Full text of District Notices (Federal Reserve Bank of Dallas) : Request for Comment on a Proposed Official Staff Commentary to Regulation DD (Truth in Savings), Notice 94-26

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Federal Reserve Bank
OF DALLAS
ROBERT

D. M c T E E R , J R .

P R E S ID E N T
AND

C H IE F E X E C U T IV E

O F F IC E R

February 25, 1994

DALLAS, TEXAS
75265-5906

Notice 94-26
TO:

The Chief Executive Officer of each
member bank and others concerned in
the Eleventh Federal Reserve District
SUBJECT
Request for Comment on a Proposed
Official Staff Commentary to Regulation DD
(Truth in Savings)
DETAILS

The Board of Governors of the Federal Reserve System has published
for comment a proposed official staff commentary to Regulation DD (Truth in
Savi ng s) .
The commentary applies and interprets the requirements of the
regulation and is a substitute for individual staff interpretations. The
proposed commentary incorporates much of the guidance provided when the
regulation was adopted and addresses additional questions that have been
raised about the application of its requirements.
The Board must receive comments by April 1, 1994. Comments should
be addressed to William W. Wiles, Secretary, Board of Governors of the Federal
Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C.
20551. All comments should refer to Docket No. R-0824.
ATTACHMENT
A copy of the Boa rd ’s notice as it appears on pages 5536-48, Vol.
59, No. 25, of the Federal Register dated February 7, 1994, is attached.
MORE INFORMATION
For more information, please contact Eugene Coy at (214) 922-6201.
For additional copies of this Bank ’s notice, please contact the Public Affairs
Department at (214) 922-5254.
Sincerely yours,

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)

5536

Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules

FEDERAL RESERVE SYSTEM
12 CFR Part 230
[ R e g u la tio n DO; D o c k e t N o . R -0 8 2 4 ]

Truth in Savings
Board of Governors of the
Federal Reserve System.
ACTION: Proposed official staff
interpretation.
AGENCY:

The Board is publishing for
comment a proposed official staff
commentary to Regulation DD (Truth in
Savings). The commentary applies and
interprets the requirements of
Regulation DD and is a substitute for
individual staff interpretations. The
proposed commentary incorporates
m uch of the guidance provided when
the regulation was adopted, and
addresses additional questions that have
been raised about the application of its
requirements.
DATES: Comments m ust be received on
or before April 1,1994.
ADDRESSES: Comments should refer to
Docket No. R-0824, and may be mailed
to William W. Wiles, Secretary, Board of
Governors of the Federal Reserve
System, 20th Street and Constitution
Avenue, NW., Washington, DC 20551.
Comments also may be delivered to
room B-2222 of the Eccles Building
between 8:45 a.m. and 5:15 p.m.
weekdays, or to the guard station in the
Eccles Building courtyard on 20th
Street, NW. (between Constitution
Avenue and C Street) at any time.
Comments may be inspected in Room
M P-500 of the Martin Building between
9 a.m. and 5 p.m. weekdays, except as
provided in 12 CFR 261.8 of the Board’s
rules regarding the availability of
information.
FOR FURTHER INFORMATION CONTACT: Jane
Ahrens, Kyung Cho, Kurt Schumacher
or Mary Jane Seebach, Staff Attorneys,
Division of Consumer and Community
Affairs, Board of Governors of the
Federal Reserve System, at (202) 4523667 or 452-2412; for the hearing
impaired only, Dorothea Thompson,
Telecommunications Device for the
Deaf, at (202) 452-3544.
SUMMARY:

Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules
SUPPLEMENTARY INFORMATION:

(1) Background
The purpose of the Truth in Savings
Act (12 U.S.C. 4301 et seq.) is to assist
consum ers in comparing deposit
accounts offered by depository
institutions. The act requires
institutions to disclose fees, the interest
rate, the annual percentage yield, and
other account terms whenever a
consum er requests the information and
before an account is opened. Fees and
other information also must be provided
on any periodic statement the
institution sends to the consumer. Rules
are set forth for deposit account
advertisem ents and advance notices to
account holders of adverse changes in
terms. The act restricts how institutions
must determ ine the account balance on
which interest is calculated. The act is
im plem ented by the Board’s Regulation
DD (12 CFR part 230), which became
effective on June 21,1993. The
regulation authorizes the issuance of
official staff interpretations of the
regulation. (See Appendix D to
Regulation DD.)
The Board is publishing a proposed
commentary to Regulation DD. The
proposal is designed to provide
guidance to depository institutions in
applying the regulation to specific
transactions and is a substitute for
individual staff interpretations. The
Board contemplates updating the
commentary periodically to address
significant questions that arise. It is
expected that this commentary w ill be
adopted in final form in June 1994 w ith
a six-month tim e period for optional
compliance until the effective date,
estimated in December 1994.

annual percentage yield for accounts
that pay interest prior to maturity (58 FR
64190). (See also the notice extending
the comment period published on
January 13, 1994, 59 FR 1921.) The
Board has deferred proposing
commentary on provisions of the
regulation affected by the proposal,
pending final action by the Board.
The scope of the discussion that
follows is limited so that, for instance,
examples listed in the commentary are
not repeated below.
Section 230.1—Authority, Purpose,
Coverage, and Effect on State Laws

5537

one individual for another solely for
personal, family or household purposes.
Finally, the Board believes that
requiring an institution to identify both
the purpose of the trust and whether the
account has been established by
someone in a professional capacity
would present an undue compliance
burden, w ith m inimal benefits. The
Board requests comment on whether
any accounts established for trusts
(other than IRAs and SEP accounts)
should be subject to the regulation,
particularly w hen both the beneficiary
and the trustee are natural persons.

