Eleventh Federal Reserve District
SUBJECT
Proposed New Regulation DD to Implement
the T ruth in Savings Act
DETAILS
The Federal Reserve Board has published for public comment a
proposed new Regulation DD to implement the Truth in Savings Act.
In general,
the act and the proposed regulation require depository institutions to provide
consumers with more information about their deposit accounts, including
savings and checking accounts and certificates of deposit.
The B o a r d ’s proposed regulation requires depository institutions to
disclose to consumers all fees imposed in connection with an account, the
simple interest rate, the annual percentage yield (APY), and other terms
before an account is opened and upon the consumer’s request.
Existing account
holders must be notified that disclosures are available.
To ensure that institutions use a uniform method of calculating the
return on accounts, the act calls forthe Board to develop formulas for
computing the APY, and the law requires institutions to calculate interest on
the full principal balance in the account each day.
If any adverse change in
the terms of an account should occur, an institution is required to send
a
notice to the consumer 30 days beforeits occurrence.
Provisions of the
act
establish new rules for the advertisement of deposit accounts.
The Board is also soliciting comment on the definition of a variable
rate and what should be reflected by the annual percentage yield on a periodic
statement.
The Board must receive comments by
be addressed to William W. Wiles, Secretary,
Reserve System, 20th Street and Constitution
20551. All comments should refer to Docket
June 10, 1992. Comments should
Board of Governors of the Federal
Avenue, N.W., Washington, D.C.
No. R-0753.
For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas:
Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162,
Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
- 2 -
A TTAC H M E N T
A copy of the Bo a r d ’s notice as it appears on pages 12735-60, Vol.
57, No. 71, of the Federal Register dated April 13, 1992, is attached.
M O R E INFORMATION
For more information, please contact Dean Pankonien at (214)
651-6228.
For additional copies of this B a n k ’s notice, please contact the
Public Affairs Department at (214) 651-6289.
Sincerely yours,
12735
Proposed Rules
Federal Register
Vol. 57. No. 71
Monday, April 13, 1992
and regulation also require that fees and
other information be provided on any
periodic statement the institution sends
to the consumer. Rules are set forth for
the information contained in
advertisements of deposit accounts and
advance notice to account holders of
adverse changes in terms. The statute
and regulation place one substantive
FEDERAL RESERVE SYSTEM
restriction on institutions’ practices, that
is, how institutions determine the
12 CFR Part 230
account balance on which interest is
calculated.
[Regulation DD; Docket No. R-0753]
The Board is publishing proposed
sample disclosure forms and model
Truth in Savings
clauses to assist institutions in preparing
AGENCY: Board of Governors of the
their account disclosures. They appear
Federal Reserve System.
in appendix B to the proposed
a c t i o n : Proposed rule.
regulation.
The Board is requesting comment on
SUMMARY: The Board is publishing for
whether to eliminate the existing rules
comment a new regulation, Regulation
in Regulation Q (12 CFR Part 217), that
DD, to implement the Truth in Savings
require disclosures (§ 217.4) and that
Act. The act requires depository
regulate advertisements for interestinstitutions to disclose fees, interest
bearing accounts at member banks
rates and other terms concerning
(§ 217.6). As discussed more fully in the
deposit accounts to consumers before
adverstising section below, the Board
they open accounts. The act requires
solicits comment on whether Regulation
SUPPLEMENTARY INFORMATION;
depository institutions that provide
Q’s advertising rules should be
periodic statements to consumers to
(1) Background
eliminated or retained as part of
include information about fees imposed,
Regulation DD. The Board has consulted
The Truth in Savings Act (contained
interest earned and the annual
with the other federal financial
in the Federal Deposit Insurance
percentage yield on those statements.
regulatory agencies as directed in
Corporation Improvement Act of 1991,
The act imposes substantive limitations Public Law No. 102-242,105 Stat. 2236)
section 269(a)(1) of the statute, and the
on the methods by which institutions
agencies are considering whether to
was enacted in December 1991. The
determine the balance on which interest statute directs the Board to issue final
retain or eliminate their existing rales
is calculated. Rules dealing with
dealing with advertisments for deposit
regulations by September 19,1992, and
advertisements for deposit accounts are provides that the statutory provisions
accounts.
also included in the law.
and rules adopted by the Board shall
(2) Proposed Regulatory Provisions
DATES: Comments must be received on
apply six months after that date, father
or before June 10,1992.
The Truth in Savings Act is quite
than delay action under the rulemaking
a d d r e s s e s : Comments, which should
moratorium issued by the President, due detailed and, for the most part, the
proposed regulation mirrors the
refer to Docket No. R-0753, may be
to the statutory timetable fo:statutory requirements. The statute
mailed to Mr. William W. Wiles,
implementing the act and the need for
recognizes that implementation of a
Secretary, Board of Governors of the
adequate time for public comment, the
comprehensive scheme such as this may
Federal Reserve System, 20th Street and Board is going forward with the
require some adjustments and, in
Constitution Avenue NW., Washington, rulemaking process at this time.
DC 20551. Comments addressed to Mr.
The Board is proposing regulations for section 269(a)(3), it authorizes the Board
to make "such classification,
Wiles may also be delivered to the
comment, and expects to adopt final
Board’s mail room between 8:45 a.m.
implementing regulations by September differentiations, * * * adjustments and
and 5:15 p.m. weekdays, and the
19,1992. Compliance with the law would exceptions * * * as, in the judgment of
the Board, are necessary or proper to
security control room outside of those
be mandatory by March 19,1993.
carry out the purposes of this Act, to
hours. Both the mail room and the
The purpose of the statute and
prevent circumvention or evasion of the
security control room are accessible
proposed regulation is to assist
requirements of this Act, or to facilitate
from the courtyard entrance on 20th
consumers in comparing deposit
compliance with the requirements of this
Street between Constitution Avenue and accounts offered by depository
Act." The statute also authorizes the
institutions, principally through the
C Street NW. Comments may be
Board to vary the requirements with
inspected in room B-1122 between 9
disclosure of fees, the simple interest
regard to several particular types of
a.m. and 5 p.m. weekdays, except as
rate, the annual percentage yield, and
accounts.
provided in § 261.8 of the Board’s rules
other account terms whenever a
The section-by-section description
regarding the availability of information, consumer request the information and
12 CFR 261.8.
before an account is opened. The statute which follows points out those
This section of the FEDERAL REGISTER
contains notices to the public of the
proposed issuance of rules and
regulations. The purpose of these notices
is to give interested persons an
opportunity to participate in the rule
making prior to the adoption of the final
rules.
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, at
(202) 452-2412 or (202) 452-3667; for the
hearing impaired only, contact Dorothea
Thompson, Telecommunications Device
for the Deaf, at (202) 452-3544, Board of
Governors of the Federal Reserve
System, Washington, DC 20551. For
information about the Board's proposed
action concerning the recordkeeping and
disclosure requirements under the
Paperwork Reduction Act only, contact
Frederick J. Schroeder, 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 and Budget, New
Executive Office Building, room 3208,
Washington, DC 20503, at (202) 395
7340.
12736
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
provisions that differ in any significant
way from the statute—for example,
creating an exception to a statutory
provision, adding a disclosure, or
departing significantly from the
language of the statute—and explains
why the differences exist. In addition,
the section-by-section description in
many cases indicates possible
alternatives to the positions reflected in
the proposed regulation and solicits
comment on these alternatives. In those
cases where the statute is not specific
and parallel rules would be beneficial,
the Board has borrowed definitions and
provisions from other consumer
regulations (for example, Regulation Z
(12 CFR Part 226), which implements the
Truth in Lending Act, and Regulation E
(12 CFR Part 205), which implements the
Electronic Fund Transfers Act).
Section 230.1—Authority, Purpose,
Coverage and Effect on State Laws
Paragraph (c)—Coverage
The paragraph on coverage reflects
the fact that the act and proposed
regulation cover depository institutions,
as defined in section 19(b)(1)(A) of the
Federal Reserve Act (12 U.S.C. 461).
Thus the regulation would cover
depository institutions such as national
banks, state member banks, thrift
institutions, and nonmember banks and
savings banks, whether federally
insured or not. This regulation does not
apply to credit unions; those entities will
be covered by rules issued by the
National Credit Union Administration
(NCUA). The act provides that the
NCUA shall prescribe substantially
similar regulations for credit unions
within 90 days of the effective date of
regulations established by the Board.
Securities brokers and dealers are not
considered depository institutions under
the act and proposed regulation.
However, if advertisements for deposit
accounts are placed by brokers and
dealers who are deposit brokers, as that
term is defined in section 29(g)(1) of the
FDIC Act, they are subject to the
advertising rules set forth in § 230.8.
(See the supplemental information
accompanying the definition of
“advertisement.”)
Paragraph (d)—Effect on State Laws
Section 273 of the act provides a
narrow standard for preemption of state
laws. To be preempted, a state law must
be inconsistent with the disclosure
provisions of the act and the
implementing provisions of the
regulation. A state law is preempted
only to the extent of the inconsistency.
While the statute refers only to
disclosure requirements, the Board
requests comment on whether the same
standard should apply to all provisions
of the law, including the payment of
interest provision.
Section 230.2—Definitions
Paragraph (a)—Account
Section 274(1) of the statute 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, including
demand accounts, savings accounts,
time accounts, and negotiable order of
withdrawal accounts." The Board is
proposing to define account as any
deposit account available to, or held by,
a consumer. The regulation would cover
interest-bearing as well as noninterestbearing accounts. It would include all
accounts offered to consumers by
depository institutions, whether those
accounts are federally or state insured
or uninsured. The Board solicits
comment on whether the regulation
should be limited to insured deposit
accounts.
The Board does not believe the
Congress intended to cover certain other
accounts that may be offered by or
through depository institutions, such as
mutual fund accounts. Both the findings
and purpose provisions of the statute
speak of "deposit accounts” offered by
institutions, and all of the examples
listed in the statutory definition are the
more traditional type of deposit
accounts.
Similarly, the term "account” would
not include a consumer's interest in the
securities or obligations of a depository
institution or any other entity that are
being held by the institution on the
consumer’s behalf, or offered by the
institution to the consumer. For
example, the purchase of a government
security or an annuity through a
depository institution would not be an
“account” subject to the regulation.
Some institutions permit consumers to
open accounts denominated in a foreign
currency. Typically, these accounts are
offered as money market accounts,
though certificates of deposit may be
designated as foreign currency accounts.
A consumer may purchase one or more
of several currencies, depending on the
institution’s program. Such accounts are
eligible for deposit insurance, but are
not insured for losses resulting from
exchange rate fluctuations. Institutions
may or may not pay interest on these
accounts. These accounts may be
subject to capital gains or losses due to
fluctuations in exchange rates.
When such accounts are offered to or
held by consumers (as opposed to
businesses), the Board believes they
meet the definition of an account and
are covered by the regulation. In light of
the risk of loss of principal for these
accounts and the fact that they are not
traditional accounts, consumers may not
fully understand how they operate. Thus
the Board is proposing special
disclosure and advertising rules for
these accounts. These proposals are
discussed in the supplemental
information accompanying § 230.4(b)(9)
and 230.8(a).
Paragraph (b)—Advertisement
Under the act, each "advertisement,
announcement, or solicitation” relating
to an account at a depository institution
must comply with specified rules. The
act does not define advertisement.
Under the Board’s proposal, an
advertisement (which includes any
announcement or solicitation) is defined
in the same manner as that term is
defined under the Board’s Regulation Z.
Thus, an advertisement would be any
commercial message appearing in any
medium (for example, newspaper,
television, or radio) if it directly or
indirectly promotes the availability of
an account.
The Board requests comment on
whether some of the savings instrument
"rate sheets” that are currently
published in newspapers, periodicals, or
trade journals should be considered
“advertisements.” Some rate sheet
publishers gather information by simply
calling various depository institutions
and inquiring about their current rates;
to this extent, they do not appear to be
the type of commercial message
intended to be covered.
The statute cover advertisements
“initiated by a depository institution or
deposit broker.” The Board is proposing
to define “advertisement” without
regard to the party initiating it. In light
of this approach, the Board does not
have a definition of deposit broker in the
proposed regulation, apart from the
reference in § 230.1(c). The Board
solicits comment on whether deposit
brokers who place advertisements that
refer to deposit accounts at depository
institutions should be covered by the
advertising rules. The question arises
since the regulation only covers deposit
accounts offered by depository
institutions to consumers. If a third
party, such as a deposit broker, opens
an account (such as a large certificate of
deposit) at an institution in its own
name and then offers its own accounts
to the public, the certificate of deposit
does not appear to be a consumer
account. (Tax information, for example,
would be reported in the name of the
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
third party.) Thus, an advertisement
placed by a third party for its own
accounts is not an advertisement for a
consumer account. (This circumstance is
clearly different from a third party who
acts as an agent for a consumer and
opens an account for the consumer at an
institution—which would be covered by
the regulation.) The Board solicits
comment on whether non-agent third
parties who advertise their own
accounts based on accounts at a
depository institution should be covered
by the advertising rules.
Paragraph (c)—Annual Percentage Yield
The Board proposes that the
regulation incorporate a definition of the
annual percentage yield substantially
the same as that stated in the act. The
act defines annual percentage yield as
“the total amount of interest that would
be received on a $100 deposit, based on
the annual rate of simple interest and
the frequency of compounding for a 365day period, expressed as a percentage
calculated by a method which shall be
prescribed by the Board in regulations."
The proposal does not incorporate the
reference to a $100 deposit, since the
annual percentage yield calculation can
be performed with any amount of
principal, and the Board believes
reference to $100 might be confusing,
especially for accounts that have a
higher minimum balance requirement to
earn interest or that have a tiered rate
structure.
In computing the annual percentage
yield, the statute requires institutions to
use a basis of 365 days. The Board
believes this provision requires
institutions to calculate an annual
percentage yield by using a 365-day
year. The Board proposes that the term
“annual percentage yield” be used in
both advertisements and disclosures to
ensure uniformity and facilitate easy
comparisons. (If multiple annual
percentage yields are stated, for
example, for tiered rate accounts, the
term “annual percentage yields” may be
used.)
Paragraph (e)—Bonus
The Board proposes to define the term
“bonus” to encompass any cash,
premium, gift, award, or other
consideration (except interest due to the
application of a periodic rate) regardless
of the form the payment takes. Thus, it is
intended that anything of value that is
given or offered to a consumer, aside
from interest, would be a bonus for the
purposes of this regulation. Under the
proposal an item could be a bonus if a
depository institution gave or offered
such a premium to a third party, rather
than to the consumer.
Paragraph (f)—Business Day
The Board is proposing to define
business day as one during which the
offices of the institution are open for
carrying on substantially all business
functions. This definition is the same
one used in other regulations of the
Board (such as Regulation Z and
Regulation E) and the Board believes
this same approach would work well for
this regulation.
Paragraph (g)—Consumer
The act does not define the term
"consumer.” It is clear from the act and
legislative history that the protections
were intended to apply only to
consumer purpose—and not business
purpose—accounts. For instance, in
section 262, strengthening “the ability of
the consumer to make informed
decisions regarding deposit accounts” is
among the act’s goals. Moreover, the
statutory definition of an “account” is
expressly limited to those "offered to 1
or more individuals or an
unincorporated nonbusiness association
of individuals . .
The Board proposes to use the term
“natural person” rather than
“individual” and to add the term
“primarily for personal, family,
household, or other non-business
purposes” to the definition. A similar
definition has worked well in Regulation
Z in determining whether credit is for a
consumer purpose, and the Board
believes it would be equally helpful in
determing coverage for deposit products.
The statute does not expressly
exclude from coverage accounts held by,
or offered to, individuals operating
businesses in the form of a sole
proprietorship. The Board proposes to
not cover such accounts, on the grounds
that the act is aimed at protecting
consumers. On the other hand, an
account held by or offered to an
unincorporated association of natural
persons (such as a softball team or a
book club) would be a consumer
account covered by the proposed
regulation if that account is primarily for
non-business purposes. The Board does
not believe an account held by an
incorporated, not-for-profit organization
is covered by the law, since the act
limits its protection to unincorporated
associations.
If the legal holder of an account is a
natural person, and the account is
primarily for a personal, family,
household, or other non-business
purpose, it would be covered by the
regulation. The Board requests comment
on whether the regulation should cover
an account such as a custodial account,
in which a natural person (or
12737
unincorporated nonbusiness association
of persons) is a beneficial owner but the
legal holder (the custodian) may or may
not be a consumer. There may be
circumstances where the act’s purposes
are served by requiring disclosures for
accounts held by custodians that are not
natural persons. There may be other
custodial accounts, however, such as
those held by institutional investors (for
example, a pension plan administrator)
for numerous consumers, where
disclosures are not needed.
Paragraph (h)—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 Act.” The Federal Reserve Act
includes in its definition any insured
bank or any bank that is eligible to
apply to be insured under the Federal
Deposit Insurance Act (FDIA). The FDIA
definition of an insured bank includes a
foreign bank that has an insured branch
as well as any other bank with deposits
insured in accordance with the FDIA.
Based on these definitions, the Board
believes the statute’s coverage is very
broad, and covers both state and
federally chartered institutions,
regardless of whether or not the
institution is insured (by federal, state,
or private insurance). Foreign banks that
meet this definition also would be
covered.
As discussed in § 230.1, the proposed
regulation does not apply to credit
unions.
Paragraph (i)—Interest
This definition states that bonuses
and similar offers do not constitute
interest for purposes of the regulation.
This differs from the interpretation of
the rule in Regulation Q (12 CFR
217.2(d)), which does include bonuses as
part of its definition of interest, due to
the prohibition of paying interest on
demand accounts, and the fact that in
that context a bonus is the equivalent of
interest. The proposed definition makes
clear that a depository institution’s
practice of charging higher fees to non
account holders than to account holders
does not make the differential
“interest." Also, an institution’s
absorption of expenses incident to
providing a normal banking function or
its forbearance from charging a fee in
connection with a service is not
considered to be a payment of interest.
Paragraph (j)—Periodic Statement
The statute does not define “periodic
statement," although the term, or similar
12738
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
term “account statement,” is used in two
provisions (sections 266 and 268).
Section 266(e) of the statute (which
requires a notice to be given to existing
account holders) refers to account
statements provided on a quarterly
basis. The Board has looked to this
provision and to requirements in other
regulations in defining periodic
statement. For example, Regulation E
requires a periodic statement to be
provided monthly if electronic transfers
have taken place, but at least quarterly
if no transfer has occurred. In addition,
Regulation Z generally provides that
periodic statements must be provided at
the end of any billing cycle—which must
be at least quarterly—for open-end
credit accounts. The Board believes this
approach has worked well and proposes
to define periodic statement as one sent
on a quarterly or more frequent basis.
The Board solicits comment on whether
this is an appropriate time interval, or
whether a narrower or broader
definition is more appropriate. The
Board also solicits comment on whether
a longer time interval should be applied
to statements sent on accounts such as
time deposits.
An example of a periodic statement is
a monthly statement for a NOW account
which sets forth account information,
such as a listing of transactions. On the
other hand, regularly providing general
service information to consumers which
does not discuss specific transaction
activity or other aspects of a particular
consumer’s account (for example, a
quarterly newsletter describing services
and other deposit accounts) would not
be considered a periodic statement.
If an institution sends a periodic
statement due to other legal
requirements (for example, if the
account can be accessed by electomic
fund transfers and is covered by
Regulation E), then 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.
Paragraph (k)—Simple Interest Rate
Section 274(3) of the statute defines
the “annual rate of simple interest” as
“the annualized rate of interest paid
with respect to each compounding
period, expressed as a percentage.” The
Board is proposing to simplify the
phrase and reword the definition to
clarify that the “simple interest rate” is
the rate of interest paid without regard
to compounding, shown as an annual
figure and expressed as a percentage.
Section 274(3) of the act also provides
that the simple interest rate may be
referred to as the "annual percentage
rate.” The Board is proposing to require
that institutions refer to this figure using
the term “single interest rate” and to
permit institutions to use the term
“annual percentage rate” only in
addition to the term "simple interest
rate” and only for account disclosures
(not in advertisements).
The Board believes it is essential to
assist consumers in comparing accounts
to require the use of standardized
terminology in this area. The Board
believes it may be confusing for
prospective account holders to see the
same figure labeled as the "simple
interest rate” in some advertisements
and disclosures and as the “annual
percentage rate” in others. Also, the
term “annual percentage rate,” as
required to be disclosed under
Regulation Z, is commonly understood
by consumers to encompass the total
cost of credit—including both interest
and other finance charges. The Board is
concerned that consumer confusion may
result if the term “annual percentage
rate” is used to designate a simple
interest rate for the consumer’s deposit
account at a depository institution, if the
same terminology is used to designate a
rate that includes both simple interest
and, for example, points, for the
consumer’s mortgage loan with the same
institution. Since the potential for
confusion is greatest in advertisements,
the Board proposes to permit use of the
term “annual percentage rate” only in
the account disclosures and then only in
addition to the term “simple interest
rate.” In no cases would an institution
be required to refer to the simple
interest rate as the annual percentage
rate.
Paragraph (m)—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 proposes to
define “stepped rate” and “tiered rate”
accounts, both of which would be
“multiple rate” accounts under the
statute. While both accounts involve
multiple rates, the characteristics of
each have different implications for
calculating and disclosing the annual
percentage yield.
The Board proposes to define stepped
rate accounts as those in which two or
more simple interest rates (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% simple interest rate is paid for
the first six months, and 5.50% for the
second six months.
Paragraph (n)—Tiered Rate Account
The Board proposes to define tiered
rate accounts as those in which two or
more simple interest rates paid oh the
account are determined by reference to
a specified balance level. An example of
a tiered rate account is one in which an
institution pays 5.00% simple interest
rate on balances below $1,000, and
5.50% on balances $1,000 and above.
There are two types of tiered accounts
which are described more completely in
appendix A, Part I, (D).
Paragraph (o)—Variable Rate Account
The statute does not define variable
rate accounts, but section 265 of the act
authorizes the Board to adjust its annual
percentage yield disclosure rules for
such accounts. The legislative history
accompanying the law also indicates
that modifications to the act’s advance
notice requirement for changes in terms
were contemplated for variable rate
accounts (see discussion of proposed
§ 230.5 below). The Board requests
comment on how variable rate accounts
may best be defined to further the
purpose of the act. Two alternative
definitions are included in the proposed
regulation.
Classifying an account as a “variable
rate” has two implications: (1) The
Board is proposing certain additional
account disclosures for those accounts
in § 230.4(b)(l)(ii); and (2) the Board is
proposing to exempt rate decreases on a
variable rate account from the change in
terms rule (see the discussion of changes
in terms in § 230.5).
A variable rate account clearly would
include one with rates based on either
an external or an internal index—for
example, if an institution tied rate
changes to the 1-year Treasury bill or to
the institution’s own “prime” rate. The
majority of institutions, however,
currently set rates based on a variety of
factors and do not tie changes to an
identifiable index.
The first alternative in the proposed
regulation would define a variable rate
account narrowly, as one tied to an
index (either an external or an internal
index).
The Board solicits comment on
whether the definition of a variable rate
account should be broader, so as to
encompass all accounts which, pursuant
to an account agreement, permit the
institution to change the rate at the
election of the institution. The Board is
aware that most if not all institutions
routinely include a contractual right to
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
change rates in their account
agreements (other than time deposits),
although in some cases the right is
seldom exercised and holders of such
accounts likely consider the account to
be fixed rate. The Board is concerned
that, if the definition of a variable rate
account encompasses all such
situations, consumers who view their
accounts as essentially fixed rate
accounts would not receive advance
notice of rate changes.
One way to deal with this is reflected
in the second alternative in the
proposed regulation. It would treat as
fixed rate those accounts where the
institution contracts to provide at least a
30-day advance written notice of rate
changes. This would provide a way for
institutions that prefer to offer—and
consumers who prefer to hold—“fixedrate" accounts to do so, while providing
the advance notice the Congress
intended. In other cases, where the
institution does not commit itself to a 30day notice, the accounts would be
variable rate accounts, and would not
require advance notice when rates
changed. For those accounts in which
the institution does not guarantee the
rate for at least 30 days, it would be
required to give full disclosure of the
variable rate feature when the accounts
are opened (under proposed
§ 230.4(b)(l)(ii)).
The Board considered a variety of
other approaches to defining a variable
rate account. For example, it could be
viewed as one in which the institution
expressly provides for the option to
change the rate at a specified frequency,
such as every week or every month.
Adoption of such an approach may not
be effective in distinguishing between
fixed and variable rates, however, since
institutions could add such a “variable
rate feature” by simply modifying their
agreements to reflect such a right
without changing their pricing practices
in any way.
Another alternative considered was to
define as variable rate accounts those in
which the rate had in fact changed a
specified number of times during a
specified prior period. Although such an
approach has the appeal of being based
on actual experience, the Board is
concerned that compliance would be
complicated and cumbersome.
The Board expressly solicits comment
on the two alternatives reflected in the
proposal, the advantages and
disadvantages of each, and any other
alternatives.
Section 230.3—General Disclosure
Requirements
Paragraph (a)—General
Section 264 of the act requires
depository institutions to maintain a
written schedule of fees, interest rates
and other terms applicable to each class
of accounts offered by the depository
institution. The statute requires the
disclosures to be written in ‘‘clear and
plain language.” The proposed
regulation requires information to be
disclosed “clearly and conspicuously,”
the standard required by other
regulations adopted by the Board, such
as Regulation Z. The Board believes that
use of a commonly used and understood
standard facilitates compliance with the
law and carries out the act’s
requirement that disclosures be written
in clear and plain language. For
uniformity, the format requirement of
“clear and conspicuous” would apply to
all disclosures provided to consumers,
including the change in terms notice and
information given on periodic
statements, and not just the account
opening disclosures. The Board also
proposes to include a provision
requiring disclosures to reflect the legal
obligation between the parties in order
to provide guidance about the basis for
disclosures; this parallels the standard
used in Regulation Z. The proposal
would require that disclosures be
provided in a form the consumer can
retain, since that seems to be clearly
what the Congress intended in order to
facilitate comparison shopping.
Disclosures need be made only as
applicable. Therefore, disclosures for
noninterest bearing accounts would not
include disclosure of an annual
percentage yield, simple interest rate, or
any other disclosures that pertain to
interest calculations.
The Board is not proposing a rule
dealing with the use of estimates in
making disclosures. Regulation Z
contains such a provision since many
fees are not within the control of the
lender, and since the timing of a
transaction may not be precisely known
when disclosures are required to be
provided. Regulation E does not contain
a rule permitting estimates, and it seems
more analogous to this regulation on this
question. Since the fees to be disclosed
are those established by the institution
and are not a function of the amount
deposited by the consumer, the Board
does not believe a rule on estimates is
needed. The Board solicits comment on
this issue.
The proposed regulation provides
depository institutions with flexibility in
designing the order of the disclosures, so
long as the information is presented in a
12739
format that allows consumers to readily
understand the tefms of their own
accounts. The disclosures required by
the regulation may be made on more
than one page and may use both the
front and reverse sides, as long as the
pages are part of one document
Institutions could use inserts to a
document or fill in blanks to show
current rates. Since rates may change on
a frequent basis and rate information
needs to be current, the Board believes
requiring such information to be
preprinted in a document could impose
substantial costs and burdens on
institutions, with no particular benefit to
consumers.
In designing the account disclosures,
depository institutions have several
alternatives. Institutions could prepare a
single document that contains
disclosures for all accounts offered, or
prepare different documents for
different types of accounts. For example,
institutions may provide a single
document for all transaction accounts,
such as NOW and demand deposit
accounts. Institutions that choose to
combine information about accounts
would have to clearly indicate the terms
that apply to the account selected by the
consumer. (See, for example, the
approach taken in B-3 Sample Form, in
appendix B.) Institutions may provide
disclosures for each type of account,
such as a document that describes all
time deposits offered. The regulation
also would permit institutions to provide
disclosures describing a single account
product; for example, an institution
offering three different NOW accounts
may provide a separate document for
each account. In all of these situations,
the Board proposes to permit depository
institutions to include in the document
containing the account disclosures
contract terms and other disclosures
that relate to the account, such as
disclosures required by Regulation E or
by Regulation CC (12 CFR part 229),
which implements the Expedited Funds
Availability Act.
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),
230.8(a) and 230.8 of the regulation
would require the "annual percentage
yield” (and, in some cases, the “simple
interest rate") to be so labeled in
account disclosures, periodic statements
and advertisements. Apart from this,
there is no required terminology.
Finally, the act and regulation do not
contain any special requirements
regarding whether disclosures may be
made in a foreign language rather than
12740
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
in English. Regulation Z allows creditors
in Puerto Rico the option of providing
disclosures in Spanish, so long as those
that do so furnish disclosures in English
upon request The Board requests
comment on whether the purposes of the
act would be furthered by permitting
institutions to deliver disclosures in
other languages (in Puerto Rico or
elsewhere), provided that disclosures in
English are furnished upon request
Paragraph (b)—Multiple Consumers
The Board proposes that in the case of
an account held by more than one
consumer, institutions could provide the
account disclosures to any consumer
who holds 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.
Paragraph (c)—Oral Responses to
Inquiries
The Board is proposing to add this
rule to the regulation, which has no
counterpart in the statute. Since
consumers may call institutions to
obtain rate information, the Board
believes it is important for uniformity
and comparison shopping that any rates
quoted be stated as an annual
percentage yield. The regulation would
also permit institutions to state the
simple interest rate, but would prohibit
any other rate. An approach similar to
this is used in Regulation Z.
Section 230.4—Account Disclosures
The statute requires institutions to
maintain an “account schedule” that is
provided to consumers before an
account is opened, and under certain
other circumstances. The Board
proposes to use the more general and
commonly understood terminology of
“disclosures” (rather than schedule) in
connection with the information
required to be provided to consumers.
Paragraph (a)—Delivery of Account
Disclosures
Paragraph (a)(1)—Account opening.
Section 260 of the act requires account
disclosures to be provided before an
account is opened or a service is
rendered. The act also allows the
disclosures to be sent within 10 days of
"the initial deposit” if the consumer is
not physically present when the deposit
is accepted and the disclosures have not
been provided previously. To simplify
the timing rules, the proposed regulation
applies the 10-day rule to the provision
of services, as well as to opening
accounts, and defines the period as 10
Dusiness days rather than calendar
days. The Board solicits comment on
whether business days or calendar days
should be used in setting forth the timing
rules.
The statute suggests that institutions
are required both to “maintain” a
schedule and to provide it to consumers
in the designated circumstances. The
Board believes that by providing
disclosures as required by the act and
regulation, institutions satisfy the
statutory requirement to “maintain” a
schedule. Thus, the regulation would not
place an independent duty on
institutions to “maintain” schedules or
disclosures.
The Board believes the provision
requiring disclosures to be given before
a service fee is imposed covers the
infrequent circumstance where a fee is
assessed for a service prior to the
opening of an account. For example, if
an institution obtained a copy of a
consumer’s credit report and charged
the consumer for the report prior to
opening the account, the institution
would have to provide the consumer
with the account disclosures prior to
assessing the fee. This provision,
however, does not require institutions to
give disclosures to existing account
holders prior to imposing a service fee
connected with the account, such as for
stopping payment on a check or
transferring funds into or out of an
account by wire.
If an account is opened or a service is
requested by means such as telephone,
wire transfer or mail, the account
disclosures must be mailed or delivered
within 10 business days of the time the
account is opened or service is provided.
This time rule would apply, for example,
if a consumer opens a time deposit by
mailing in the funds. Institutions would
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 statute states that disclosures
need not be provided to the absent
consumer if the disclosures were
previously provided. The Board believes
that institutions may rely on this
provision only if the disclosures
previously provided contained
information about fees, interest rates,
and other terms of the account that are
still current. The Board requests
comment on whether it would bs
desirable to specify a time limit, for
example, 60 days, beyond which prior
disclosures would be deemed not to be
current—even if they have not changed.
Paragraph (a)(2)—Requests. The act
requires that the account disclosures be
made available to any person upon
request The proposal implements the
act by requiring depository institutions
to mail or deliver the disclosures no
later than three business days following
receipt of a consumer’s oral or written
request Requests are likely to come
from consumers who are comparison
shopping for accounts. While a timing
rule of 10 days (business or calendar
days) may be appropriate when
providing written disclosures to a
consumer who has already decided to
open an account by mail or telephone,
the Board believes it would be more
consistent with the act’s goals if a
consumer’s request for account
disclosures were fulfilled within a
shorter time period, since it is likely the
consumer is shopping for an account.
Three business days is a timing rule
used in Regulation Z for certain
transactions, and the Board believes
that the rule would work well for this
regulation. The Board solicits comment
on whether it is 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. (Of course,
when the consumer is present at the
institution and requests information
about an account, the disclosures must
be given at that time.)
The Board believes an institution
would not have a duty to provide
account disclosures if a consumer
merely asks about current rates for an
account. For example, the common
practice of telephone inquiries about
rates and yields on certificates of
deposit would not trigger an institution’s
duty to send disclosures to the caller—
so long as the consumer does not ask for
such information to be sent.
Paragraph (a)(3)—Renewals o f time
deposits—Paragraph (a)(3)(ii)—Time
deposits that renew automatically. The
renewal of a time deposit is the
equivalent of opening another account,
and requires a set of disclosures about
the new account, as stated in paragraph
(a)(3)(i) of this section. The act requires
account disclosures to be provided to
consumers at least 30 days prior to the
maturity of a time deposit that is
renewable without notice from the
consumer ("automatically renewable” or
“rollover” time deposits). The proposed
regulation requires depository
institutions to mail or deliver the
account disclosures described in § 230.4
to such consumers, but creates an
exception for short-term time deposits.
The proposed regulation would not
require institutions to provide an
advance copy of disclosures for
automatically renewable time deposits
with a maturity of three months or less.
In such cases, institutions would provide
Federal Register / VoL 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
disclosures no later than 10 business
days after the account is renewed.
The legislative history accompanying
the act recognizes that the Board may
wish to establish special rules for short
term time deposits. (See the Committee
Report accompanying H.R. 2654, of the
Committee on Banking, Finance and
Urban Affairs, September 12,1991.) Two
policy reasons for providing advance
notice to consumers with automatically
renewable time deposits are: (1) To
remind the consumer that the account is
nearing maturity and that funds will be
reinvested for a set period of time (thus
limiting access to funds) if the consumer
does not act; and (2) to give the
consumer an opportunity to comparison
shop before reinvestment occurs. The
Board believes consumers with short
term accounts do not have the same
need of a reminder of impending
maturity as do those with longer term
instruments. Furthermore, a consumer
may derive little or no benefit by
receiving a second virtually identical set
of disclosures, for example, 15 days
after purchasing a 45-day certificate of
deposit In addition, compliance with a
30-day advance notice requirement
would literally be impossible for very
short-term instruments (such as 7-day
certificates of deposit).
The Board solicits comment on
whether the proposed exception from
advance disclosures should be made for
short-term accounts, and, if so, whether
a three-month period is the appropriate
cutoff.
The Board considered other
alternatives for creating an exception
from the advance disclosures for short
term automatically renewable deposits,
such as a tiered approach. For example,
institutions could be required to give
account disclosures 30 days prior to
maturity for deposits with a maturity
greater than six months, 15 days for
accounts with a maturity between one
and six months, and no advance
disclosures for accounts less than one
month. The Board solicits comment on
this tiered approach, as well as the
timing requirements and cutoffs that
might be used in such an approach.
One problem presented by the 30-day
advance disclosure requirement for both
short- and long-term accounts is that the
simple interest rate and the annual
percentage yield generally will not be
known at the time disclosures must be
given. The Board does not believe the
statute requires institutions to “lock in"
or guarantee the rates for an account at
the time of the advance notice. The
Board proposes as an alternative to
stating the simple interest rate and the
annual percentage yield in effect at the
time the advance notice is sent, that
institutions instead state that the simple
interest rate and the annual percentage
yield for the account have not yet been
determined, the dates when they will be
determined, and a telephone number the
consumer can call to obtain the simple
interest rate and the annual percentage
yield that will be paid when the account
is renewed. The Board believes this
approach would facilitate comparison
shopping.
The Board considered an alternative
approach: requiring institutions to
provide consumers with an annual
percentage yield that is current when
the notice is provided, but that may
change before the time deposit renews.