(b) Advertisement
Comment 2(b)—1 provides examples of
commercial messages considered to be
advertisements, such as messages on
computer screens in bank lobbies and
accompanying printouts. The Board
believes these messages are similar to
messages in traditional advertising
media such as televisions and
newspapers.
The comment also provides examples
of messages not considered to be
advertisements, including direct oral
discussions conducted in person—but
Section 230.2— Definitions
not telephone conversations—regarding
(a) Account
the negotiation of a specific account.
Comment 2(a)-l provides examples of The Board believes that the purpose of
accounts subject to the regulation,
advertising disclosures—ensuring that
including the example of a deposit
prospective customers of consumer
account required as a condition of
accounts know basic terms about the
obtaining a credit card account (often
account—is adequately served by facereferred to as a “secured” credit card
to-face discussions between employees
account). The Board believes it is
of the institution and consumers seeking
important for consumers to receive
information about accounts. Also, this
disclosures about the terms, m onthly
interpretation is sim ilar to the approach
fees, or other charges that may apply to
taken in the Official Staff Commentary
such accounts, since such information
to the Board’s Regulation Z (12 CFR part
may not appear on disclosures given to
226, Supp. I, 2(a)(2)—1).
card holders under the Truth in Lending
(2) Proposed Commentary
(f) Bonus
Act and its implementing Regulation Z
Comment 2(f)—1 provides examples of
The Federal Register documents
(12 CFR part 226).
The proposed comment also includes
bonuses. The comment also provides an
containing the regulation that
example of an item that is not
implem ented the act and docum ents for examples of accounts not subject to the
considered a bonus for purposes of the
subsequent am endm ents set forth a large regulation. The Board’s proposed
comment narrows the scope of trust
regulation—discount coupons offered
amount of supplem entary material
accounts covered by the regulation, a
by institutions for use at restaurants and
interpreting the new regulation. (See
difference from guidance provided in
stores.
final rule published on September 21,
Comment 2(f)—2 clarifies the
supplementary material to the
1992 (57 FR 43337), correction notice
application of the de m inim is rule ($10
September 1992 rulemaking. The
published on October 5,1992 (57 FR
value or less) by defining the calendar
comment provides that trust accounts
46480), and am endm ents published on
are not subject to the regulation w ith the year as the time frame for determining
March 19,1993 (58 FR 15077).) In large
w hether the bonus requirements are
exception of individual retirement
measure, the proposed commentary
triggered, to ease compliance. The
incorporates the supplementary material accounts (IRAs) and simplified
comment also provides that institutions
from those rulemakings, and reflects the employee pension (SEP) accounts. (See
proposed commentary to paragraph 2(h) must aggregate per account the value of
views expressed therein without
items contemplated to be given during
of this section.) The “trust” for which
substantive change. A num ber of issues
the calendar year, even though an item ’s
that have arisen since the publication of the account is established is not a
individual value is less than $10. Thus,
the regulation have also been addressed. natural person, even though the trustee
if an institution offers in January to give
and beneficiary might be. In addition,
Proposed interpretations of new issues
a fonsum er an item valued at $7.00 each
the law of trusts imposes duties and
are noted below.
calendar quarter during the year if
On December 6,1993, the Board
responsibilities upon all trustees that
account balances in a NOW account
published a proposal to amend the
the Board believes distinguish trust
exceed $10,000 for each calendar
accounts from other accounts held by
regulation’s rules for calculating the
(c) Coverage
Comment l( c ) - l clarifies that the
scope of the regulation is all depository
institutions (except credit unions) that
offer accounts to residents of a “state,”
such as accounts held in the United
States, even though funds may be
transferred periodically into an account
held at a location outside the United
States. An account located outside the
United States is not covered, even if the
funds are held by a U.S. resident.

5538

Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules

quarter, the bonus rules would be
triggered. O n the other hand, if the
items are given for opening separate
accounts—such as a $7.00 item for
renewing a time account and another for
opening a savings account—the value
given for each account remains w ithin
the de m inim is exception, and the
bonus rules would not be triggered.
Comment 2(f)—3 clarifies that the
waiver or reduction of a fee or
absorption of expenses is not a bonus.
The Board solicits comment on this
approach.
(h) Consumer
Comment 2(h)-3 clarifies coverage
issues for retirem ent plans. For
example, the proposed comment states
that SEP accounts and IRAs are
considered consumer accounts for
purposes of the regulation. The Board
believes that although institutions are
nam ed as trustees, SEP accounts and
IRAs are equivalent to other accounts
opened for consum er purposes. On the
other hand, the proposed comment
would exclude from coverage accounts
held in a Keogh plan, which is
established by a self-employed
individual. The Board believes Keogh
accounts are sim ilar to accounts held by
*‘a sole proprietor, w hich Congress
intended not to cover.
Comment 2(h)—4 provides factors to
consider in determ ining w hether an
account is held by an unincorporated
nonbusiness association of natural
Associations w ith paid staff are
[>ersons.
ikely to be more sophisticated in their
investment decisions and are not as
likely to need disclosures. The Board
solicits com ment on whether the use of
factors is appropriate for providing
guidance in this area. In addition, the
Board solicits comment on the proposed
factors and on w hat additional factors
might indicate an account is held by or
offered to an unincorporated association
of natural persons.
(p) Passbook Savings Account
Comment 2(p)—1 clarifies that
institutions may consider accounts as
“passbook savings,” even if direct
deposits such as social security
payments are m ade to the account
w ithout the use of the passbook. The
proposed com ment is consistent w ith
the requirements of Regulation E (12
CFR 205.9). Accounts that perm it other
electronic fund transfers—w hether or
not called “passbook”—and thus trigger
Regulation E’s requirem ent to send
statements at least quarterly are not
passbook savings accounts, and
institutions m ust comply w ith the
periodic statem ent disclosures in
§ 230.6 of this part.