The Board is concerned, however, that
consumers might believe the annual
percentage yield disclosed in an
advance notice would be the annual
percentage yield applicable for the
renewed account Since the annual
percentage yield could fluctuate
between the time the disclosures are
sent and the renewal date, stating the
rate at the time of mailing could thus be
misleading. The Board believes
consumers would be better served by
receiving the actual annual percentage
yield that will apply, even if they must
contact the institution to do so.
Furthermore, since consumers who
received an advance annual percentage
yield would likely have to call the
institution to determine the current
annual percentage yield at the time of
renewal anyway, the alternative of
including the most recent annual
percentage yield appears to be of little
benefit to consumers.
Institutions with short-term time
deposits proposed to be exempt from the
advance disclosure rule would still be
required to provide disclosures under
the general rule (within 10 business days
after the account is renewed). The Board
proposes, however, that if institutions
choose to provide advance account
disclosures 30 days prior to the rollover
date for those accounts, additional
disclosures would not have to be
provided at renewal—even if the exact
simple interest rate and annual
percentage yield had not been disclosed
earlier. The Board solicits comment on
this proposal.
Paragraph (a)(3)(iii)—Time deposits
that renew by consumer request. For
non-automatically renewable time
deposits (that is, those that are renewed
only if the consumer affirmatively
requests the institution prior to or at
maturity to renew the account),
institutions would provide account
disclosures in accordance with the
normal timing rules—within 10 days of
renewal if not done in person.
12741
Paragraph (b}—Content of Account
Disclosures
Paragraph (b)(1)—Rate information-—
Paragraph (bj(l)(i)—Annual percentage
yield and simple interest rate.
Institutions would be required to
disclose the "annual percentage yield,"
using that term, computed in accordance
with appendix A, Part I. Institutions also
would be required to disclose the
"simple interest rate,” using that term,
and would be permitted to use the term
"annual percentage rate” in addition to
the simple interest rate. (See the
discussion in the supplementary
information accompanying § 230.2 (c)
and (k) regarding the proposal to use
standardized terminology for these
figures.) Institutions must also disclose
the period of time the simple interest
rate will be in effect. This requires
institutions to state the length of time, if
any, the institution guarantees that this
rate will continue to be paid after the
account is opened. If an institution does
not guarantee a rate for any period of
time beyond the day the account is
opened, the Board does not propose to
require that fact to be stated, since the
variable rate disclosures would reflect
this fact
If an institution sets a minimum
balance to earn interest, for example
$400, the institution would not have to
state that the annual percentage yield is
0% for those days the balance in the
account drops below $400.
In the case of stepped rate accounts,
each simple interest rate and the period
of time each will be in effect would be
provided. For example if an institution
offered a 1-year certificate of deposit
with a simple interest rate of 5.00% for
the first six months and 5.50% for the
second six months, it would disclose
both simple interest rates, the
corresponding annual percentage yield
(5.39%, assuming interest is compounded
daily), and the fact that each simple
interest rate would be in effect for
successive six month periods. An
institution offering tiered rate accounts
would disclose each simple 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% simple
interest rate for balances below $1,000
and a 5.50% simple interest rate for
balances $1,000 or above, both rates
would have to be provided as well as
the annual percentage yields that would
apply to the account (See appendix A
for the calculation of the annual
percentage yields for stepped rate and
tiered rate accounts.)
12742
Federal Register / VoL 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
Paragraph (b)(l)(ii)—Variable rates.
The statue does not expressly require
specific additional disclosures for
variable rate accounts. (See the
supplemental information t6 9 230.2(o),
where a variable rate account is
defined.) Sections 284(d) and 265(2) of
the act, however, recognize that die
Board may wish to prescribe specific
disclosures for variable rate accounts.
The Board proposes to require certain
basic information about a variable rate
feature in the account disclosures. These
disclosures are similar to the
abbreviated variable rate requirements
for open-end credit found in Regulation
Paragraph (b)(3)—Compounding and
crediting. The proposed regulation
requires institutions to disclose the
frequency with which interest is
compounded and credited. If the
frequency of either would change if the
consumer does not meet a minimum
time requirement, or under any other
circumstance, such frequency would
also have to be disclosed. (See the
supplemental informaiton accompanying
§ 230.7(b) for a discussion of crediting
practices.]
Paragraph (b)(4)—Balance
information—Paragraph (b)(4)(ii)—
Minimum balance requirements. This
Z.
provision requires institutions to
Institutions offering variable rate
disclose any minimum balance required
accounts wouid be required to state that to open the account to avoid the
the simple interest rate and annual
imposition of fees, or to obtain the
percentage yield may change. They
annual percentage yield. For example, if
would also have to explain how the
an institution provides that a $3 fee will
simple interest rate is determined. For
be assessed if the average daily balance
example, if the simple interest rate is
drops below $500, that provision would
tied to the 1-year Treasury bill plus or
have to be disclosed. Institutions would
minus a specified margin, the index
also have to describe the method they
must be clearly identified and the
use to determine that balance. The
specific margin stated. If “variable rate
explanation of the balance computation
account” is defined broadly (see the
methods can be combined with the
discussion of § 230.2(o) above), an
disclosure under paragraph (b)(4)(ii) if
institution that contractually reserves
the methods are die same. Institutions
the right to change rates and does not tie would not be required to describe the
changes to an index would disclose that method used to determine the balance
rate changes are solely within the
needed to open the account since it is
institution’s discretion. Depository
simply the dollar amnount that must be
institutions would also be required to
deposited by the consumer.
explain the frequency with which the
Paragraph (b)(4)(H)—Balance
simple interest rate may change. For
computation method. Institutions would
example, if the institution retains the
be required to describe the method used
right to change the rate on a weekly or
to determine the balance on which
monthly basis, that would be stated.
interest is paid, (see discussion of
Institutions that reserve the right to
§ 230.7(a) regarding permissible balance
change rates at any time would state
computation methods.) Thus, if the
that fact.
institution uses the daily balance
If the depo sit co n tra ct pla ce s any
method it would state that it uses the
lim its on the am ount the sim ple interest
daily balance method and could
ra te w ill change a t an y on e tim e or for
describe it as one in which interest is
an y period, th a t w ould be stated. For
computed by applying a periodic rate to
exam ple, if the institution places a floor
the principal balance in the account
or ceiling on ra te s or provides th a t a rate each day. If it uses the average daily
m ay not d ecrease or increase m ore th an
balance method the institution would
a specified am ount during an y time
state that and describe the method as
period th a t w ould b e disclosed.
one in which interest is computed by
T he proposed regulation refers to the
applying a periodic rate to the average
sim ple in terest ra te ra th e r th an the
balance in the account for the period or
an nual percentage yield in discussing
cycle, with the average balance
the v aria b le ra te disclosures. T he B oard
calculated by adding the balance in the
b elieves this is m ore accu rate since
account for each day of the period or
changes in the an nual percentage yield
cycle, and dividing that sum by the
derive from changes in the sim ple
number of days in the period or cycle.
in terest rate.
The Board solicits comment on
Paragraph (b)(2)—Time requirements. whether institutions also should be
This provision requires institutions to
required to disclose when they begin to
state any time requirement for time
accrue intrest on noncash deposits. For
deposits, that must be met to obtain the example, some institutions begin to pay
annual percentage yield. Thus, an
interest on the day such a deposit is
institution would state the maturity date received by the institution (sometimes
for certificates of deposit
called the “ledger balance” method).
Others begin paying interest no later
than the business day specified in
section 608 of the Expedited Funds
Availability Act and its implementing
Regulation CC^the "collected balance”
method).
Paragraph (b)(5)—.Pees. The statute
requires disclosure of fees that may be
assessed against the “account holder1
'
as well as against the account. The
Board believes the wording of the
proposal, which requires disclosure of
all fees that may be assessed in
connection with the account captures
the same information required by the
statute.
The statute requires the Board to
specify, in the regulation, which fees
must be disclosed. Since the proposal
requires all fees assessed in connection
with the account to be disclosed, the
Board is not proposing to list in the
regulation every fee that might be
imposed. The proposed regulation does
not mandate terminology for fees, and
the Board does not believe that all fees
could be identified by name in the
regulation in any event. Institutions use
different names to describe the same
type of fee. 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.
The proposed regulation requires
institutions to state the “conditions”
under which the fee may be imposed.
The Board believes that typically the
name and description of die fee will
satisfy this requirement. For example, if
an institution charges a $.25 fee for each
ATM withdrawal from an account, and
describes it in that manner, no further
information need be provided.
While the Board believes any attempt
to list all fees by name would be
ineffective, the Board is providing
guidance as to the types of fees that are
and are not "assessed in connection
with the account" Fees that may be
assessed in connection with the account
wuld include, for example, maintenance
fees, fees charged for each check written
on an account fees to obtain or use an
access device (such as a debit card),
fees due to lack of account activitiy for
any period of time, wire transfer fees,
and fees to have checks printed. The
type of fee required to be disclosed
under this section is a broader category
than the "maintenance or activity fee”
discussed in the advertising rules in
§ 230.8(a), under § 23G.4(b)(5},
institutions would disclose fees relating
to checks that have been returned
unpaid and fees to stop payment on a
check, even through these would not be
Federal Register / VoL 57, No. 7% J Monday, April 13. 1992 / Proposed Rates
deemed an “activity” or “maintenance”
fee for purposes of $ 230.8(a).
Fees that may be charged to a
consumer for services unrelated to the
account—
rand that would be assessed
against nonaccount holders—such as
fees to purchase a cashier’s check or to
lease a safe deposit box are not required
to be disclosed. Such fees need not be
disclosed even if the amount of the fees
differ for account and nonaccount
holders.
Paragraph (b)(6)—Transaction
limitations. The statute requires
institutions to disclose the “terms and
conditions * * * and account
restrictions" applicable to accounts. The
Board believes this requires institutions
to state any limitations on the number or
amount of deposits or withdrawals, or
checks that may be written on an
account for any time period. If an
institution does not permit withdrawals
or deposits (for example, for a time
deposit) that fact would have to be
stated.
Paragraph (b)(7)—Early withdrawal
penalties. Proposed § 230.4(b)(7)
implements section 264(c)(10) of the
statute. The act requires institutions to
disclose any requirement relating to the
nonpayment of interest, including any
early withdrawal penalty. The statute
places no limitation on how early
withdrawal penalties are calculated.
The Board proposes to limit this
requirement to time deposits, although
the statute does not explicitly do so,
since an early withdrawal contemplates
a maturity date, which exists only in
time deposits.
Section 264(c)(9) of the statute
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. The regulation
does not contain a parallel provision
because, to the extent this is read to
refer to a practice other than the
imposition of early withdrawal
penalties, if appears to conflict with
section 267 of the statute. As discussed
below in connection with § 230.7(a),
section 267 of the statute 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. The Board believes
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 believes institutions may not
fail to pay interest on amounts
withdrawn, and so this disclosure is
inapplicable. As stated above, however.
institutions may impose early
withdrawal penalties on time deposits
and may use any method they choose to
calculate the amount of the penalty.
(Model clause B-l(h), in appendix B,
provides three examples of how early
withdrawal penalties may be
determined.)
Paragraph (b)(8)—Renewal policies.
For time deposits, the Board proposes to
require institutions to indude a
statement of whether or not the account
will automatically renew at maturity.
The statute does not expressly mandate
disclosures of an institution's policies
about renewal, but does require
institutions to disclose the “terms and
conditions" applicable to accounts
generally. In addition, section 264(d) of
the act recognizes that the Board may
wish to require information to be given
regarding renewal policies for time
deposits.
The Board believes it is important for
consumers to be informed whether a
time deposit will automatically renew or
whether the consumer must contact the
institution at a later time to renew an
account since time deposits limit the
consumer’s access to his or her funds in
a way other accounts do not. The Board
also proposes to require institutions to
disclose what will happen to funds after
maturity if the consumer does not renew
the account in the case of “non
rollover” accounts. For example, an
institution might disclose that the funds
will be placed in a non-interest bearing
account The Board solicits comment on
whether institutions also should be
required to disclose whether the rollover
account has a “grace period” (a period
after maturity during which the
consumer may withdraw the funds
without being assessed a penalty) and
the length of such a period.
Paragraph (b)(9) Potential loss o f
principal. As discussed in the definition
of “account” in 5 230.2, the Board
believes accounts denominated in a
foreign currency that are offered to or
held by consumers are covered by the
statute. The Board believes that in light
of potential changes in exchange rates,
consumers are especially in need of
certain disclosures to ensure they are
aware of how these products operate.
Any significant decline in the value of
the currency may result in a loss of
principal for the consumer, which is
typically not a risk associated with
other accounts covered by the law.
For these—and any other accounts
offered—that involve the risk of loss of
principal (other than when that “loss” is
due to an early withdrawal penalty for a
time deposit), the Board proposes to
require institutions to disclose this fact.
Thus for foreign currency accounts.
12743
institutions would state that fluctuations
in exchange rates of foreign currencies
may result in a kiss of principal. The
Board solicits comment on whether
institutions should also state that any
such loss is not covered by deposit
insurance.
Paragraph (c)—Notice to existing
account holders. Section 226(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.
Section 269(a) of the act provides that
regulations adopted by the Board shall
take effect six months after they are
published in final form. Section 269(a)(4)
of the act provides the law “shall not
apply with respect to any depository
institution before the effective date of
regulations prescribed by the Board.”
Despite the language in section 226(e),
the Board believes the general rule that
compliance duties do not begin until six
months after the Board has adopted
final regulations should apply to the
notice given to existing account holders
as well as to all other provisions.
Otherwise, institutions would be
required to include a, notice to existing
account holders prior to the effective
date of the regulation. The Board
believes requiring institutions to provide
this notice before disclosures are
required to be available could be
confusing to consumers who might
request the disclosures. Furthermore,
consumers who open accounts before
the effective date of the regulation but
after the mailing date of the periodic
statement in which the notice was sent
would not receive disclosures or be
alerted to their availability. The Board
therefore proposes to require institutions
to give the notice on or with the first
periodic statement sent to existing
account holders after the effective date
of the final regulation. The Board solicits
comment on this approach.
The notice required by this section
need only be provided once and informs
current account holders that they may
wish to request terms and conditions
about the account If the institution
receives a request it would provide the
account disclosures described in § 230.4,
including the current simple interest rate
and annual percentage yield for the
consumer's account As an alternative to
including this notice on a periodic
statement the Board proposes to permit
institutions to send the account
disclosures themselves, as long as they
are sent with the periodic statement
The statute requires that the notice
state both that the account holder has a
right to request disclosures and that he
12744
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
or she may wish to make such a request.
The proposal merely requires a
statement that the account holder may
wish to request the disclosures.
Section 230.5—Advance Notice o f
Change in Terms and Advance Notice of
Maturity
Paragraph (a)—Change in Terms
Section 269(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 impact the consumer. The
proposed regulation requires a written
notice describing the change and its
effective date to be sent 30 days before
the effective date of the change. 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. The notice must be given
whenever a change occurs after the
account disclosures are given. The rule
would apply to all accounts, not solely
accounts opened after the effective date
of the regulation.
The notice requirement applies only to
items required to be included with the
account disclosures. For example, if an
institution reduces any grace period for
rollover certificates of deposit—a term
not required to be stated under proposed
§ 230.4(b)—a change in terms notice
would not be required. (See the
discussion of whether any grace period
should be disclosed in § 230.4(b)(8),
however.) If a combined disclosure
statement for two types of accounts was
initially provided (and indicated which
terms applied to each account), and the
institution later changed a term for one
of the accounts, the change in terms
notice would need only be given to
those consumers holding that type of
account, and not the holders of the
second type of account.
The Board solicits comment on
whether an exception to the change in
terms notice requirements should be
made for rate changes that occur in
variable rate accounts. Section 265 and
269 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
indicates the change in terms
requirement was not intended to apply
to changes in the simple interest rate
(and corresponding changes in the
annual percentage yield) for variable
rate accounts. (See discussion of this
issue in § 230.2(o).) The Board believes
that requiring an advance change in
terms notice for changes to the simple
interest rate in variable rate accounts
may be very burdensome to institutions,
and may reduce the products available
to consumers. As discussed earlier
under § 230.4(b)(l)(ii), the Board is
proposing to require institutions to
disclose certain information about
variable rate features, so consumers will
be aware of the potential for rate
changes and how often they can occur.
In addition, where periodic statements
are sent for accounts (such as for NOW
or money market accounts), the
consumer will receive information about
the annual percentage yield that will
reflect rate changes that occurred.
Commenters are requested to address
the advantages and disadvantages of
requiring an advance notice of rate
changes for variable rate accounts.
The Board is concerned, however, that
in cases where periodic statements are
not sent for variable rate accounts—
such as a passbook savings account—
considerable time may pass before
consumers learn about rate changes on
their accounts. Thus, the Board solicits
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. Comment is also requested on
whether the subsequent notice
requirement should extend to variable
rate time deposits where the consumer
has agreed to keep funds on deposit
until maturity. Comment is requested on
the appropriate time period for sending
such a notice, such as within 30 days
after an adverse change.
In addition to variable rate accounts,
there is another situation in which the
Board is proposing that a change in
terms notice not be required. As
discussed earlier, institutions must
provide account disclosures 30 days
before maturity for rollover time
deposits. (See discussion of
§ 230.4(a)(3)(ii).) Since the Board is not
proposing to require institutions to state
the exact simple interest rate and
annual percentage yield with the other
disclosures, the Board believes a change
in terms notice should not be required if
the simple interest rate and the annual
percentage yield change from the date
the disclosures are provided to the date
the consumer opens the account. Of
course, if other terms change, the 30-day
notice would have to be provided.
Paragraph (b)—Notice of Maturity for
Certain Time Deposits
As discussed earlier under
§ 230.4(a)(3)(ii), the act requires that
account disclosures be provided to
consumers 30 days prior to the maturity
of an automatically renewable time
deposit. The act does not address
whether any notice ordisclosures
should be provided to consumers prior
to the maturity of a time deposit that
renews only upon the consumer's
request at the time of maturity. The
Board is proposing to require a brief
advance notice to be sent to consumers
holding such time deposits. The
proposed notice would require
depository institutions to identify the
maturity date of the time deposit and
explain to the consumer what will
happen to the funds after maturity if the
consumer does not renew the account.
The Board believes it is important for
consumers to receive a notice of pending
maturity, especially since a periodic
statement or other reminder may not be
provided. The rule would apply to
existing time deposits as of the effective
date of the regulation.
The Board would not require such a
notice for short-term time deposits,
however, since there does not seem to
be a need for a reminder in such cases.
The proposal uses the same definition of
short-term time deposit (three months or
less) as is used in § 230.(4)(a)(3)(ii)
dealing with account disclosures for
automatically renewable time deposits.
It also uses the same timing rule; that is,
notices must be mailed or delivered at
least 30 days and not more than 60 days
before maturity. Of course, if the time
deposit is renewed, the disclosures
required by § 230.4 must be provided to
the consumer prior to renewal (or within
10 business days thereof, if the
consumer does not renew in person at
the institution).
The Board solicits comment on
whether such a prematurity notice
should be provided, whether an
exception for short-term deposits is
appropriate, and whether a short-term
time deposit should be defined as three
months or less.
Section 230.6—Periodic Statement
Disclosures
Section 268 of the act requires
depository institutions to include
specific information on or with each
periodic statement provided to
consumers. The Board does not believe
the act requires periodic statements to
be sent by an institution, but requires
that if an institution sends a periodic
statement certain information must be
included. (The statute does not define a
periodic statement. See the definition in
§ 230.2(j) above.) This requirement
applies to existing accounts as of the
effective date, as well as to new
accounts opened after the effective date.
Federal Register J Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rales
The information listed in this section
would be given only to the extent
applicable; for example, a periodic
statement for a non-interest bearing
account would not include interest or an
annual percentage yield.
Paragraph (a)—Annual Percentage Yield
Earned
The annual percentage yield
calculation as used for both advertising
and account disclosures is an
annualized rate that reSects the
frequency of compounding, but it is not
based on an actual account balance.
The act requires that “the annual
percentage yield earned" be included on
the periodic statement Several options
were considered by the Board in
determining what would be the most
appropriate way of calculating this
figure for the periodic statement. While
the Board proposes the first method
discusssed below, other alternatives are
set forth.
Annual percentage yield earned
reflecting relation o f interest to the
average daily balance. The Board
proposes to require that the annual
percentage yield reflect the relation
between the interest actually earned
during the statement period to the
average daily balance for the period
This figure would not reflect any fees
imposed during the statment period or
bonuses earned. The figure would show
true interest earnings for a particular
period by showing the relationship
between the actual interest earned and
the actual balance maintained during
that period. It would also capture all
rate changes that occurred.
This method would produce a single
composite annual percentage yield for
tiered rate accounts, demonstrating the
effect of the institution’s tiering method
on total earnings. Thus, institutions that
pay a lower simple interest rate on
deposits up to a certain level, and a
higher rate only on amounts above the
cutoff figure, would show a lower
annual percentage yield for a given
balance than would institutions that pay
the same higher rate for the entire
balance in the account if the balance
exceeds the cutoff figure.
In spite of these advantages, this
method has drawbacks. This approach
would not provide a figure die consumer
could use to verify earnings for the
period if multiple rates were used. The
figure also would not show rate
fluctuations during the period.
This method would produce, however,
a single figure that shows the true
interest earnings for die period. Thus the
impact of minimum balance
requirements to earn interest, tiering
structure, as well as differing rates
applied during the cyde, would all be
reflected in a single yield figure.
Annual percentage yield earned as a
net earnings figure. A second option
would require the annual percentage
yield to represent a new earnings figure
by taking 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 calculation might be more
realistic and useful to the consumer to
see what happened during a particular
cycle, as compared to an annual
percentage yield that factors in only
interest. This method presents several
problems, however. This option raises
the issue of whether all fees required to
be disclosed should be factored into the
annual percentage yield. For example,
should a stop payment fee or a fee for
writing a check on insufficient funds be
included in the calculation? If not, there
would appear to be no simple test for
determining which fees should be
reflected in the computation of the
annual percentage yield. Including fees
in the calculation could mean that for
some periods there might be a 0% (or
even a negative) annual percentage
yield. This approach would raise
difficult issues about including the value
of bonuses—particularly those paid in
merchandise. Finally, the Board believes
that using the same terminology to
describe different types of annual
percentage yield figures (one on periodic
statements and another in
advertisements and opening account
disclosures) would be confusing to the
consumer since different information
would be factored into the calculation—
only one taking into account fees and
bonuses.
Like the first alternative, this
approach does not provide the consumer
with a way to verify that the rate was
correctly applied to the account It also
does not show rate fluctuations within
the period for accounts where rates
change. Comparing the annual
percentage yield earned with the annual
percentage yield advertised by other
institutions would be difficult if not
impossible, since the annual percentage
yield in advertisements and account
disclosures is calculated without regard
to any fees or bonuses.
Annual percentage yield earned
reflecting historical rate information. A
third option considered by the Board
would use die same general annual
percentage yield calculation for the
periodic statement as is used for
advertising and initial disclosures. This
figure would not take into account the
precise amount of interest earned or the
12745
relation of die interest to the actuai
balance in die account during die
period, or die imposition of fees or
payment of bonuses. Hius, the annual
percentage yield would simply reflect
the institution's most recent simple
interest rate plus any compounding
frequency for the account
This third option would provide the
most accurate description of fluctuating
rates during a period by detailing the
rates applied during the cyde. The
annual percentage yield could easily be
compared with die advertised rates of
other institutions and would require
only one approach for the annual
percentage yield calculation for opening
disclosures, advertising and periodic
statements.
This method has its drawbacks as
well. It would be even less useful to the
consumer than the first two alternatives
to verify earnings for the period, since it
would not reflect factors such as
minimum balance requirements (and the
statute does not require balance
information to be given on the periodic
statement). In addition, this method
might require providing multiple annual
percentage yields (possibly a large
number for an account that had both
variable and tiered rates) that could be
confusing to consumers and burdensome
to institutions. Arguably this figure
would not show the annual percentage
yield “earned” as contemplated by the
statute. Finally, it would not provide
information about the impact of a tiered
rate structure on the consumer’s actual
earnings.
Proposal. The option proposed to be
used by the Board is the first one
described above, an annual percentage
yield that shows the relationship
between the interest earned and the
balance in the account for the cycle. The
proposal carries over the general
concept of the annual percentage yield
used in advertising and the opening
account disdosures which measures
only the interest earned. In the periodic
statement however, it would show the
relation between the actual interest
earned and the balance because that
information is known at that time. This
approach would show in a single figure
how well the consumer’s account
performed during the 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. It
also calls for similar computations to
those for other annual percentage yields,
which will ease the ability of consumers
to understand and compare accounts
12746
Federal Register / Vol. 57, No. 71 ./ Monday, April 13, 1992 / Proposed Rules
among institutions. The Board solicits
comment on all three options with
special consideration given to which of
the three approaches will most
effectively communicate to consumers
the appropriate information on earnings
for the statement period. The Board also
solicits comment on whether the
disclosure on the periodic statement
should be identified as the "annual
percentage yield earned” rather than the
“annual percentage yield” to distinguish
it from the yields stated in
advertisements and opening account
disclosures.
Paragraph (b)—Amount of Interest Paid
The proposed regulation requires the
periodic statement to include a dollar
figure for the amount of interest that has
been paid during the statement period.
The figure would not include accrued
interest that has not been credited to the
account during the period, since the
consumer has no access to the funds.
The Board proposes that any cash
bonuses paid to the consumer during the
statement period not be included in the
total interest figure, although comment
is requested on this issue. Since the
Board is not proposing to include any
bonus in the annual percentage yield
calculation, the Board believes including
it in an interest figure on the periodic
statement would be confusing to
consumers. (It could be shown
separately on the statement, of course,
as additional information.) The Board
solicits comment on whether the
regulation should require use of the term
“interest” for purposes of this
disclosure.
Paragraph (c)—Fees Imposed
The periodic statement would include
all fees of the type required to be
disclosed under § 230.4(b)(5) that were
imposed during the statement period.
For example, a monthly maintenance
fee, NSF charge, or stop payment fee
would have to be disclosed. Fees not
imposed in connection with the account,
such as those for a cashier’s check or
lease of safe deposit box, could be
included in the periodic statement as
additional information, at the
institution’s option. The regulation
would not require fees imposed in
connection with a credit account to be
disclosed—for example, a fee imposed
for accessing an overdraft feature on a
checking account—since they are
related to a credit feature and currently
required to be disclosed under
Regulation Z.
Section 268(3) of the act requires
disclosure of die “amount of any fees or
charges imposed,” without specifying
whether the fees should be totaled or
itemized. The Board considered different
methods for disclosing fees. The
regulation could require: (1) A single
figure showing the total amount of fees;
(2) an itemization of fees (perhaps also
requiring the date the fee was imposed);
(3) both an itemization and a total of
fees; or (4) at the institution's option, an
itemization, a total, or a combination of
these approaches.
The Board believes requiring all
institutions to provide an itemization of
fees by type is the most desirable
approach, and that is reflected in the
proposal. A listing of all fees would
enable consumers to see the types and
amount of fees imposed during the cycle.
The Board proposes to permit fees of the
same type to be grouped together. For
example, all ATM charges imposed
during the cycle or all per-check fees
could be stated as a single figure, or
shown separately.
Comment is requested on whether the
regulation should also require the
periodic statement to include a total fees
figure or even a net earnings figure—
that is, the total interest earned less any
fees imposed. The latter might be
desirable, especially since the Board is
recommending that the annual
percentage yield calculation not factor
in fees.
Paragraph (d)—Number of Days in
Period
The proposal tracks the statutory
language in requiring that the total
number of days in the statement period
be given on the periodic statement. The
Board requests comment on whether
providing the beginning and ending
dates for the period would provide
adequate information to consumers
(assuming it is clearly stated whether or
not both of these days are included as
part of the period).
Section 230.7—Payment of Interest
Paragraph (a)—Permissible Methods
Section 230.7(a) implements section
267(a) of the statute. The statute
provides that interest on interestbearing accounts shall be calculated by
institutions “on the full amount of
principal in the account for each day of
the stated calculation period” at the rate
disclosed (emphasis added). Although a
literal reading of this language might
appear to require institutions to
calculate interest by using a daily
balance calculation method (also known
as the day-in-day-out method or day-ofdeposit-to-day-of-withdrawal method),
the legislative history confirms that the
Congress considered the average daily
balance method an acceptable
alternative to the daily balance method.
The Board proposes to allow both
methods.
The legislative history states that the
provision is intended to prohibit
institutions from using certain other
balance computation methods, such as
the "low balance” or “investable
balance” method of computing interest.
The investable balance method of
paying a disclosed rate on only 88% of
the funds deposited by the consumer, for
example, was clearly one target of the
legislation. The low balance method
pays a disclosed rate only on the lowest
amount of principal in the account on
any day in the period. The Committee
report accompanying H.R. 2654 (the bill
passed by the House in 1991, which
contains language identical to that in the
law as enacted) discusses the provision
as follows:
Thus, institutions would not be permitted
to calculate interest on the “investable
balance” or other balances that are less than
the full amount deposited * * *. [It is]
Congressional intent to prohibit calculation
methods such as the low balance, FIFO and
LIFO (First In First Out and Last in First Out)
that do not meet the criteria stipulated in
[this] section * * * . It is the Committee’s
intent that [this] section * * * be construed
broadly to prohibit the use of any other
methods that do not pay the same amount of
interest, based on the full amount of principal
in the account each day, as do either the
average daily balance or daily balance
methods.
Average daily balance method.
Since the Statutory language itself is
ambiguous with regard to use of the
average daily balance method, the
Board solicits comment on whether
institutions should be permitted to use
this method.
Evidence indicates that a substantial
number of banks use either the daily
balance or the average daily balance
method to calculate interest. While most
banks use the daily balance method,
between 8% and 36% (depending on the
type of account) use the average daily
balance method. One survey found that
for NOW accounts, 91% to 95% of all
banks use either a daily balance or
average daily balance method. For
money market accounts, 88% to 93% use
one of these methods, and for savings
accounts, 90% to 99%.a
The Board believes permitting
institutions to use either the daily
balance method or the average daily
balance is consistent with the purpose
of the legislation which requires that
consumers be paid interest on the full
amount of principal in the account each
day. It also comports with the
1 Retail Banking Report 1990-1091, American
Bankers Association, p. 49.
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
Committee report accompanying H.R.
2654 as quoted above. In addition, the
statute 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.4 In the daily balance
method the institution applies a periodic
rate to the exact daily balance. In the
average daily balance method the
institution adds the full amount of
principal in the account each day of the
period or cycle, divides that figure by
the number of days in the period or
cycle, and applies a periodic rate to the
result. Assuming the same compounding
and crediting frequency, the interest
calculated under either method would
be identical in an account with little or
no account activity in the period. In
most cases, even where there is
significant account activity, both
methods wiH 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. In all cases,
under the proposed annual percentage
yield calculation for the periodic
statement, any differences in these
methods would be captured by that
figure.
Tiered rate accounts. There is one
circumstance in which the daily balance
and average daily balance methods can
produce more significant differences in
interest: tiered rate accounts. To
illustrate this point, assume daily
compounding occurs for the following
account:
For purposes of illustration, assume
the principal balance in the account for
January and February is $5,000 for the
first 20 days of each month and $4,000
for the remaining days of the month,
(interest remains on deposit until the
end of each month.) The daily balance
method produced $22.52 in January and
$20.88 in February. The average daily
balance method produces $19.77 in
January and $18.12 in February. In this
example the daily balance method
generates more interest ($2.75 and $2.74
per month) because the average daily
balance falls below the break point of
$5,000. As a second illustration, assume
the balance in the account for each
month is $4,500 for the first 20 days of
the month and $6,500 for the remaining
days of the month. In this example the
average daily balance method generates
more interest {$2.49 and $2.48 per
month) because the average daily
balance falls above the break point.
As these examples illustrate, in some
instances for tiered rate accounts, the
daily balance method produces a higher
return, and in other situations the
average daily balance method produces
a higher return.
In spite of these differences, the Board
believes institutions should be permitted
to use either the daily balance or the
average daily balance method. First, in
many 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, under the proposed
APY calculation for the periodic
statement, any differences in these
methods would be captured by that
figure. Fourth, institutions will disclose
the method they use under § 230.4(b) so
that consumers who prefer one method
over the other have the necessary
information on which to base their
Deposit balance to earn
Simple interest rata
choices. Fifth, the legislative history
rate (with the rate paid
(percent)
on the full balance)
accompanying the legislation
contemplates the use of either method.
5.00...................................... $.01-<$5,000.
Finally, requiring institutions to use a
6.00...................................... $5,000 and higher.
daily balance method could impose
significant costs on some institutions
that would have to change from the
The two methods can produce
average daily balance method without
differences in interest, depending on
any real benefit to consumers.
account activity—in particular,
Minimum balance and tiered balance
depending on whether the average daily
requirements. In addition to prohibiting
balance falls above or below the break
use of the low balance method of
point, in this case, $5,000.
balance calculation, the Board believes
* Since the act and regulation require interest to section 267(a) prohibits use of a “low
balance" type of method to determine if
be paid each day funds remain on deposit, the rate
the Board proposes to permit institutions to apply is a consumer has met a minimum balance
a daily rate of 1/365 of the simple interest rate for
requirement to earn interest.®
365 days (or, at the institution’s option, 1/366 of the
simple interest rate for 366 days during a leap year).
The Board also proposes to permit institutions to
apply 1/365 of the simple interest rate for 365 days
in a leap year, but requests comment on this
proposal.
12747
Institutions are permitted under the law
to set minimum balance requirements
that must be met for the consumer to
earn interest, or to earn a specified rate
for tiered balance accounts. For
example, an institution may choose to
pay a 5.00% simple interest rate on an
account only for those days a minimum
balance of $500 is maintained. The
Board believes that statute further
permits an institution to provide that it
will not pay interest on the account for
those days the balance drops below the
required minimum balance.
The Board does not believe, however,
that the statute permits an institution to
provide that the consumer does not earn
any interest for a given period unless the
consumer maintains a minimum balance
for the entire period. For example, under
the proposal an institution may not
provide that a consumer will earn a
5.00% simple 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 Permitting such a
practice would enable an institution to
refuse to pay intrest even if—under the
example above—a consumer maintained
a $10,000 balance for 29 days in a cycle,
but permitted the balance to drop below
$500 for one day in the same cycle.
Similarly, the Board does not believe
institutions would be permitted to 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 balance requirement to
earn interest, for example, at $300 and a
consumer deposits $500, the institution
must pay the stated simple interest rate
on the full $500, and could not pay
interest only on $200 of that deposit. The
Board believes that this would be
contrary to the statutory requirement
and the intent of the Congress to require
payment of interest at the disclosed rate
on the full amount of principal in the
account each day.
A related issue arises with regard to
tiered rate accounts and calculation of
the balance on which interest is paid.
For example, assume an institution pays
and discloses a 5.00% simple interest
rate on deposit balances below $5,000,
and a 8.00% simple interest .rate on
balances of $5,000 and above. The Board
believes the statute would not permit an
institution to pay the $5.00% rate for the
entire cycle if the balance dropped
below $5,000 for a few days during the
cycle. For example, assume a consumer
* The discussion of this provision addresses only
the payment of interest as it relates to the minimum
requirements, see the supplemental information
balance requirement For discussion of the
accompanying { 230.4(b)(4)(A).
assessment of fees and minimum balance
12748
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
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 statute
would permit 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 6.00% rate. The
Board solicits comment on all of these
issues.
Minimum balance requirements and
balance computation provisions.
Comment is also requested on related
technical points. For example, should
institutions 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 (given that both methods are
proposed to be allowed for purposes of
calculating interest)? May institutions
use both a minimum balance and an
average daily balance measurement in
determining whether a consumer has
met the minimum balance requirement
to earn interest? For example, should an
institution 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? Should institutions
be permitted to calculate interest using
one method and establish the minimum
balance by use of a different method?
For example, should an institution be
permitted to use the daily balance
method to compute interest but require a
consumer to meet a minimum balance
by averaging a month's daily balances?
In commenting on these provisions,
commenters should address the specific
advantages and disadvantages to
consumers and institutions for all of
these issues.