(t) Tiered-rate Account
Comment 2 (t)-l clarifies that time
accounts that pay different rates based
solely on the am ount of the initial
deposit are not considered tiered-rate
accounts. In this case, advertisements
and account disclosures would not
reflect tiered-rate disclosures for the
account.
Section 230.3— General Disclosure
Requirements
(b) General
Comment 3(b)—1 provides guidance
on the specificity required for the
disclosures of the compounding and
crediting frequencies. The Board
believes slight variations in cycles are
consistent w ith the notion of “m onthly”
cycles, w hich are often not based on an
actual calendar month.
(c) Relation to Regulation E
Comment 3(c)—1 provides examples of
disclosures under Regulation E that also
comply with this regulation.
The comment clarifies that an
institution may rely on Regulation E’s
disclosure rules regarding fees imposed
at ATMs and limitations on the
frequency and amount of electronic
fund transfers, including securityrelated exceptions. But any fees
assessed for—or any limitations placed
on the num ber or amount of—“intrainstitutional transfers” from other
accounts at the institution m ust be
disclosed under this regulation, even
though those transactions are exempt
from Regulation E. (See § 230.4(b) of this
part.)
Section 230.4—A ccount Disclosures
(a) Delivery of Account Disclosures
(a)(1) Account Opening
The regulation requires institutions to
provide account disclosures before an
account is opened. Comment 4(a)(1)—1
provides examples of events that do and
do not trigger the delivery of new
account disclosures. Comment 4(a)(1)—!
provides guidance to institutions that
deem an account to be closed, then
receive a deposit from the consumer.
The circumstances under which an
institution may deem an account closed
is governed by state or other law.
However, the Board believes that if an
institution accepts a deposit from a
consumer on an account the institution
has deemed to be “closed” (such as w ith
a balance of $0) opening account
disclosures are required.
The proposed comment also provides
that an account acquired in a merger or
acquisition is not a new account.
Comment is solicited on w hether the

rules for acquisitions involving the
Resolution Trust Corporation and the
Federal Deposit Insurance Corporation
should be distinguished from the rules
for other acquisitions, since they may
involve the acquisition of deposits, not
accounts.
(a)(2) Requests
Paragraph (a)(2)(i)
Comment 4(a)(2)(i)—3 clarifies that ten
business days (a period consistent with
other timing rules for providing
disclosure to consumers that open
accounts by telephone, for example) is
a reasonable tim e for responding to
requests for disclosures.
(b) Content of Account Disclosures
Paragraph (b)(1) Rate Information
Paragraph (b)(l)(i) Annual Percentage
Yield and Interest Rate
Comment 4(b)(l)(i)—1 provides that no
rate or yield other than the interest rate
and annual percentage yield may be
stated in account disclosures, with the
exception of a periodic rate
corresponding to the interest rate (since
it is easily understood by consumers).
(b)(2) Compounding and Crediting
(b)(2)(i) Frequency
Interpretation of this paragraph is
deferred pending the Board’s final
action on proposed amendments to
Regulation DD.
(b)(2)(ii) Effect of Closing an Account
Proposed comment 4(b)(2)(ii)—1
explains that institutions may include
in their contract specific consumer
actions that w ill be considered by the
institution to be a request to close the
account, and that may result in the
nonpaym ent of accrued but uncredited
interest. (See § 230.7(b) of this part.) The
Board solicits comment on this
approach.
(b)(4) Fees
Comments 4(b)(4)—1 through -3
provide guidance for disclosing the
amount of fees that may be assessed in
connection with the account and the
conditions under which they may be
imposed. The Board believes that
attempting to list in the commentary all
fees imposed by institutions would
produce a list that would become both
lengthy and outdated.
(b)(5) Transaction Limitations
Comment 4(b)(5)—1 clarifies that
institutions need not disclose their right
to require seven-day advance notice for
w ithdrawals from an account. (See 12
CFR part 204.)

Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules
(b)(6) Features of Tim e Accounts
(b)(6)(i) Time Requirements
Comment 4(b)(6)(i)—1 provides that
institutions offering “callable” time
accounts m ust state the date or the
circumstances under w hich the account
may be redeemed, in addition to the
m aturity date. The Board believes the
disclosure is a com ponent of the
maturity date—informing the consum er
w hen the funds in the account may
become available for reinvestm ent
(b)(6)(ii) Early W ithdrawal Penalties
Comment 4(b)(6)(ii)-2 provides
examples of early w ithdraw al penalties,
and clarifies that early withdrawal
penalties include bonuses that may be
reclaim ed if funds are w ithdraw n prior
to maturity.
Comment 4(b)(6)(ii)-3 clarifies that
institutions are not required to disclose
as early withdrawal penalties potential
income taxation consequences for
consum ers who w ithdraw funds held in
IRAs Or similar plans.
Section 230.5— Subsequent Disclosures
(a) Change in Terms
Paragraph (a)(1) Advance Notice
Required
Comment 5(a)(1)—3 provides guidance
on an institution’s responsibilities to
provide change in terms notices when
account disclosures reflect that a term
may change upon the occurrence of an
event, such as a fee waiver for
employees during their employment.
However, the Board believes that a
change in terms notice does not extend
to changes in the type of account held.
(See proposed commentary to
§ 230.4(a)(1) of this part, w hich clarifies
that transferring funds held in an
MMDA to open a NOW account m ust be
treated as the opening of a new
account.)
Paragraph (a)(2)(ii) Check Printing Fees
The regulation’s exception to
providing a change in term s notice for
increases to check printing charges is
based on the consum er’s control over
the style and quantity of checks ordered.
The Board solicits comment on other
products, if any, that should be
sim ilarly treated.
(b) Notice Before Maturity for Time
Accounts Longer Than One Month That
Renew Automatically
Comments 5(b)—1 through -5 address
questions about notices that must be
sent for automatically renewing tim e
accounts. Comment 5(b)—1 provides
guidance regarding a tim e account that
may, in fact, have a term longer than the

stated maturity date because the
m aturity date falls on a weekend or
holiday. The Board has received
questions asking w hether this delay on
a one-year time deposit would make the
term longer than one year (thus
requiring the full account disclosures
under paragraph 5(b)(1) of this section
prior to renewal rather than the
abbreviated disclosures perm itted by
paragraph 5(b)(2)). The same issue arises
for tim e accounts with a stated term of
one m onth that may be extended
beyond 31 days. The Board believes
these short extensions due to the
m aturity date’s falling on a weekend or
holiday do not affect the classification
of the account for purposes of the type
of disclosures institutions are required
to provide.
Comment 5(b)-2 clarifies that when
disclosing the date w hen the interest
rate and annual percentage yield can be
determ ined, institutions may use
general disclosures of that date if the
date is easily discerned.
The Board has received many
questions about “club accounts.”
Comment 5(b)-4 makes clear that club
accounts that otherwise meet the
definition of a time account (§ 230.2(u))
m ust follow the requirements of this
section, even if the consum er withdraws
funds at maturity rather than “rolling
over” the principal am ount for another
term. The proposed comment also
clarifies that if the consum er has
previously agreed to make payments
into the account for the next club cycle
(for example, by direct deposit or by
transfers from another account), the club
account should be treated as an
automatically renewable time account.
Comment 5(b)-5 clarifies disclosure
requirements for a changed term for the
subsequent renewal of a rollover time
account. If the notice required by this
paragraph has been provided to the
consum er about the renewing time
account, institutions may provide new
account disclosures or a disclosure that
reflects the consum er’s request and the
new term. The regulation states that if
disclosures have previously been given
and the terms remain the same,
institutions need not provide the
disclosures a second time. (See
§ 230.4(a) of this part.) Since consumers
receive disclosures about their renewing
tim e account, this approach provides
consum ers with essential information
and eases compliance for institutions.
The Board requests comment on this
approach.

5539

Paragraph (b)(1) M aturities of Longer
Than One Year
Comment 5(b)(1)—1 clarifies that
institutions need not highlight the new
terms reflected in the disclosures.
(c) Notice for Time Accounts One
M onth or Less That Renew
Automatically
Institutions have limited disclosure
responsibilities for rollover time
accounts with m aturities of one month
or less. If a term previously disclosed
(other than the interest rate and annual
percentage yield) is changed at renewal,
institutions must send a brief notice
describing the change “w ithin a
reasonable tim e” after the renewal of the
account. Comment 5(c)—1 provides that
10 calendar days after the renewal is a
reasonable time except for accounts
shorter than 10 days, w hich should
receive disclosures before any
subsequent renewal.
(d) Notice Before Maturity for Time
Accounts Longer Than One Year That
Do Not Renew Automatically
Comment 5(d)—1 clarifies that
institutions need not provide new
account disclosures when funds are
subsequently transferred following the
m aturity of a nonrollover time account,
unless a new account is established. The
Board solicits comments on how
institutions treat funds held in a
nonrollover time account following
m aturity, and whether new account
disclosures are appropriate in cases
where funds remain with institutions.
For example, is a check sent to the
consum er automatically, or w ithin a
certain num ber of days of maturity? Are
funds transferred to an account, and if
so, how long are the funds typically
held in that account?
Section 230.6—Periodic Statem ent
Disclosures
(a) General Rule
Comment 6(a)-2 provides guidance to
institutions w hen quarterly periodic
statements are normally sent for the
account but a consum er’s electronic
fund transfer triggers the institution’s
duty under Regulation E to send a
statem ent that month. Institutions need
not treat interim monthly statements as
periodic statements subject to the
requirem ents of this regulation; if they
choose not to do so, they m ust provide
the disclosures (such as the interest
earned and annual percentage yield
earned) on subsequent quarterly
statements.
Comment 6(a)-3 clarifies that
institutions may include limited
account information for one account (an