Paragraph (b)—Compounding and
Crediting Policies
Section 230.7(b) of the proposed
regulation implements section 267(b) of
the statute. It provides that § 230.7(a)
does not mandate the frequency of any
compounding. Thus institutions may
compound bi-annually, annually,
quarterly, monthly, daily, continuously,
or on any other basis. The compounding
frequency is required to be disclosed
under proposed § 230.4(b)(3) and is
factored into the computation of the
annual percentage yield. (See the
discussion of the annual percentage
yield in the supplemental information
accompanying appendix A.)
Section 230.7 also does not mandate a
specific crediting policy. Thus
institutions could credit interest earned
on the account on an annual, semi
annual, quarterly, monthly, or other
basis. The institution’s crediting policy
must be disclosed under § 230.4(b)(3).
An institution may credit or post interest
to the account at any frequency, thus
establishing the intervals at which the
consumer can withdraw such interest.
Establishing crediting policies, however,
does not permit an institution to treat
accrued but uncredited interest as
unearned. Because the statute and
proposed regulation require that interest
accrue based on the full balance in the
account each day, the consumer’s
underlying right to such interest cannot
be altered. Thus, the institution may not
refuse to pay interest that has accrued,
even if the consumer withdraws some of
the principal in the account prior to the
time the interest would be credited.
This, of course, does not require an
institution to pay interest for those days
the consumer fails to meet a minimum
balance requirement. Nor does this
provision require the institution to
permit the consumer to withdraw
interest that is earned but not yet
credited. If the consumer withdraws
funds or closes an account before
interest is credited, the institution may
delay payment of the accrued interest
until the crediting date. Finally, for time
deposit accounts, institutions may
assess a penalty for early withdrawal,
as discussed in the supplemental
information accompanying § 230.4(b)(7).
While the EFAA establishes the time
institutions must begin to accrue
interest, because of-the general rule in
section 267(a) of the Truth in Savings
Act that interest must be computed on
the full amount of principal in the
account for each day, the Board believes
institutions must accrue interest on
funds up to the date of withdrawal 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
Board believes the institution need not
pay interest for Wednesday.)
Section 230.8—Advertising
This section of the proposal
incorporates the advertising provisions
of section 263 of the act. While the act’s
disclosure rules apply to accounts of all
depository institutions, section 263(a) of
the act’s advertising provisions are
phrased in terms of accounts offered by
insured depository institutions. (Section
263 (b) and (c) of the advertising
provisions, however, are not limited to
insured depository institutions.) The
Board's proposal would apply all of the
advertising provisions to all depository
institutions, whether insured or not. The
Paragraph (c)—Date Interest Begins to
Board believes that the act’s purposes
Accrue.
are furthered if all deposit account
Section 267(c) of the statute requires
advertisements provide uniform
that institutions must begin to accrue
disclosures to compare accounts, and
interest for all accounts no later than the does not believe it desirable for only
business day specified in section 606 of some advertising rules to apply to
the Expedited Funds Availability Act
uninsured depository institutions.
(EFAA) (12 U.S.C. 4005), subject to
The Board requests comment on
subsection 606 (a) and (b). Thus, the
whether certain previsions from the
Truth in Savings Act provides that the
Board’s Regulation Q (as noted below)
accrual of interest rules in the EFAA
should be included in this regulation,
apply to nontransaction accounts, such
and removed from Regulation Q.
as certificates of deposit, as well as to
transaction accounts covered by the
Paragraph (a)—Misleading or Inaccurate
EFAA. The EFAA and the Board’s
Advertisements
implementing Regulation CC generally
The statute and regulation prohibit
require an institution to begin accruing
institutions from making misleading or
interest when the institution receives
‘‘provisional” credit. The Board believes inaccurate advertisements. Since section
271 of the act extends the possibility of
a consistent rule is essential for
civil liability to advertising violations,
determining the principal balance on
the Board is interested in construing the
which interest accrues. The Board
proposes to permit institutions to use the term “misleading” appropriately. The
Board solicits comment on whether
methods set forth in Regulation CC for
examples of what constitute “misleading
determining the principal balance. If an
or inaccurate statements” in advertising
institution accrues interest on funds
represented by a deposited check that is beyond the two in the regulation should
be provided in the supplementary
later returned due to insufficient funds
information accompanying the
on deposit, or for another reason, the
institution would not be required to pay publication of the Board's final role. The
Board also request commenters to
interest for the time period the check
provide specific examples.
was outstanding.
Federal Register / Vol. 57. No. 71 / Monday, April 13, 1992 / Proposed Rules
Use o f the term “
profit". The Board
also requests comment on whether
institutions should be permitted to refer
to interest paid on an account as
"profit,” or if the use of the term in
advertisements could mislead
customers. The Board’s Regulation Q (12
CFR 217.6(f)) and the advertising rules
for deposit accounts of the other federal
regulatory agencies have for years
prohibited use of that term in deposit
account advertisements on the grounds
that the term implies a return on an
investment, something typically
associated with nondeposit accounts.
Advertising "free”accounts. Section
263(c) of the act prohibits an institution
from advertising an account as a free or
no-cost account if: (1) A regular service
or transaction fee may be imposed: (2) a
fee may be imposed if any minimum
balance requirement is not met; or (3) a
fee is imposed if the consumer exceeds a
specified number of transactions. The
proposed regulation captures these
rules, but provides a different
organizational approach. Institutions
would not be permitted to describe any
account as “free” or “no-cost” (or words
of similar meaning) if any "maintenance
or activity” fee might be imposed on the
account. A maintenance or activity fee
includes, for example, periodic service
charges; per check fees; fees imposed to
deposit, withdraw or transfer funds; and
fees to receive copies of checks written
on the account. It also includes fees
imposed if a minimum balance
requirement is not met or if a
transaction limit is exceeded. A
maintenance or activity fee would not
include fees such as stop payment fees
or fees for returned checks, or fees
unrelated to the account such as a fee
for purchasing a cashier’s check or
traveller's checks.
Potential loss o f principal. The Board
proposes one additional disclosure
beyond those in the statute, for
advertisments for deposits that involve
the risk of loss of principal, such as
those denominated in a foreign currency
(as discussed in § 230.2 in the definition
of "account"). To ensure that consumers
are not misled about such accounts, the
Board believes any advertisement
should state that fluctuations in the
exchange rate of foreign currencies
could result in a loss of principal. The
Board requests comment on whether
institutions also should state that any
such loss is not covered by deposit
insurance. As with all advertisements,
institutions would be prohibited from
stating any rate or yield figure in
advertisements unless it is stated as an
annual percentage yield. Furthermore,
the annual percentage yield stated
would not factor in any value derived
from currency fluctuations. A figure that
reflected fluctuations in exchange rates
would factor in information
fundamentally different from that used
for other deposit account offerings, and
could lead consumers to be confused
about the yield when comparing
accounts. The Board solicits comment
on whether institutions should be
permitted to provide an example to
illustrate potential returns on such a
product based on currency fluctuations.
If such an example were permitted, the
Board believes all institutions should
use a standardized length of time in
calculating such a return. The Board
requests comment on what amount of
time should be used, and whether more
than one example should be provided to
show both a short-term and a longerterm effect of currency fluctuations on
such an account.
Paragraph (b)—Permissible Rates
Section 263(a) of the act provides that
a reference to a specific interest rate,
yield, or rate of earnings in an
advertisement triggers a duty to state
certain additional information, including
the annual percentage yield. The
proposed regulation requires that if any
rate or yield is stated it must be the
"annual percentage yield,” using that
term. The Board requests comment on
whether institutions should be permitted
to use the abbreviation “APY” in
advertisements, given the space and
time constraints typically involved in
advertisements.
Except for the simple interest rate, as
explained below, no other rate or yield
(such as an "average” or “aggregate”
percentage yield) could be included in
an advertisement. The Board believes
that allowing institutions to state rates
or yields in addition to the annual
percentage yield 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 in addition to the annual
percentage yield would result in
advertisements with a confusing array
of terms and numbers.
The Board believes, however, that the
act permits the simple interest rate to
the stated in advertisements in addition
to the annual percentage yield. Thus, the
Board's proposal allows the simple
interest rate, using that term, to appear
in conjunction with (but not more
conspicuously than) the annual
percentage yield. (TTie standard of
allowing simple interest rates but
limiting their prominence is one that is
in Regulation Z.) The proposed
regulation would not permit institutions
12749
to refer to the simple interest rate as the
"annual percentage rate” in
advertisements. (See the discussion of
this issue in the supplementary
information accompanying § 230.2(k).)
Paragraph (c)—Advertisement of Terms
That Require Additonal Disclosures
Section 263(a) of the act requires
additional information to be provided in
deposit account advertisements if the
advertisement refers to a specific rate of
interest, yield, or rate of earnings. The
act also imposes special format rules in
certain cases to ensure that a
consumer’s attention is drawn to terms
such as any differences in the annual
percentage yield if a minimum balance
is not met. The proposal generally
follows the act’s approach for the format
and content of advertisements, but
simplifies the order of the information
provided.
The proposed regulation provides that
a reference to an annual percentage
yield “triggers” advertising disclosures.
Since other rates are not permitted
(except for the simple interest rate,
which in turn requires a statement of the
annual percentage yield), the regulation
does not include any other "rate
triggers.” (See, however, the discussion
of bonuses in § 230.8(d).)
There is no requirement that deposit
account advertisements state an annual
percentage yield figure. Stating other
information in advertisements—such as
“one, three, and five year CDs
available” or “high rates available”—
does not trigger the duty to state other
terms of the account. The Board
requests 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.
Special rules apply to tiered rate
accounts: if an institution states an
annual percentage yield in an
advertisement, it would have to state all
of the annual percentage yields,
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.)
For example, assume an institution pays
a stated simple 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:
12750
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
time requirements greater than one year.
That rule requires that, if a time
requirement is greater than one year, the
5 .2 5 .................................. .
$.01- <$2,500.
advertisement must state that period in
5 .5 0 .......................................... $2,500- <$15,000.
equal prominence to the annual
5 .7 5 _____ ..___ _____ .... $15,000-$100,000
percentage yield, along with any lower
annual percentage yield that will apply
Computing the figures in accordance
if funds are withdrawn prior to maturity.
with appendix A, the institution would
Paragraph (c)(6)
have to state the following annual
The act requires deposit account
percentage yields:
advertisements to contain a statement
that “fees or other conditions" could
Annual percentage yield
Balance required
reduce the "yield” on the account. The
5 .3 9 ...... .................. ................. $.01- <$2,500.
proposed regulation requires the
5 39-5.61..... ................
$2 500- < $ 1 5 000
statement but uses the term "earnings"
5.61-5.87............................... $15,000-$100,000.
rather than yield. The act does not
mandate terminology, and the Board
believes the term earnings more
If a trigger term is stated, the
accurately conveys the impact of fees on
advertisement must provide the
the account, since in no event does the
disclosures listed in paragraph (c) in a
annual percentage yield take fees into
clear and conspicuous manner.
account. The Board proposes to require
Paragraph (c)(1)
this statement if an institution can
impose any of the maintenance and
The regulation would require
activity fees discussed in § 230.8(a)
institutions that advertise variable rate
(discussing “free" accounts). Thus, for
accounts to state that the rate may
example, the statement would appear on
change after the account is opened.
advertisements for interest-bearing
Although the act does not expressly
transaction accounts that impose a
require the statement, section 265(2)
monthly service charge or a fee if a
authorizes the Board to prescribe
minimum balance is not maintained.
modifications for advertising rules
The Board solicits comment on
relating to the annual percentage yield
whether the phrase "or other
on variable rate accounts. The Board
conditions” should be retained as part
believes that a brief statement alerting
the consumer to possible changes in the of the notice. Are there account terms
annual percentage yield is necessary in other than fees that should be
communicated by this statement?
advertisements.
Paragraph (c)(7)
Paragraph (c)(2)
The Board proposes that
The act and proposed regulation
advertisements for time deposits with
require that advertisements that state
stated maturities of less than one year
the annual percentage yield also state
include a statement that the disclosed
the period during which accounts with
annual percentage yield assumes all
that annual percentage yield will be
funds will be on deposit for a full year at
offered. For example, if an institution
the initial simple interest rate. The act
only guarantees its rates for a week, its
does not expressly require such a
advertisement might state “this annual
percentage yield is available from June 1 statement, but section 265 of the act
authorizes the Board to modify diclosure
through June 8."
requirements relating to advertising
Paragraph (c)(5)
annual percentage yields for accounts
with an annual percentage yield
This paragraph implements section
guaranteed for less than a year. The
263(a)(3) of the act. It requires that
Board believes the statement would be
advertisements state any time
an important reminder to consumers
requirement necessary to earn the
advertised yield. The Board proposes to that the annual percentage yield is
calculated on a certain assumption (that
limit this provision to time deposits. If
is, that the funds remain on deposit for
an institution advertises a one-year
certificate of deposit, it would state that one year, at the initial advertised rate)
which may not, in fact, occur. The Board
time period. It also requires
requests comments on whether the
advertisements to state any lower
statement should be required, and
annual percentage yield that will be
whether it should be limited to accounts
earned if funds are withdrawn prior to
meeting the minimum time requirement. with stated maturities, such as
certificates of deposit. Should the
The Board solicits comment on
statement also be required in
whether to incorporate the current rule
advertisements for transaction accounts
contained in Regulation Q (12 CFR
and savings accounts, for example, since
217.6(d)) that addresses deposits with
Simple Interest rate
(percent)
Deposit balance
required to earn rate
actual account activity in such cases
also m ay not correspond to the one-year
assumption on which the annual
percentage yield is "based?
Paragraph (c)(8)
The act requires that advertisements
include a statement that an interest
penalty will be imposed for early
withdrawal. The Board's Regulation Q
and the deposit account advertising
rules of the other federal financial
regulatory agencies currently require a
similar notice, but limit it to
advertisements for time deposits. The
act is not so limited. The Board requests
comment on whether the statement
should be required only for time
deposits containing provisions for
possible early withdrawal penalties (the
position reflected in the proposed
regulation), or whether it should be
required in other cases. For example,
some accounts offer bonuses that may
be “reclaimed” if funds are withdrawn
before an agreed upon date. Some non
time deposits assess a fee if a consumer
closes the account within 30 days of
account opening. The Board requests
comment on whether a disclosure under
I 230.8(c)(8) should be required in cases
such as these.
The terminology of the proposed
disclosure is similar to the act, but does
not include the word “interest” (or
“substantial,” as is required by
Regulation Q). The Board requests
comments whether either term should be
required in the statement.
Paragraph (d)—Bonuses
The proposed regulation treats
bonuses as a trigger term. If a bonus is
advertised, an explanation of the
conditions that must be met for bonuses
to be paid and when they will be paid
also must be stated, along with the
annual percentage yield and the items
listed in paragraph (c) of this section.
Although the act does not expressly
require the bonus disclosures, the Board
believes the additional information is
consistent with the act's purpose to
provide uniform disclosures to compare
accounts, and requests comments on the
proposal. The Board is concerned that
consumers may be misled if full
information is included in
advertisements about interest earnings
while bonus “earnings” are not
explained.
Possible limited exemption for
broadcast and other media. Section
263(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
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
initial deposit requirement, or stating
that fees or other conditions could
reduce the return. The statute limits any
relaxation of the advertising rules to
these two disclosures. The Board solicits
comment on whether such an exemption
should be made and, if so, why these
disclosures place an unnecessary
burden on depository institutions. The
Board also requests comment on the
merits of an additional exemption for
the statement for accounts with a
maturity of less than one year that the
annual percentage yield assumes that
funds remain on deposit for a full year
at the initial rate (a provision not in the
statute).
Although the statute is quite specific
in the categories of advertising that can
qualify from a relaxation of
requirements, there may be other
comparable situations that perhaps
should be treated similarly. For
example, should an exemption be
considered for advertisements inside a
depository institution, such as lobby
boards, since consumers can obtain
account disclosures during business
hours?
Section 230.9—Enforcement and Record
Retention
Paragraph (c)—Record Retention
The Board proposes to require
institutions to retain records regarding
their compliance with their
responsibilities under the proposed
regulation for a minimum of two years
after disclosures are required to be
made. Two years is the period
commonly used under the Board’s other
consumer regulations (for example,
Regulations Z and E). Furthermore,
given the frequency of examinations by
the enforcement agencies, a record
retention requirement of this length
should allow an institution’s examiners
adequate review of pertinent
documentation during periodic
examinations.
The Board contemplates that records
may be stored by use of microfiche,
microfilm, magnetic tape, or other
methods capable of accurately retaining
and reproducing information. The
institution need not retain disclosures in
hard copy, as long as it retains enough
information to reconstruct the required
disclosures or other records.
Appendix A—Annual Percentage Yield
Calculation
Appendix A establishes the rules that
institutions would use to calculate the annual
percentage yield. The proposed appendix
contains two main parts: Part I discusses the
calculations for advertisements and account
disclosures, and Part II deals with periodic
statement calculations. The Board is
proposing only two annual percentage yield
formulas in Part I: 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, Tlie appendix explains
the general rules and describes how they
should be applied in more complicated
accounts, such as stepped rate and tiered rate
accounts. If an account has two types of
features, such as variable and tiered rates, all
applicable rules would have to be followed.
Part II contains a single formula for
calculating the annual percentage yield of
periodic statements, with no special rules for
multiple rate accounts.
The appendix provides that the annual
percentage yield shall reflect only interest,
and may not include the value of any
bonuses. Factoring in the value of a bonus
would add significant complexity to the
calculation of the annual percentage yield.
For example, the value would have to be
established as well as when the merchandise
is provided to the consumer. If a cash bonus
is given, assumptions would have to be made
about whether the bonus is deposited and
whether interest is accrued on the sum. The
Board solicits comment on this proposal to
exclude all bonuses from the calculation.
The proposed annual percentage yield
calculation also excludes any amounts that
are determined by circumstances that may or
may not occur. For example, an institution
may provide earnings to the consumer based
on changes in certain stock market indicators
(from the date an account is opened to the
date it matures or is closed, for example) or
on foreign currency fluctuations. The annual
percentage yield for these and similar types
of accounts would exclude such potential
earnings. Similarly, if an institution chooses
to pay .01% additional interest for each point
scored in a future sporting event, that
potential would not be reflected in the annual
percentage yield. Such features would be
disclosed as variable rate features under
proposed { 230.4(b)(l)(ii). (To the extent the
institution paid such interest on the account,
the annual percentage yield on the periodic
statement would capture this interest.)
The Board is proposing that institutions
calculate the annual percentage yield by
rounding the figure to the nearest onehundredth of one percentage point, and
showing it to two decimal places. Thus, if an
institution calculated an anuual percentage
yield to be 5.644%, that figure should be
rounded down and shown as 5.64%; 5.645%
would be rounded up and disclosed as 5.65%.
The Board believes it is necessary to show
annual percentage yields to two decimal
places to enable consumers to adequately
compare accounts.
The Board solicits comment on whether a
tolerance for accuracy should be provided for
calculating the annual percentage yield. The
statute does not expressly provide a
tolerance. The appendix includes a proposed
tolerance of Yio of 1 percentage point (.05%).
The Board is not proposing to use the same
tolerance for the annual percentage rate
found in Regulation Z (Vi of one percentage
point for regular transactions, or Y* of one
12751
percentage point for irregular transactions).
First, the Truth in Lending Act itself provides
for a V percent tolerance and authorizes the
4
Board to designate a tolerance for more
complex transactions. Second, the calculation
of the annual percentage rate is more
complicated than the calculation of the
annual percentage yield, since the annual
percentage rate factors in fees paid by the
consumer (as well as interest), the frequency
and amount of the consumer’s payments, the
timing of disbursements from the creditor to
the consumer, and other factors. Such
complexities are not present in the annual
percentage yield calculation. The Board
solicits comment oh whether a tolerance is
needed at all, and, if so, whether V 0 of 1
2
percent would be an appropriate one.
P arti. Annual Percentage Yield for Account
Disclosures and Advertising Purposes
A. General Rules
In general, the annual percentage yield
reflects the relationship between the amount
of interest to be earned by the consumer for
the term of the account (including any
compounding of interest) and the amount of
principal assumed to have been deposited to
earn that amount of interest. Institutions
would be required to calculate the annual
percentage yield based on the actual number
of days in the term of the account. If an
account has an unstated maturity, institutions
would calculate the annual percentage yield
based on an assumed term of 365 days.
For time deposits that are offered in
multiples of months, the Board proposes to
permit institutions to base the number of
days on either the actual number of days
during the applicable period, or the number
that would occur for any actual sequence of
that many calendar months. For example, if
an institution offers a six-month certificate of
deposit, the institution could calculate the
annual percentage yield based on the number
of days in a particular six-month period, or in
any six-month period. The Board believes
this will minimize the need of institutions to
recalculate the annual percentage yield on an
ongoing basis. The Board proposes, however,
that institutions that choose to use this
permissive rule would have to use the same
number of days to calculate the interest
figure used in the annual percentage yield
formula (where “Interest” is divided by
"Principal”). Thus , the institution with the
six-month certificate of deposit above could
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 as the “Days in Term,” it must also
use 181 days to compute the "Interest” figure
used in the formula. An institution would not
be permitted to use 181 as the “Days in
Term” and use an “Interest" figure based on
183 days. (The amount of interest paid by the
institution would have to be based on the
actual number of days in the account due to
the requirement to pay interest on the
principal in the account each day. See 8 230.7
of the regulation.)
12752
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
D. Accounts With Tiered Rates (Different
financial institutions to aid compliance with
Rates Apply Depending on Balance Level)
the disclosure requirements of §§ 230.4
Due to the nature of tiered rate accounts (in (account disclosures) and 230.5 (change in
terms). Section 269(b) of the act provides that
which the simple interest rate paid on the
institutions that use these forms and clauses
account is determined by reference to
will be in compliance with the disclosure
specified balance levels), the Board believes
provisions of the act. In addition, use of any
special rules are required to enable
modified model form or clause will also be
consumers to compare annual percentage
considered in compliance as long as the
yields for such accounts.
institution does not delete information
The appendix sets out the two basic
required by the act of rearrange the format so
methods of tiering used by institutions to
as to affect the substance, clarity, or
calculate the interest they will pay on such
meaningful sequence of the forms and
accounts. In the first method (shown in the
clauses.
appendix as “Tiering Method A”), an
As discussed in the supplemental
institution pays the applicable “tiered"
information to § 230.3(a), the proposal
interest rate on the entire amount of the
deposit. For accounts of this type, institutions provides for flexibility in designing the
format of the disclosures. Institutions-can
must state the annual percentage yield that
either prepare a single document that
applies to each balance tier. In the example
contains disclosures for several accounts
given in the appendix, this results in three
offered or prepare individual disclosures for
separate annual percentage yields to be
each type of account.
disclosed—one for each tier. Other than the
The Board requests comment on what
fact that multiple annual percentage yields
additional model forms and clauses should
must be stated for these types of accounts,
be included in appendix B. For example, a
each annual percentage yield is calculated
according to the general rule in the appendix. model form for periodic statemets was not
In the second method of calculating interest included with the proposal since the
disclosure requirements only duplicate of
on tiered rate accounts (shown in the
appendix as “Tiering Method B"), institutions slightly augment the information currently
do not pay the applicable tiered intertest rate provided. Comment is requested on whether
such a model form is necessary.
on the entire amount of the deposit, but pnly
on the portion of the deposit balance that
1. B -l M odel Clauses
falls within each specified tier. For
Clause (a)(ii) contains alternative language
institutions that compute interest in this
for disclosing how the annual percentage
manner, a range of annual percentage yields
must be provided for each tier, other than for yield is determined in variable rate accounts.
This reflects the alternative definitions of a
the first tier—to accurately reflect how
variable rate account proposed in § 230.2(o).
interest is paid. The low end of each range is
Clause (a)(iv) contains alternative language
figured on the highest balance in the tier. This
for describing tiered rate accounts. As
approach requires an assumed balance for
the highest tier in cases where the balance in explained in appendix A, there are two types
the account is not limited. The appendix is
of tiered rate accounts. The first type pays
the same higher rate on the entire balance in
written with an assumed high balance of
$100,000. The Board solicits comment on what the account if the balance exceeds the cutoff
the high end of each range should be. Several figure. The second type of tiered rate account
alternatives exist: Using any limit established pays a lower simple interest rate on deposits
by the institution in its account agreement;
up to a certain cutoff level, and a higher rate
permitting any amount to be used if a limit is
only on amounts above the cutoff level. An
not set forth in an agreement; or using
institution must provide the disclosure that
$100,000, since that is the current amount for
describes its method of calculating interest.
which accounts are federally insured.
Clauses (d)(i)—(iii) contain alternatives for
Part III. Annual Percentage Yield fo r Periodic disclosing any minimum balance
requirements associated with the account.
Statem ents
The regulation requires that the disclosures
The annual percentage yield calculation for state any minimum balance that is required
the periodic statement is similar to that used
to open the account, avoid the imposition of
for advertising and opening account
fees or obtain the annual percentage yield
disclosures. The annual percentage yield is
disclosed. If a fee is incurred for not
transaction specific for the periodic
maintaining a minimum balance, it may be
statement. It reflects the relationship of the
stated either with this disclosure or with
interest actually paid and credited to the
other fees (of both).
consumer’s account during the period and the
Clause (f) contains a model format for use
average daily balance in the account for the
in disclosing fees. Institutions would be
period. Thus, the annual percentage yield
required to disclose either the amount of any
factors in the actual number of days in the
fees that may be imposed in connection with
statement period, as well as the actual
the account or provide an explanation of how
interest and principal. It uses the same basic
the fee will be determined. In addition, the
general formula as used in Part I, but reflects
disclosure must state the conditions under
the actual interest earned and average daily
which the fee may be imposed if that is not
balance during the period covered by the
clear from name and description of the fee.
statement.
(See discussion of § 230.4(b)(5) regarding
examples of fees that may be assessed in
Appendix B—Model Clauses and
connection with the account.)
Sample Forms
Clause (g) contains model language for
The model clauses and sample forms in
disclosing transaction limitations. If a fee is
appendix B are intended for optional use by
imposed for exceeding the established
limitation, it may either be stated with this
disclosure or with other fees (or both).
Clauses (h) (eajly withdrawal penalty) and
(i) (renewal policy) would be required osdnly
for time deposits.
2. B-3 Sample Form
This sample illustrates the use of one
general'multi-purpose disclosure form for
several accounts offered by an institution.
The disclosures are for a money market
account. Through the use of check marks, the
disclosure clearly indicates which fees and
terms apply to the money market account. A
chart is included to illustrate one method of
presenting information for multiple accounts.
Institutions could either have the form
preprinted (and marked accordingly) for each
account listed, or have the information filled
out at the time the account is opened. The fee
shown in this sample (as well as in B-4) are
based on average charges for particular
services found in various national studies.
3. B-4 and B-5 Sample Forms
These samples illustrate individual
disclosures for two different types of
accounts (a certificate of deposit and a NOW
account).
4. Samples B -6 and B-7
These samples illustrate the requirements
for advertisements, fount in § 230.8 of the
proposed regulation. Specifically, the samples
demonstrate how a certificate of deposit and
a money market account could be advertised
in compliance with the regulation. The
advertisement for the money market account
shows how an institution that pays the
simple interest rate on the entire deposit
would state the annual percentage yields.
(This method is discussed in appendix A as
“Tiering Method A.’’) Since civil liability
applies to violations of the advertising
requirements, the Board is proposing to
include sample forms for institutions for
advertising. Comment is requested on
whether sample advertisements should be
included at all and, if so, whether the
samples provided are useful.
Appendix C—Effect on State Laws
This appendix outlines the standards
and process used for state law
determinations.
Appendix D—Issuance of Staff
Interpretations
The Boafd is proposing to use the same
method of providing interpretations to the
regulation as for Regulations B, E, and Z. An
official staff commentary is expected to be
issued in proposed form after the proposed
regulation becomes effective in the spring of
1993. Such a proposal would be issued in
final form after an opportunity for public
comment with an immediate effective date
but with compliance not becoming mandatory
for another six months—likely sometime inf
1994. Thereafter periodic updates of the
official staff commentary would be
contemplated.
The Board has established a pattern for
updating several of its consumer regulation
commentaries: publish changes for public
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
comment in the autumn, with final rules
effective the following spring, but optional
until the next October. The Board proposes to
follow this pattern with its official staff
commentary to this new regulation and
solicits comment on whether this approach
would be helpful. If the public felt that
issuance of so many proposals at the same
time would be difficult to deal with, the
Board could adopt a different schedule for
this regulation—for example, publishing the
proposed interpretations for comment in the
spring with final versions adopted in the fall.
Effective Date
Institutions will have to provide
disclosures to any consumer who opens an
account after the effective date of the
regulations. Institutions also will have to
provide disclosures for any time account
renewed after the effective date, even if the
account was an automatically-renewable one
and had been opened prior to the effective
date. Similarly, periodic statement
disclosures and change in term notices would
have to be provided, as applicable, to all
accounts—including those opened prior to the
effective date. Finally, the Board believes the
substantive provision regarding the payment
of interest will apply to existing accounts as
of the effective date; it is not limited to new
account holders.
(3) Form o f Comment Letters
As discussed above, comment letters
should refer to Docket No. R-0753. The Board
requests that, when possible, comments be
submitted using a standard typeface with a
type size of 10 or 12 characters per inch. This
will enable the Board to convert the text into
machine-readable form through electronic
scanning, and will facilitate automated
retrieval of comments for review.
(4) Economic Impact Statem ent
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.
(5) Paperwork Reduction A ct
In accordance with section 3507 of the
Paperwork Reduction Act of 1980 (44 U.S.C.
35; 5 CFR 1320.13), the proposed information
collection will be reviewed by the Board
under the authority delegated to the Board by
the Office of Management and Budget after
consideration of the comments received
during the public comment period.
A detailed description of the proposed
recordkeeping and disclosure requirements
(including the reasons for them, the
institutions that would be subject to them,
and how frequently disclosure may 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
upon the extent of the disclosures and the
options for compliance offered by the final
regulations. Model disclosures forms in the
regulation will somewhat ease compliance
burdens on institutions. (The proposed model
forms and clauses ere set forth in appendix
B.)
The following information about
paperwork burden relates only to the effect
of the proposal 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 preliminarily estimates that the
disclosure requirement will result in a one
time reporting burden of 206,000 hours and an
annual reporting burden of 1,560,160 hours for
state member banks.
Proposed Information Collection
Report title: Recordkeeping and Disclosure
Requirements in Connection with Regulation
DD (Truth in Savings).
Report number: Not applicable.
OMB docket num ber 7100-0255.
Frequency: As needed.
Reporters: State member banks.
No. of records
subject to
requirement
Notice to Existing Accountholders (one time burden)...................................... ..................................
Complete Disclosures:
Upon R equest.........................................................................................
New Accounts........................................................................
Rollover C D s...................................................................................................
Notice lor Non-Rollover C D s.............................................
Change in Term s.....................................................................
.
Periodic S tatem ents......................................................................
Advertising......................................................................
List of Subjects in 12 CFR Part 230
Advertising, Banks, Banking,
Consumer protection, Deposit accounts.
Interest, Interest rates, Federal reserve
system, Truth in savings.
Pursuant to authority granted in
section 269 of the Truth in Savings Act
(Pub. L. No. 102-242) the Board proposes
to amend 12 CFR chapter II as follows:
Part 230 would be added to read as
follows:
PART 230—TRUTH IN SAVINGS
230.1 Authority, purpose, coverage and
effect on state laws.
230.2 Definitions.
230.3 General disclosure requirements.
230.4 Account disclosures.
230.5 Advance notice of change in terms
and advance notice of maturity.
230.6 Periodic statement disclosures.
12753
8,240,000
2,750,000
82,500,000
X
Estimated time per
response
—
Estimated total
no. ol hours of
annual reporting
burden
1.5 min.
206,000
3 min.
2 min.
1 min.
1 min.
1 min.
1 min.
60 min.
45,375
91,667
13,334
4,450
18,334
1,375,000
12,000
Information collection requirements
contained in this regulation 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
regulation is to enable consumers to
make informed decisions about deposit
accounts at depository institutions. The
regulation requires depository
§ 230.1 Authority, purpose, coverage and
institutions to provide disclosures of the
effect on state laws.
terms and conditions on which interest
(a) Authority. This regulation, known is paid and fees are assessed against
as Regulation DD, is issued by the Board deposit accounts so that consumers can
make meaningful comparisons among
of Governors of the Federal Reserve
depository institutions.
System to implement the Truth in
(c) Coverage. This regulation applies
Savings Act of 1991, contained in the
to depository institutions except for
Federal Deposit Insurance Corporation
credit unions. In addition, the
Improvement Act of 1991 (Pub. L No.
advertising rules in § 230.8 apply to any
102-242,105 Stat. 2236) (“the act”).
230.7 Payment of interest.
230.8 Advertising.
230.9 Enforcement and record retention.
Appendix A—Annual percentage yield
calculation
Appendix B—Model clauses and sample
forms
Appendix C—Effect on state laws
Appendix D—Issuance of staff
interpretations.
Authority: 12 U.S.C. 4301 et seq.
12754
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
(c)
Oral responses to inquiries. In an
savings banks and mutual savings
oral respon se to a consum er’s inquiry
banks.
(i) Interest means any payment to a ab o u t in terest r a ti s p ay a b le on its
consumer or to a consumer’s account for accounts, the depository institution shall
sta te the “annual percentage yield."
the use of funds in an account. For
using that term. T he “sim ple interest
purposes of this regulation, the term
rate," using th a t term, also m ay be
does not include the payment of a
stated. No other ra te m ay b e stated.
bonus, the waiver or reduction of a fee,
or the absorption of expenses.
§ 230.4 Account disclosures.
(j) Periodic statement means a
(a) Delivery o f account disclosures.
statement setting forth account
(1) Account opening. T he depository
information that is provided to a
institution shall provide the account
consumer on a regular basis four or
disclosures to the consum er before an
more times a year.
(k) Simple interest rate means the rate account is opened or a service is
provided, w hichever is earlier. An
of interest paid without regard to
§ 230.2 Definitions.
institution is deem ed to h av e provided a
compounding, shown as an annual
service w hen a fee required to be
For purposes of this regulation, the
figure and expressed as a percentage.
following definitions apply:
For purposes of the account disclosures disclosed is assessed . If the consum er is
not p resen t a t the institution w hen the
(a) Account means a deposit account
in § 230.4(b)(l)(i), the rate may be
account is opened or a service is
held by or offered to a consumer by a
referred to as the ‘‘annual percentage
p rovided an d h as not alread y received
depository institution. It includes
rate” in addition to being referred to as
the disclosures, the institution shall m ail
accounts such as time deposits and
the "simple interest rate.”
demand, savings, and negotiable order
(1) State means a state, the District of or deliver the disclosures no la ter than
of withdrawal accounts.
Columbia, the Commonwealth of Puerto ten b usiness d ay s after the account is
(b) Advertisement means a
Rico, and any territory or possession of opened or the service is provided,
w hichever is earlier.
commercial message, appearing in any
the United States.
(2) Requests. A depository institution
medium, that promotes directly or
(m) Stepped rate account means an
shall provide the account d isclosures to
indirectly the availability of, or a
account that has two or more simple
any consum er upon request. If the
deposit in, an account.
interest rates that take effect in
(c) Annual percentage yield means the succeeding periods and are known when req u est is m ade in w riting or by
telephone, the institution shall m ail or
total amount of interest paid on an
the account is opened.
deliver the disclosures no la te r than
account, based on the simple interest
(n) Tiered rate account means an
th ree b usiness days after it receives the
rate and the frequency of compounding
account that has two or more simple
request.
for a 365-day period, expressed as a
interest rates that are determined by
(3) Renewals of time deposits—
percentage, calculated according to the
reference to a specified balance level.
rules in appendix A.
(o) Variable rate account [Alternative (i) Disclosures required. T he renew al
of a time deposit is a new account
(d) Board means the Board of
one] means an account in which the
requiring account disclosures.
Governors of the Federal Reserve
simple interest rate may change after
System.