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Federal Register / Vol. 59, No. 25 / Monday, February 7 , 1994 / Proposed Rules

should not be permitted to w ithhold the comment 230.4(a)(1)—1, w hich requires
institutions to treat the acceptance of a
payment of interest for dorm ant
deposit subsequently m ade by the
accounts. (See comment 7(b)-4,
consumer to that account as the opening
regarding the forfeiture of accrued but
uncredited interest for dormant
of a new account.)
accounts.) The Board also solicits
Section 230.8— Advertising
comment on w hether providing further
guidance on the definition of a dormant (a) Misleading or Inaccurate
account would be preferable to reliance
Advertisements
on state or other law. And, if a uniform
In response to concerns expressed
time period were to be adopted, what
Paragraph (a)(3) Fees Imposed
about the potential for m isleading or
period of time would be appropriate to
inaccurate advertising on indoor signs,
Comment 6(a)(3)-2 provides examples consider an account dormant?
comment 8(a)—2 provides guidance
of sim ilar types of fees that can be
regarding time accounts and tiered-rate
Paragraph (a)(2) Determination of
grouped together if they are disclosed
accounts. The Board solicits comment
Minimum Balance to Earn Interest
with the same name or description. It
also makes clear that all other account
Comment 7(a)(2)—5 clarifies that when on the approach taken.
The regulation prohibits institutions
fees, including those related to
a consum er’s account has a negative
from using the terms “free” or “no cost”
electronic services that are not fund
balance, institutions m ust use zero, and
transfers, m ust be disclosed in
not a negative number, to determ ine the (or terms of similar meaning) to
advertise accounts or account services if
accordance w ith § 230.6 of this part.
balance on which the institution pays
“maintenance and activity fees” can be
Comment 6(a)(3)—4 clarifies that
interest and w hether any m inim um
imposed. The Board has received many
institutions may comply w ith the
balance requirement has been met. The
questions about which fees trigger the
requirements of Regulation E for
Board believes that the regulation
prohibition. The Board believes that it is
disclosing electronic funds transfer fees prohibits institutions from using
not possible to identify by nam e all fees
on periodic statements.
negative balance am ounts for these
that trigger this limitation. (See
purposes, regardless of w hether a daily
Paragraph (a)(4) Length of Period
discussion for proposed comment
balance or an average daily balance
Comment 6(a)(4)—2 provides that if a
4(b)(4)—1.) Instead, comments 8(a)-3
requirement method is used. (See
consumer opens or closes an account
through -7 provide general principles
commentary to Appendix A, Part II,
during a period, the annual percentage
institutions may use, regardless of what
which prohibits the use of negative
yield earned and the other disclosures
a fee may be named. The Board solicits
balances for calculating the interest
for the consum er’s account m ust reflect
comment on the proposed approach to
figure for the annual percentage yield
only those days the account was open,
provide guidance in this area.
earned.)
such as when a consum er changes from
In defining the scope of “maintenance
Comment 7(a)(2)—6 clarifies that for
an interest-bearing account to a
and activity” fees, comment 8(a)-3
club accounts, such as “holiday” and
noninterest-bearing account in the
addresses advertisements for “ free”
“vacation” clubs, institutions cannot
middle of a period.
accounts with optional electronic
impose a minimum balance that could
services such as home banking. The
result in the nonpaym ent of interest for
(b) Special Rule for Average Daily
Board believes many consumers
the
entire
club
period.
The
Board
Balance Method
consider electronic services such as
believes a minimum balance that
When an institution uses the average
ATM access to be an integral part of
requires consumers to make the total
daily balance method for m onthly
their accounts. Therefore, in its
num ber of payments or dollar amounts
periods and provides a quarterly
September 1992 rulemaking, the Board
required under the club plan at the
statement, the literal language of the
maturity of the account is tantam ount to stated that institutions could not
regulation suggests that institutions
advertise an account as “ free” if a fee is
the ending balance method of
should provide three interest figures
imposed for transactions at ATMs
calculating interest—a balance
with three corresponding annual
calculation method not perm itted under owned by the institution. Some
percentage yield earned figures.
institutions have questioned this
the regulation.
Comment 6(b)-3 would perm it
approach arguing that ATM access is
(b) Compounding and Crediting Policies provided only upon a consum er’s
institutions to show either separate
figures for each m onth or a figure for the
Comment 7(b)-3 clarifies that
request and that consumers w ill receive
whole quarter. The Board believes
institutions may, by agreement w ith the information—including the cost of ATM
consumers may receive more useful
consumer, specify circum stances in
access—before obtaining the service.
information if institutions provide one
which the institution deems an account The Board solicits comment on this
interest figure and one corresponding
to be closed by the consumer. If an
approach.
annual percentage yield earned figure
The Board believes consum ers are not
account is closed by the consumer,
for the period.
Regulation DD does not require an
mislead by advertisements for "free”
accounts, if certain electronic services,
institution to pay accrued but
Section 230.7—Paym ent o f Interest
uncredited interest, as long as this fact
such as home banking services, are
(a) Permissible M ethods
available for a fee. The Board believes
is disclosed. (See § 230.4(b)(2)(ii).) For
example, institutions may provide in a
that (unlike ATM access) consumers do
Comment 7(a)—5 clarifies that the
checking account agreement that by
not have a reasonable expectation that
regulation does not require institutions
writing a check which reduces the
services such as home banking would be
to pay interest after a tim e account
account balance to $0, a consum er is
included as part of an account
matures and provides examples to
deemed to have closed an account, or
advertised as free. Of course, if optional
illustrate the rule.
Comment 7(a)-6 addresses “dorm ant” that the account will be deem ed closed
features that impose fees are advertised
accounts. The Board solicits comment
if no activity occurs w ithin 60 days of
w ith a free account, the advertisement
on w hether an institution should or
that transaction. (See proposed
m ust make clear that charges are

MMDA, for example) on the periodic
statement of another account. However,
disclosing interest or rate information
would trigger the duty to state the
annual percentage yield and other
disclosure requirements on that
statement.
Comment 6(a)-4 provides guidance
on additional information that may
appear on periodic statements.

Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules
assessed for the optional feature. The
Board solicits com ment on this
approach, and requests comment on
w hether ATM services should be
distinguished from other optional
electronic services, and whether
consumers would be mislead by an
advertisement for an account that is
described as “ free” even though the
institution may charge for ATM activity
at ATMs owned by the institution.
Comment 8(a)-4 specifies that the
term “ fees waived” is sim ilar to the
term s “ free” or “no cost” for the
purposes of this section.
(b) Permissible Rates
The Board has received many
questions about advertising accounts for
w hich institutions offer a num ber of
versions (certificates of deposits, for
example). Comment 8(b)—3 clarifies that
institutions may state an annual
percentage yield for each version of an
account. Alternatively, the proposed
comment would permit institutions to
state a representative example as long as
the advertisement makes clear that, for
instance, the advertised yield is for a
tim e account with a 30-day maturity
and does not apply to all time accounts.
Similarly, the comment illustrates that
institutions could advertise selected
versions of tim e accounts. The Board
solicits comment on this approach,
w hich the Board believes would
effectively minimize compliance
burdens for institutions w hile still
providing meaningful information to
consumers.
(c) When Additional Disclosures are
Required
The regulation requires institutions to
disclose additional information when
the annual percentage yield is
advertised. Comment 8 (c)-l provides
examples of information that does and
does not trigger the additional
disclosures. In response to questions
about the effect of advertising a “bonus”
rate, the proposed comment illustrates
that stating “bonus rates are available”
does not trigger additional disclosures.
However, stating a “bonus rate of 1% ”
over an institution's current interest rate
for one-year certificates of deposit is
equivalent to stating an interest rate.
Paragraph (c)(2) Time Annual
Percentage Yield Is Offered
Comment 8(c)(2)—1 clarifies the
regulation’s disclosure requirements for
advertisements that state an annual
percentage yield as of a specified
“recent” d a ta The proposed comment
provides that w hen an advertisement is
published, the specified “recent date”
m ust be recent in relation to the

publication frequency of the media used
for the advertisement (taking into
account established production
deadlines for the media involved). For
example, annual percentage yields as of
the printing date of a brochure printed
once for a deposit account promotion
that will run for six months would be
considered “recent,’*even though rates
may be expected to change during the
six-month period. Annual percentage
yields published in a daily newspaper
or broadcast on television must be
“recent” as of the daily publishing or
broadcasting deadline date, even though
the advertisements may appear less
frequently (such as once a month). The
Board solicits comment on this
approach.
Paragraph (c)(6) Features of Time
Accounts
Paragraph (c)(6)(i) Tim e Requirements
Comment 8(c)(6)(i)—1 addresses
questions regarding “club” accounts in
w hich there is a fixed maturity date but
the term of the account may vary,
depending on when the account is
opened. The proposed comment
provides that institutions adequately
disclose the term of the account by
stating the established maturity date and
the fact that the actual term may vary.
A ppendix A—A nnual Percentage Yield
Calculation
Part I. Annual Percentage Yield for
Account Disclosures and Advertising
Purposes
With one exception, the interpretation
of Appendix A, Part 1 is deferred
pending the Board’s final action on
proposed amendments to Regulation
DD. Proposed comment app. A .I.-l
clarifies rounding rules which may be
used in calculating interest and the
annual percentage yield. The Board
believes that rounding to five decimals
results in a more precise figure and is
in accordance with industry practices.
The Board requests comment on
w hether further guidance on rounding
principles would be appropriate.
Part II. Annual Percentage Yield Earned
for Periodic Statements
Comment app. A.II.A-1 clarifies when
institutions should or should not
include accrued but uncredited interest
in the balances used to calculate the
annual percentage yield earned. The
Board believes that it would be
m isleading to include accrued interest
in the balance figure when statements
are sent less frequently than interest is
credited.
W hen periodic statements are issued
more frequently than interest is
credited, accrued interest would be