(ii) Time deposits that renew
the account is opened, as long as that
automatically. In the case of time
(e) Bonus means a premium, gift,
rate is determined by reference to an
deposits w ith a m aturity of m ore than
award, or other consideration, whether
index.
in the form of cash, credit, merchandise,
[Alternative two] means an account in three m onths th a t autom atically renew
a t m aturity w ithout a requ est from the
or any equivalent, given or offered to a
which the simple interest rate may
consum er, the institution shall mail or
consumer in exchange for opening,
change after the account is opened,
maintaining, or renewing an account of
except if the institution contracts to give deliver the account disclosures at least
30 d ays but not m ore th an 60 days
depositing funds in an existing account. at least 30 days advance written notice
before m aturity. For time deposits w ith a
(f) Business day means a day on
of rate changes.
m aturity of three m onths or less, the
which the offices of a depository
§ 230.3 General disclosure requirements.
institution shall m ail or deliver the
institution are open to the public for
account disclosures no la ter th an ten
carrying on substantially all business
(a) General. Depository institutions
b usiness days after the account is
functions.
shall make the disclosures required by
renew ed.
(g) Consumer means a natural person
| 230.4 through 230.6, as applicable,
(iii) Time deposits that renew by
(or unincorporated non-business
clearly and conspicuously in writing and
consumer request. In the case of time
association of persons) who holds an
in a form that the consumer may keep.
account primarily for personal, family,
Disclosures for each account offered by deposits th a t ren ew only if req u ested by
the consum er, if the consum er is not
household, or other non-business
an institution may be presented
p rese n t a t the institution w h en the
purposes, or to whom such an account is separately or they may be combined
req uest is m ade, the institution shall
offered.
with disclosures for the institution’s
(h) Depository institution and
other accounts, as long as the applicable m ail or deliver the account disclosures
no la ter th an ten b usiness d ays after the
institution mean an institution defined
information is clear. The disclosures
in section 19(b)(l)(A)(i)-(vi) of the
shall reflect the legal obligation between account is renew ed.
(b) Content o f account disclosures.
the consumer and the depository
Federal Reserve Act (12 U.S.C. 461),
A ccount disclosures shall include the
except credit unions defined in section
institution.
19(b)(l)(A)(iv). The term includes state
(b) Multiple consumers. If an account following:
and federally chartered banks, state and is held by more than one consumer,
(1) R ate inform ation—(i) Annual
federally chartered savings associations, disclosures may be made to any one of
percentage yeild and simple interest
and state and federally chartered
rate. The “an n u al percentage yield" and
the consumers.
person who advertises a deposit account
offered by a depository institution,
including deposit brokers as defined in
section 29(g)(1) of the Federal Deposit
Insurance Corporation Act (12 U.S.C.
1831 f).
(d) Effect on state laws. State law
requirements that are inconsistent with
the disclosure requirements of the act
and this regulation 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.
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
the “sim ple interest rate ," using those
term s, an d the period of tim e the sim ple
in terest ra te w ill be in effect. In the case
of stepped rate an d tiered rate accounts,
all an n u al percentage yields an d simple
in terest rate s m ust be included.
(ii) Variable rates. In the case of
variab le rate accounts:
(A) T he fact th a t the sim ple interest
rate an d annual p ercentage yield m ay
change;
(B) H ow the sim ple in terest ra te is
determ ined;
(C) The frequency w ith w hich the
sim ple interest ra te m ay change; an d
(Dj A ny lim itation on the am ount the
sim ple in terest rate m ay change.
(2) Tims requirements. In the case of
time deposits, any time requirem ent to
obtain the annual percentage yield
disclosed.
(3) Compounding and crediting. The
frequency w ith w hich in terest is
com pounded an d credited.
(4) Balance information.
(i] Minimum balance requirements.
A ny m inimum balan ce required to:
(A) O pen the account;
(B) A void the im position of fees; or
(C) O btain the ann ual percentage
yield disclosed.
E xcept for the b alance to open the
account, the disclosure shall include an
explanation of how the b alan ce is
determ ined for these purposes.
(ii) Balance computation method. A n
explanation of the m ethod (as perm itted
by section 230.7] used to determ ine the
balan ce on w hich in terest is paid.
(5) Fees. T he am ount of an y fee that
m ay be im posed in connection w ith the
account (or an ex planation of how the
fee w ill b e determ ined] an d the
conditions u nd er w hich the fee m ay be
im posed.
(6) Transaction limitations. A ny
lim itations on the num ber or dollar
am ount of w ith d raw al or deposits.
(7) Early withdrawal penalties. In the
case of time deposits, a statem en t th a t a
pen alty w ill be im posed for early
w ith d raw al an d the conditions u nder
w hich such a penalty m ay be assessed.
The an nual percentage yield an d sim ple
interest rate th a t w ill apply if the time
requirem ent is n o t m et shall also be
stated.
(8) Renewal policies. In the case of
time deposits, a statem ent of w h eth er or
not the account w ill renew
autom atically at m aturity. If the account
will n o t renew autom atically, an
explanation of w h a t w ill h ap p e n to the
funds after m aturity if the consum er
does not renew the account shall also be
stated.
(9) Potential loss of principal. In the
case of an account th a t involves the risk
12755
(d] Number of days in period. The
of loss of principal, a statement of that
total number of days in the statement
fact.
(c] Notice o f existing account holders. period.
Depository institutions shall include a
§ 230.7 Payment of interest
notice on or with the first periodic
(a] Permissible methods. Depository
statement provided to existing account
institutions shall calculate interest on
holders after March___ 1993. The
notice shall state that the account holder the full amount of principal in an
account for each day by use of either the
may request account disclosures
daily balance method or the average
containing terms, fees, and rate
daily balance method.1
information for the account.
(b] Compounding and crediting
Alternatively, institutions, may include
policies. This section does not prohibit
the applicable account disclosures (as
or require institutions to use any
described in paragraph (b] of this
particular frequency of compounding or
section] instead of the notice with the
crediting of interest.
periodic statement.
(c] Date interest begins to accrue.
§ 230.5 Advance notice of change In terms Interest shall begin to accrue not later
and advance notice of maturity.
than the business day specified for
(a] Change in terms. A depository
interest-bearing accounts in section 606
of the Expedited Funds Availability Act
institution shall give advance notice to
(12 U.S.C. 4005 et seq.).
affected consumers of any change in a
term required to be disclosed under
§ 230.8 Advertising.
§ 230.4 if the change may reduce the
(a) Misleading or inaccurate
annual percentage yield or adversely
advertisements. An advertisement shall
affect the consumer. The notice
not be misleading or inaccurate and
describing the change shall state the
effective date of the change and shall be shall not misrepresent a depository
institution’s deposit contract. An
mailed or delivered at least 30 days
advertisement shall not refer to or
before the effective date. The notice is
describe an account as “free” or “no
not required for changes in the simple
interest rate and corresponding changes cost” (or contain a similar term) if any
maintenance or activity fee may be
in the annual percentage yield for
imposed on the account. In the case of
variable rate accounts.
(b) Notice of maturity for certain time an account that involves the risk of loss
of principal, that fact shall be stated.
deposits. For time deposits with a
(b) Permissible rates. If an
maturity of more than three months that
advertisement states a rate of return, it
renew only if requested by the
shall state the rate as an “annual
consumer, the depository institution
percentage yield,” using that term. The
shall give advance notice to consumers
advertisement shall not state any other
that the deposit is about to mature. The
rate, except that a “simple interest rate,”
notice shall state the maturity date and
using that term, may be stated in
describe what will happen to the funds
conjunction with, but not more
after maturity if the consumer does not
renew the time deposit. Tne notice shall conspicuously than, the annual
percentage yield.
be mailed or delivered at least 30 days
(c) Advertisement of terms that
but not more than 60 days before
require additional disclosures. If the
maturity.
annual percentage yield is stated in an
§ 230.6 Periodic statement disclosures.
advertisement, the advertisement shall
state the following information, to the
If a depository institution mails or
extent applicable, clearly and
delivers a periodic statement, the
conspicuously:
statement shall include the following
(1] For variable rate accounts, a
disclosures;
statement that the rate may change after
(a) Annual percentage yield earned.
the account is opened.
The “annual percentage yield,” using
(2) The period of time the annual
that term, earned during the statement
period, calculated according to the rules percentage yield is in effect.
in appendix A, Part II.
1 Under the daily balance method, interest is
(b) Amount of interest paid. The dollar
calculated by applying a periodic rate to the full
amount of interest paid during the
amount of principal in the account each day. Under
statement period.
the average daily balance method, interest is
calculated by applying a periodic rate to the
(c) Fees imposed. Fees required to be
average balance in the account for the period. The
disclosed under § 230.4(b](4] imposed
average balance is determined by adding the full
during the statement period. The fees
amount of principal in the account for each day of
shall be itemized by type and disclosed the period and dividing that figure by the number of
as dollar amounts.
days in the period.
12756
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
(3) The m inimum b alan c e required to
e a rn the ad v e rtise d annu al percentage
yield. For tiered rate accounts, the
m inimum b alan c e requirem ent shall be
sta te d for ea ch tier an d shall be sta te d
in close proxim ity a n d w ith equal
prom inence to the applicable annual
percentage yield.
(4) The m inim um deposit required to
open the account, if it is greater th an the
minimum balan ce n ecessary to earn the
ad v ertised annual percentage yield.
(5) The m inim um tim e required to
ob tain the ad v ertised annual percentage
yield, together w ith any low er annual
percentage yield that w ill apply if the
deposit is w ith d raw n prior to th a t time.
(6) A statem en t th a t fees or other
conditions could reduce the earnings on
the account.
(7) In the case of tim e deposits w ith a
sta te d m aturity of less than one year, a
statem en t th a t the annual percentage
yield assum es th a t the funds will rem ain
on deposit for a full y ear at the rate
provided for in the deposit contract.
(8) In the case of time deposits, a
statem en t th a t a pen alty m ay be
im posed for early w ithdraw al.
(d) Bonuses. If a bonus is sta te d in an
advertisem ent, the advertisem ent shall
state:
(1) The “annual percentage yield,”
using that term;
(2) T he inform ation in p aragraph fc) of
this section;
(3) T he conditions th a t m ust be m et in
o rder to qualify for the bonus; and
(4) W hen the bonus will be paid.
§ 230.9
Enforcement and record retention.
(a) Administrative enforcement. A
violation of the act or this regulation is
subject to adm inistrative sanctions as
provided in section 270 of the act.
Com pliance is enforced by the agencies
listed in th a t section.
(b) Civil liability. Section 271 of the
act contains the provisions relating to
civil liability for failure to com ply w ith
the requirem ents of the act a n d this
regulation.
(c) Record retention. A depository
institution shall retain evidence of
com pliance w ith this regulation for a
minimum of tw o years after the d ate
disclosures are required to be m ade. The
adm inistrative agencies responsible for
enforcing the regulation m ay require
depository institutions u nder their
jurisdiction to retain records for a longer
period if n ecessary to carry out their
enforcem ent responsibilities u nder
section 270 of the act.
Appendix A—Annual Percentage Yield
Calculation
The annual percentage yield (APY) is a
measurement of the amount of interest an
institution pays on an account, expressed as
an annualized rate.1 The annual percentage
yield is based on a 365-day year.2 Part 1 of
this appendix discusses the annual
percentage yield calculations for account
disclosures and advertisements, while Part II
discusses annual percentage yield
calculations for periodic statements.
The annual percentage yield shall be
calculated and expressed as a rate rounded
to the nearest basis point (one-hundredth
percentage point) and shown to two decimal
places. The annual percentage yield shall be
considered accurate if it is not more than five
basis points (1/20 of one percentage point)
above or below the annual percentage yield
determined in accordance with the rules in
this appendix.
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 APY can be calculated by use
of the following simple formula:
APY=100 (Interest/Principal)
Examples: (1) If an institution would pay
$61.68 in interest for a 365-day year on $1,000
deposited into a NOW account, the APY is
6.17%. Using the general formula above:
APY= 100((1 + 61.68/1,000) < / 369-1 ]
365
APY=6.17%.
Or, using the simple formula above (since
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
Part I. Annual Percentage Yield for Account
Disclosures and Advertising Purposes
(where the six-month period used by the
institution contains 182 days), the APY is
In general, the annual percentage yield for
6.18%. Using the general formula above:
account disclosures under § § 230.4 and 230.5
APY=100[(1 + 30.37/1,000)(M 183--1]
5'
and for advertising under § 230.8 is an
APY=6.18%
annualized rate that reflects the relationship
between the amount of interest that would be B. Stepped Rate Accounts (Different Rates
earned for a 365-day year and the amount of
Apply in Succeeding Periods)
principal used to calculate that interest.
For accounts with two or more fixed simple
Special rules apply to accounts with tiered
interest rates to be applied in succeeding
interest rates.
periods (where the rates are known at the
A. General Rules
time the account is opened), an institution
shall assume each simple interest rate is in
The annual percentage yield shall be
effect for the length of time provided for in
calculated by the formula shown below,
deposit contract.
which reflects, on an annualized basis, the
relationship between the amount of interest
Examples: (1) If an institution offers a
earned by the consumer for the term of the
$1,000 6-month certificate of deposit on which
account and the amount of principal assumed it pays a 5% simple interest rate, compounded
to have been deposited to earn that amount
daily, for the first three months (which
of interest. Institutions shall calculate the
contain 88 days), and a 5.5% simple interest
annual percentage yield based on the actual
rate, compounded daily, for the next three
number of days for the term of the account.
months (which contain 91 days), the total
For accounts without a stated maturity date
interest for six months is $26.10, and the APY
(such as a typical savings or transaction
is 5.39%. Using the general formula above:
account), the calculation shall be based on an APY=100 [(1 + 26.10/1,000) <
S6S/17* -1 ]
assumed term of 365 days. In determining the APY=5.39%
total interest figure to be used in the formula,
(2) If an institution offers a $1,000 2-year
institutions shall assume that all principal
certificate of deposit on which it pays a 6%
and interest remain on deposit for the entire
term, and that no other transactions (deposits simple interest rate, compounded daily, for
the first year, and a 6.5% simple interest rate,
or withdrawals) occur during the period.
compounded daily, for the next year, the total
The annua! percentage yield is to be
interest for two years is $133.13, and the APY
calculated by use of the following general
is 6.45%. Using the general formula above:
formula:
APY=100 ((1 + 133.13/1,000)<M ,3* - l ]
5'
APY=100[(1 +Interest/Principal)
(365/Day* in term)_
APY =6.45%
"Principal” is the amount of funds assumed C. Variable Rate Accounts
to have been deposited at the beginning of
For variable rate accounts without an
the account.
introductory premium or discounted rate, an
"Interest” is the total dollar amount of
institution must base the calculation only on
interest earned on the Principal for the term
the initial simple interest rate in effect when
of the account.
the account is opened (or advertised), and
"Days in term” is the actual number of
assume that this rate will not change during
days in the term of the account.
the year.
Variable rate accounts with an
introductory premium or discount rate must
1 The annual percentage yield reflects only
interest and does not include the value of any cash
be treated like stepped rate accounts. Thus,
bonus, merchandise, or other items that may be
an institution shall assume that: (1) The
provided to the consumer to open, maintain,
introductory simple interest rate is in effect
increase or renew an account. Interest or other
for the length of time provided for in the
earnings are not to be included in the annual
deposit contract; and (2) the variable simple
percentage yield if such amounts are determined by
interest rate that would have been in effect
circumstances that may or may not occur.
* Institutions may calculate the annual percentage when the account is opened or advertised
(but for the introductory rate) is in effect for
yield based on a 385-day or a 366-day year in a leap
year.
the remainder of the 365-day year.
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Roles
For example, if an institution offers an
account on which it pays a 7% simple interest
rate, compounded daily, for the first three
months (which contain 68 days), while the
variable simple 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 $56.35, and the APY is
5.64%. Using the simple formula:
APY=100 (56.35/1,000)
APY=5.64%
annual percentage yield for the second tier is
6.85%. Using the simple formula:
APY=100 (452.29/8,000)
APY=5.85%
Third Tier. The institution will pay
$1,183.81 in interest on a $20,000 deposit.
Thus, the annual percentage yield for the
third tier is 5.92%. Using the simple formula:
APY=100 (1,183.61/20,000)
APY=5.92%
12757
Third tier. For the third tier, the institution
would pay between $841.45 and $5,871.78 in
interest, based on assumed balances of
$15,000 and $100,000, respectively. For
$15,000, interest would be figured on $2,499.99
at 5.25% simple interest rate, plus interest on
$12,500 at 5.50% simple interest rate, plus
interest on $.01 at 5.75% simple interest rate.
For the low end of the third tier, therefore, the
annual percentage yield is 5.61%. Using the
simple formula:
APY=100 (841.45/15,000)
APY=5.61%
For $100,000, the assumed high end of the
third tier, interest would be figured on
$2,499.99 at 5.25% simple interest rate, plus
interest on $12,500 at 5.50% simple interest
rate, plus interest on $85,000.01 at 5.75%
simple interest rate. For the high end of the
third tier, therefore, the annual percentage
yield is 5.87%. Using the simple formula:
APY=100 (5,871.78/100,000)
APY=5.87%
Thus, the annual percentage yield that would
be stated for the third tier is 5.61% to 5.87%.
Part II. Annual Percentage Yield for Periodic
Statements
The annual percentage yield for periodic
statements under § 230.6 is an annualized
rate that reflects the relationship between the
amount of interest actually paid and credited
to the consumer’s account during the period
and the average daily balance in the account
for the period.
The annual percentage yield shall be
calculated by using the following formula:
APY=100 ((1+lnterest eamed/Balance) (3“ (
Tiering Method B
Under this method, an institution pays the
stated simple interest rate only on that
For accounts in which the simple interest
portion of the balance within the specified
rate paid on the account is determined by
tier. For example, if a consumer deposits
specified balance levels, the institution must
$8,000, the institution pays 5.25% on only
calculate the annual percentage yield in
$2,499.99 and 5.50% on $5,500.01 (the amount
accordance with the method described below that exceeds the cutoff level between the first
that it uses to calculate interest. In all cases,
and second tiers).
an annual percentage yield (or a range of
The institution that computes interest in
annual percentage yields, if appropriate)
this manner must provide a range that shows
must be disclosed for each balance tier.
the lowest and the highest annual percentage
For purposes of the examples discussed
yields for each tier (other than for the first
below, assume the following:
tier, which, like the tiers in Method A, has the
same annual percentage yield throughout).
Simple interest Deposit balance required to earn The low annual percentage yield is
rate (percent)
rate
calculated based on the total amount of
interest earned for a 365-day year assuming
5.25................... $.01 up to but not exceeding the minimum principal required to earn the
simple interest rate for that tier. The high
$2,500.
5.50....................
annual percentage yield is based on the
$15,000.
amount of interest the institution would pay
5.75................... 15,000 and higher.
on the highest principal that could be
deposited to earn that same simple interest
rate. If the account does not have a limit on
the amount that can be deposited, the highest
Tiering Method A
principal for the top tier shall be deemed to
Under this method, an institution pays on
be $100,000.
the full balance in the account the stated
Days in period) __
For the amounts assumed above, the
simple interest rate that corresponds to the
institution would state a total of five annual
“Balance” is the average daily balance in
applicable deposit tier. For example, if a
percentage yields—one figure for the first tier the account during the period covered by the
consumer deposits $8,000, the institution pays and two figures stated as a range for the
statement.
the 5.50% simple interest rate on the entire
other two tiers.
"Interest earned" is the actual amount of
$ 8 ,000 .
First tier. Assuming daily compounding, the interest accrued and credited to the account
When this method is used to determine
institution would pay $53.90 in interest on a
for the period covered by the statement.
interest, only one annual percentage yield
$1,000 deposit. For this first tier, the annual
“Days in period” is the actual number of
will apply to each tier. Within each tier, the
percentage yield is 5.39%. Using the simple
days for the period covered by the statement.
annual percentage yield will not vary with
formula:
For example, if an institution pays $5.25 in
the amount of principal assume to have been
APY=100 (53.90/1,000)
interest for a period containing 30 days, and
deposited.
APY=5.39%
the average daily balance for the period is
For the simple interest rates and deposit
Second tier. For the second tier the
$1,000, the APY is 6.58%. Using the formula
balances assumed above, the institution will
institution would pay between $134.75 and
above:
state three annual percentage yields—one
$841.45 in interest, based on assumed
corresponding to each balance tier.
APY=100 ((1+5.25/1,000) *»'*» - 1 ]
balances of $2,500 and $14,999.99,
Calculation of each annual percentage yield
respectively. For $2,500, interest would be
is similar for this type of account as for
Appendix B—Model Clauses and Sample
figured on $2,499.99 at 5.25% simple interest
accounts with a single fixed interest rate.
Forms
rate plus interest on $.01 at 5.50%. For the low
Thus, the calculation is based on the total
end of the second tier, therefore, the annual
amount of interest that would be received by
B -l—Model Clauses for Account Disclosures
percentage yield is 5.39%. Using the simple
the consumer for each tier of the account for
(Section 230.4(b))
formula:
a 365-day year and the principal assumed to
B-2—Model Clause for Change in Terms
APY=100 (134.75/2,500)
have been deposited to earn that amount of
(Section 230.5(a))
interest.
APY=5.39%
B-3—Sample Form (Multiple Accounts)
First tier. Assuming daily compounding, the
B-4—Sample Form (NOW account)
For $14,999.99, interest is figured on
institution will pay $53.90 in interest on a
B-5—Sample Form (Certificate of Deposit)
$2,499.99 at 5.25% simple interest rate plus
$1,000 deposit. For the first tier, the APY is
interest on $12,500 at 5.50% simple interest
B-6—Sample Form (Certificate of Deposit
5.39%. Using the general formula:
Advertisement)
rate. For the high end of the second tier, the
annual percentage yield is 5.61%. Using the
APY=100 ((1+53.90/1,000)
1]
B-7—Sample Form (Money Market Account
APY=5.39%
simple formula:
Advertisement)
APY=100 (841.45/14,999.99)
Using the simple formula:
B -l—Model Clauses for Account Disclosures
APY=5.61%
APY=100 (53.90/1,000)
(a) Rate Information
APY=5.39%
Thus, the annual percentage yield range that
(i) Fixed rate: The simple interest rate for
Second tier. The institution will pay $452.29 would be stated for the second tier is 5.39% to
your account i s _______ % with an annual
5.61%.
in interest on a $8,000 deposit Thus, the
D. Accounts With Tiered Rates (Different
Rates Apply Depending on Balance Level)
12758
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
percentage yield o f______ %. You will be
paid this rate [for_______] [until________ ].
(ii) Variable rate: The simple interest rate
for your account i s ______ % with an annual
percentage yield o f ______ %. You will be
paid this rate [for_______] [until________ ].
Your simple interest rate and annual
percentage yield may change.
[daily balance] [average daily balance] of
$_______ to eam the annual percentage yield
listed above, you will eam interest for every
day during the period that your account
equals or exceeds the minimum balance
requirement.
Determination o f Rate
The simple interest rate for your account is
based on [index] [plus] [minus] a margin of
which interest is computed for your account
is determined by the daily balance method,
which applies a periodic rate to the full
amount of principal in the account each day.
(ii) Average daily balance method. The
balance on which interest is calculated for
your account is determined by the average
daily balance method, which applies a
periodic rate to the average balance in the
account of the period. The average daily
balance is calculated by adding the full
amount of principal in the account for each
day of the period and dividing that figure by
the number of days in the period.
We may change the simple interest rate for
your account based on market or other
factors.
Frequency o f Rate Change
We may change the simple interest rate for
your account [every_______ ] [at any time we
choose].
Limitations on Rate Changes
The simple interest rate for your account
will never change by more th a n _______ %
e a ch _______ .
The simple interest rate will never be [less]
[more] th an _______ %,
(iii) Stepped rate accounts: The simple
interst rate for your account i s __________ %.
You will be paid this rate [until_______ ] [for
----------- ]. After that time, the simple interest
rate for your account will b e _______ %, and
you will be paid this rate [until_______ ] [for
----------- ]. TTie annual percentage yield for
your account i s ____________________ %.
(iv) Tiered rate accounts: If your [daily
balance] [average daily balance] is below
$-----------, the simple interest rate for your
account will b e _______ % with an annual
percentage yield o f_______ %.
If your [daily balance] [average daily
balance] is $-----------or more, the simple
interest rate paid on the entire balance in
your account will b e _______ % with an
annual percentage yield o f_______ %.
The simple interest rate that will be paid
for only that portion of your [daily balance]
[average daily balance] that exceeds
$-----------i s ----------- %. The annual
percentage yield for the excess balance will
range from_______ % to _______ %,
depending on the balance in the account.
You will be paid these rates [for_______ ]
[until_______].
(bj Time Requirements
To eam the annual percentage yield listed
above, your entire deposit must remain on
deposit [until_______ ].
(c) Compounding and.Crediting
Interest will be compounded [on a _______
basis] [every_______ ].
Interest will be credited to your account
[on a ---------- basis] [every________].
(d) Minimum Balance Requirements
(i) To open the account. You must deposit
$-----------to open this account.
(ii) To avoid imposition offees. A minimum
balance fee [of $_______ ] will be imposed
every-----------if your account does not have
a [daily balance] [average daily balance] of
at least $_______ for________.
(iii) To obtain the annual percentage yield
disclosed. You must maintain a minimum
(e) Balance Computation Method
(i) Daily balance method. The balance on
(fj Fees
The following fees may be assessed against
your account:
_________ ________
$_____
________
______ _____
$____
$_-
— ____
(jj Potential Loss o f Principal
Changes in the [description o f feature] may
result in a loss of principal.
B-2-^Model Clauses for Changer in Terms
O n _______ , the cost of [description and
fee] will increase to $_______
O n _______ , the annual percentage yield
for your account will decrease to _______ %.
O n _______ ,
the minimum balance
required to avoid imposition of a fee will
increase to $_______
B-3—Sample Form (Multiple Accounts)
Bank ABC—Disclosure of Interst and
Charges
This disclosure contains information about
your:
—Now Account
—Passbook Savings Account
X Money Market Account
—1 Year Certificate of Deposit (CD)
—2 Year Certificate of Deposit (CD)
Fees
The following fees and penalties may be
assessed against your account:
(if $____ _
_____ )
______
your deposit will be placed in a [_______
account for which interest will be paid based
on the simple interest rate in effect at that
time] [noninterest-bearing account],
(h) Early W ithdrawal Penalty
We will impose a penalty if you withdraw
[any] [all] of the depositied funds before the
maturity date. The fee imposed will equal
_______ months of interest.
A penalty of $_______ will be charge if
you withdraw [any] [all] of the deposited
funds before the maturity date.
If [any] [all] of the deposit is withdrawn
before [the end of] that time, the simple
interest rate paid on the remaining funds in
your account will b e _______ % with an
annual percentage yield o f_______ %.
X Fee per month for not maintain
ing a $500 minimum balance
every d ay .......................................
$6.00
—Fee for every check you write
.25
on the account........................... .
X Fee for each ATM withdrawal....
.25
X Fee for each ATM deposit...........
1.00
X Fee for a stop payment order......
12.50
X Fee for checks presented
against insufficient funds.............
15.00
■X Fee for each wire transfer (in
coming or outgoing)......................
10.00
X Fee for writing more than 3
checks per month........... ...............
6.00
X Fee for making more than 6
6.00
(total) withdrawals per month.....
—Fee for set up to gain access to
computerized home banking........
6.00
X Fee for check printing (200
checks) (depending on style se
lected)............ ................................ 12.00 to
18.00
X Fee per month for access to
telephone bill payment plan.........
3.00
X Fee fpr assistance with recon
ciling bank statements (hourly
rate).................................................
17.00
X Fee for a photocopy of monthly
statement or Form 1099 ................
4.00
—Fee for making a transaction
without an account passbook......
1.75
—Penalty for early withdrawal (1
year CD)........... .............................
50.00
—Penalty for early withdrawal (2
year CD).........................................
100.00
(i) Renewal Policy
(i) Autom atically renewable. This account
will automatically renew at maturity.
(ii) Renewal upon notice from consumers.
The account will not renew automatically at
maturity. If you do not renew the acount,
Rate Information (Current Rates are Listed
Below)
—Your simple interest rate and annual
percentage yield are fixed.
_______
%_____
of-_____
(g) Transaction Limitations
You may only m ake_______ withdrawals
from your account each statement cycle—
.— __ by check a n d _______ otherwise.
The minimum withdrawal is $_______
You may only m ake_______ deposits into
your account each statement cycle.
You may only m ake_______ ATM
[withdrawals from] [deposits into] your
account each statement cycle.
You may only m ake_______
preauthorized transfers [from] [into] your
account each statement cycle.
You may not make deposits into or
withdrawals from this account until the
maturity date.
Federal Register / Vol. 57, No. 71 / Monday, April 13* 1992 / Proposed Rules
X Your simple interest rate and annual
percentage yield are fixed.
X Your simple interest rate and annual
percentage yield may change. The simple
interest rate for your account is based on
the 6 Month Treasury bill plus a margin of
.25%. This rate may change daily. The
simple interest rate will never be less than
3%.
Minimum Balance To A void a Fee
X A fee will be imposed every month if your
account does not have a minimum daily
balance of $500 for each day of the month
Compounding and Crediting Policies
Early Withdrawal Penalty
X Interest will be compounded on a daily
basis
X Interest will be credited to your account on
the last day of each month
—Interest will be credited to your account on
the last day of each month and at maturity
—A penalty will be charged if you withdraw
any of the deposit before the maturity date
Transaction Limitations
X You may only make 6 withdrawals from
your account each month—3 by check and
3 otherwise. The minimum withdrawal is
$100
—You may not make deposits or withdrawals
from this account until the maturity date
Additional Disc lo su re s About
Annual
percentage
yield
(percent)
Simple
interest rate
(percent)
you r
Renewal Policy
—The account will not renew automatically
at maturity. If you do not renew the
account, your deposit will be placed in a
noninterest-bearing account
Time Requirements
—To eam the annual percentage yield listed
above, your entire deposit must remain on
deposit until [_______ ]
Additional disclosures for your account are
included in the attached chart.
Account
4.08
3.56
4.00 Rate may change daily..
3.50 30 days from account
Money Market Account..........
1 year Certificate of Deposit..
2 year Certificate of Deposit..
4.60
5.34
5.97
4.50 Rate may change daily..
5.20 Until maturity_________
5.80 Until maturity...................
Minimum
balance
to open
the
account
Minimum
daily
balance
to eam
in terest1
$100
$1 0 0
$100
$1 0 0
Daily balance method.
Daily balance method.
$100
Period of time the simple
interest rate is in effect
NOW Account........................
Passbook Savings Account..
$100
$ 1,000
Daily balance method.
Daily balance method.
Daily balance method.
opening.
1 The balance on which interest is paid is determined by the daily balance method, which applies
each day.
Minimum Balance Requirement
Bank XYZ—Disclosure of Interest and
Charges NOW Account
Fees
The following fees and penalties may be
assessed against your account:
You must deposit $100 to open this account.
A minimum balance fee will be imposed for
every month your account does not have a
average daily balance of $500.
You must maintain an average daily
balance of $100 to eam the annual percentage
yield listed above.
Fee to establish a preauthorized
transfer...........................................
Fee for not providing taxpayer ID
number............................................
Fee for bank-by-mail kit...................
Fee to hold a periodic statement
at branch........................................
$6.00
.25
10.00
.25
1.00
12.50
15.00
12.00 to
18.00
3.00
Balance Computation Method
The balance on which interest is paid for
your account is determined by the average
daily balance method, which applies a
periodic rate to the average balance in the
account for the period. The average daily
balance is calculated by adding the full
amount of principal in the account for each
day of the period and dividing that figure by
the number of days in the period.
Compounding and Crediting
Interest for your acount will be
7.00 compounded daily and credited to your
5.00 account balance on the last day of each
month.
15.00 B-5—Sample Form (Certificate of Deposit)
Rate Information
The simple interest rate for your account is
5.00% with an annual percentage yield of
5.13%. You will be paid this rate until 9-1-92.
Your simple interest rate and annual
percentage yield may change.
We may change the simple interest rate for
your account based on market or other
factors at any time.
The simple interest rate will never be less
than 3%.
$ 1,000
$1,000
1,000
Method to determine
balance on which
interest is paid 1
a periodic rate to the full amount of principal in the account
B-4—Sample Form (NOW Account]
Fee per month for keeping a $500
minimum balance..........................
Fee for every check you write on
your account...................................
Fee for an ATM card (annualfee)...
Fee for each ATM w ithdrawal........
Fee for each ATM depsoit...............
Fee for a stop payment order..........
Fee for checks presented against
insufficient funds (NSF)................
Fee for printing checks (per 200).....
12759
XYZ Savings Bank—Disclosure of Interest
and Charges; 1 Year Certificate of Deposit
Rate Information
The simple interest rate for your account is
6.00% with an annual percentage yield of
6.18%. You will be paid this rate until the
maturity date of the certificate.
Time Requirement
To eam the annual percentage yield listed
above, your entire deposit must remain on
deposit until June 28,1993.
Minimum Balance Requirements
You must deposit $1,000 to open this
account.
You must maintain a minimum daily
balance of $1,000 to eam the annual
percentage yield listed above.
Balance Computation Method
The balance on which interest is paid for
your account is determined by the daily
balance method, which applies a periodic
rate to the full amount of principal in the
account each day.
Transaction Limitations
You may not make deposits or withdrawals
from this account until the maturity date.
Early Withdrawal Penalty
If you withdraw any funds before the
maturity date, a penalty of $50 will be
charged to your account.
Renewal Policy
This account will be automatically
renewed at maturity. Even after it is renewed,
you may withdraw the funds within 10 days
without being charged a penalty.
Compounding and Crediting
Interest for your account will be
compounded daily and credited to your
account balance on the last day of each
month and at maturity.
Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
12760
B-8—Sample Form (Certificate of Deposit
Advertisement)
Bank XYZ—Always Offers You Competitive
CD Rates
Account
Annual Percentage Yield
5 Year Certificate.............. 6.31
6.07
3 Year Certificate.............. 5.72
5.52
1 Year Certificate.............. 4.54
6 Month Certificate *........ 4.34
90 Day Certificate *.......... 4.21
The annual percentage
Funds must remain on
yields are effective 3 /
deposit until maturity
9 /9 2 through 3/16/91...
to earn the advertised
yield.
*The annual percentage yield assum es funds will
remain on OfiDOsit tor a full year at the advertised
rate. A penalty may be imposed for early withdrawal.
The minimum daily balance to open the account and
to eam interest is $1,000.
For more information call: 202-123-1234,
Bank XYZ. Deposits insured to $100,000 by
FDIC.
B-7—Sample Form (Money Market Account
Advertisement)
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 of Preemption Determinations
After the Board determines that a state law
is inconsistent, a depository institution may
not make disclosures using the inconsistent
term.
(d) Reversal of 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—Issuance of Staff
Interpretations
Officials in the Board’s Division of
Consumer and Community Affairs are
The Prime Dollars In The Market Are In
authorized to issue official staff
Money Market Accounts With Bank XYZ
interpretations of this regulation. These
interpretations provide the protections
afforded under section 271(f) of the act.
Annual percentage yield
Except in unusual circumstances,
interpretations will not be issued separately
5.07%*
Accounts with a balance
but will be incorporated in an official
of $5,000 or less.
Accounts with a balance 5.57%*
commentary to the regulation, which will be
over $5,000.
amended periodically. No staff
The annual percentage
F ees or other conditions
interpretations will be issued approving
yields are available
could reduce the
depository institutions’ forms, statements, or
April 15 through April
earnings on the
calculation tools or methods.
20.
accounL
By order of the Board of Governors of the
•The rates may change after the account is Federal Reserve System, April 2,1992.
opened.
Jennifer J. Johnson,
Associate Secretary of the Board.
For more information call: 202-123-1234,
Bank XYZ; founded 1899. Deposits insured to [FR Doc. 92-8013 Filed 4-10-92; 8:45 am]
$100,000 by FDIC.
BILLING CODE 6210-01-M
Appendix C—Effect on State Laws
(a) Inconsistent Disclosure Requirements
State law requirements that are
inconsistent with the disclosure requirements
of the act and this regulation are preempted
to the extent of the inconsistency. A state law
is inconsistent if it requires a depository
institution to make disclosures 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, or if it reguires the use
of a term different from that required in the
federal law to describe the same item.
(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