5541

included in the balance figure in
succeeding statements. This is necessary
so that the beginning balance can
properly reflect the principal on which
interest will accrue for the succeeding
statement period. The Board solicits
comment on these calculation
principles.
Comment app. A.II.A.-2 clarifies
rounding rules for calculating interest
earned and the annual percentage yield
earned. The Board believes flexibility in
rounding is appropriate when
statements are sent more frequently than
interest is compounded and credited,
since the interest earned figure does not
reflect the amount which will actually
be paid by an institution.
B. Special Formula fo r Use Where
Periodic Statem ents Are Sent More
Often Than the Period fo r Which
Interest Is Compounded
Comment app. A.II.B.-l provides
guidance to institutions that issue
quarterly periodic statements but are
required by Regulation E to send a
monthly statement during the quarter.
(See proposed comment 230.6(a)-2,
w hich discusses an institution’s option
to comply with the disclosure
requirements for such monthly
statements.) The comment clarifies that
institutions complying w ith § 230.6 for
monthly statements triggered by
Regulation E must use the special
formula in part II.B. of this appendix.
Institutions could use this formula for a
quarterly statement whether or not a
monthly statement is triggered by
Regulation E during the quarter. The
Board believes such a rule would
significantly reduce compliance
burdens for institutions. However, in
some cases, the use of the special
formula may result in an understated
annual percentage yield earned. The
Board solicits comment on whether the
purposes of the act are best served by
this approach.
Comment app. A.II.B.-2 clarifies that
the special formula requires institutions
to use the actual number of days in the
compounding period in calculating the
annual percentage yield earned. In the
supplementary material that
accompanied the March 19,1993
amendments to the regulation (58 FR
15077), the calculation used average
num bers of days in the compounding
period to calculate the annual
percentage yield earned for a statement
period. The Board believes that using
actual days in a compounding period is
more appropriate and corresponds to
the annual percentage yield earned for
a specific consum er's account. The
Board solicits comment on the proposed
comment.

5542

Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules

(3) Form of Comment Letters
Comment letters should refer to
Docket No. R-0824, and, w hen possible,
should use a standard typeface w ith 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 autom ated retrieval of
comments for review. Comments may
also be subm itted on 3 Vi inch or 5V«
inch com puter diskettes in any IBMcompatible DOS-based format, if
accompanied by an original document
in paper form.
List of Subjects in 12 CFR Part 230
Advertising, Banks, Banking,
Consumer protection. Deposit accounts,
Interest, Interest rates, Truth in savings.
For the reasons set forth in the
preamble, the Board proposes to amend
12 CFR part 230 as follows:
PART 230—TRUTH IN SAVINGS
(REGULATION DD)
1. The authority citation for part 230
would continue to read as follows:
Authority: 12 U.S.C. 4301 et seq.
2. Part 230 would be amended by
adding a new Supplement I at the end
of the appendixes to the Part to read as
follows:
Supplement I to Part 230—Official Staff
Interpretations
INTRODUCTION
1. Official status. This commentary is the
vehicle by w hich the staff of the Division of
Consumer and Community Affairs of the
Federal Reserve Board issues official staff
Interpretations of Regulation DD. Good faith
compliance with this commentary affords
protection from liability under section 271(f)
of the Truth in Savings Act.
Section 230.1—Authority, Purpose,
Coverage, and Effect on State Laws

(c) Coverage
1. Foreign applicability. Regulation DD
applies to all depository institutions, except
credit unions, that offer deposit accounts to
residents (including resident aliens) of any
state as defined in §230.2(r).
2. Persons who advertise accounts. Persons
who advertise accounts are subject to the
advertising rules. For example, if a deposit
broker places an advertisement that offers
consumers an interest in an account at a
depository institution, the advertising rules
apply to the advertisement, w hether the
account is held by the broker or directly by
the consumer.

• Accounts opened as a condition of
obtaining a credit card
Examples of accounts not subject to the
regulation are:
• Mortgage escrow accounts for collecting
taxes and property insurance premiums
• Accounts established to make periodic
disbursements on construction loans
• Trust accounts other than individual
retirement accounts (IRAs) and simplified
employee pension (SEP) accounts
• Accounts opened by an executor in the
name of a decedent’s estate
• Accounts of individuals operating
businesses as sole proprietors
2. Other investm ents. The term "account”
does not apply to all products of a depository
institution. Examples of products not covered
are:
• Government securities
• Mutual funds
• Annuities
• Securities or obligations of a depository
institution
• Contractual arrangements such as
repurchase agreements, interest rate swaps,
and bankers acceptances

(b) Advertisem ent
1. Coverage. Advertisements include
commercial messages in visual, oral, or print
media that invite, offer, or otherwise
announce generally to prospective customers
the availability of consumer accounts such
as:
• Telephone solicitations
• Messages on automated teller machine
(ATM) screens
• Messages on a computer screen in an
Institution’s lobby (including any printout)
• Messages in a newspaper, magazine, or
promotional flyer or on radio
• Messages promoting an account that are
provided along with information about the
consumer’s existing account at an institution
Examples of messages that are not
advertisements are:
• Rate sheets published in newspapers,
periodicals, or trade journals provided the
depository institution (or deposit broker that
offers accounts at the institution) does not
pay a fee to have the Information included
• An in-person discussion with a
consumer about the terms for a specific
account
• Information provided to consumers
about their existing accounts, such as on IRA
disbursements or notices for automatically
renewable time accounts sent before renewal

If) Bonus

1. Examples. Bonuses include items of
value, other than interest, offered as
incentives to consumers, such as an offer to
ay the final installment deposit for a
oliday club account.
The following is an example of an item that
is not a bonus:
• Discount coupons distributed by
institutions for use at restaurants or stores
Section 230.2—Definitions
2. De m inim is rule. Items with a de
fa) Account
m inim is value of $10 or less are not bonuses.
1. Covered accounts. Examples of accounts Institutions may rely on the valuation
standard used by the Internal Revenue
subject to the regulation are:
•
Interest-bearing and noninterest-bearing Service (IRS) to determine if the value of the
accounts
item is de m inim us. (See 26 CFR § 1.6049-

5(a)(2), w hich discusses the fair market value
of property received.) Items required to be
reported by the institution under IRS rules
are bonuses under this regulation. Examples
of items that are not bonuses are:
• Disability insurance premiums paid by
the institution in an amount less than $10 per
year
• Coffee mugs, T-shirts or other
merchandise with a market value of less than
$10 per year
Institutions must aggregate per account per
calendar year any items given to a consumer
that are individually valued at less than $10
and must consider them to be a bonus if their
aggregate value exceeds $10.
3. Waiver or reduction o f a fee or
absorption o f expenses. Bonuses do not
include value received by consumers through
the waiver or reduction of fees for bankingrelated services (even if the fees waived
exceed $10), such as the following:
• Waiving a safe deposit box rental fee for
one year for consumers who open a new
account
• Waiving fees for travelers checks for
account holders
• Discounts on interest rates charged for
loans at the institution
(h) Consumer
1. Professional capacity. Examples of
accounts held by a natural person in a
professional capacity for another are:
• Attomey-client trust accounts
• Landlord-tenant security accounts
2. Nonprofessional capacity. Examples of
accounts not held in a professional capacity
are:
• Accounts held by parents for a child
under the Uniform Gifts to Minors Act
• Accounts established by a tenant for
apartment lease payments pending resolution
of a landlord-tenant dispute
3. Retirement plans. Individual retirement
accounts (IRAs) and simplified employee
pension (SEP) accounts are consumer
accounts to the extent that funds are invested
in accounts subject to the regulation. Keogh
accounts, like sole proprietor accounts, are
not subject to the regulation.
4. Unincorporated associations. An
account held by or offered to an
unincorporated association of natural
persons is a consumer account if the account
is primarily for a nonbusiness purpose.
The following factors may be considered:
• The institution may rely on the
declaration of the person representing the
association as to whether the account is held
for a business or nonbusiness purpose.
• Whether the association has paid
employees, which would indicate a business
purpose for the account. For example, an
account held by a religious organization that
has payroll obligations is not covered by the
regulation.
(j) Depository Institution and Institution
1. Foreign institutions. Branches of foreign
institutions located in the United States are
subject to the regulation if they offer
consumer accounts. Edge Act and Agreement
corporations, and agencies of foreign
Institutions, are not depository institutions.

Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules
(k) Deposit Broker
1. General. A deposit broker is any person
in the business of placing or facilitating the
placement of deposits in an institution, as
defined by the Federal Deposit Insurance Act
(12U.S.C. 29(g)).
(n) Interest
1. Relation to Regulation Q. While bonuses
are not interest for purposes of this
regulation, other regulations may require that
bonuses be treated as the equivalent of
interest. For example, Regulation Q identifies
payments of cash or merchandise that violate
the prohibition against paying interest on
demand accounts. (See 12 CFR § 217.2(d).)
(p) Passbook Savings A ccount
1. Relation to Regulation E. Passbook
savings accounts include accounts accessed
by preauthorized electronic fund transfers to
the account (as defined in 12 CFR 205.2(j)),
such as an account credited by direct deposit
of social security payments. Accounts that
permit access by other electronic means are
not “passbook saving accounts,” and any
statements that are sent four or more times
a year must comply with the requirements of
§230.6.
(q) Periodic Statem ent
1. Examples. Periodic statements do not
include:
• Additional statements provided solely
upon request
• Information provided by computer
through home banking services
• General service information such as a
quarterly newsletter or other correspondence
that describes available services and products
(r) State
1. General. Territories and possessions
include Guam, the Mariana Islands, and the
Marshall Islands.
(t) Tiered-rate Account
1. Time accounts. Time accounts that pay
different rates based solely on the amount of
the initial deposit are not tiered-rate
accounts.
(u) Time Account
1. Relation to Regulation D. Regulation D
permits in limited circumstances the
withdrawal of funds without penalty during
the first six days after a “time deposit" is
opened. (See 12 CFR § 204.2(c)(l)(i).)
Withdrawals without penalty from a time
account made in accordance w ith Regulation
D do not disqualify the account from being
a time account for purposes of this
regulation.
(v) Variable-rate Account
1. General. A certificate of deposit that
permits one or more rate adjustments prior to
maturity at the consum er’s option is a
variable-rate account.
Section 230.3—General Disclosure
Requirements
(a) Form
1. Design requirements. Disclosures must
be presented in a format that allows
consumers to readily understand the terms of
their account. Disclosures may be made:

• In any order
• In combination with other disclosures or
account terms
• On more than one page and on the front
and reverse sides
• By using inserts to a docum ent or filling
in blanks
• On more than one document, as long as
the documents are provided at the same time
2. M ultiple account disclosures.
Institutions may prepare combined
disclosures for all accounts offered, or
prepare different documents for different
types of accounts. If an institution provides
one document for several types of accounts,
consumers must be able to understand
clearly which disclosures apply to their
account.
3. Consistent terminology. An institution
must use the same terminology to describe
terms or features that are required to be
disclosed. For example, if an institution
describes a monthly fee (regardless of
account activity) as a “m onthly service fee"
in account-opening disclosures, the same
terminology must be used in its periodic
statements and change-in-term notices.
(b) General
1. Specificity o f legal obligation. An
institution may use the term “m onthly” to
describe its compounding or crediting policy
when interest is com pounded or paid at the
end of each calendar month or for twelve
periods during the year even if the actual
days in each period vary between 28 and 33
days.
(c) Relation to Regulation E
1. General rule. Compliance with
Regulation E (12 CFR part 205) is deemed to
satisfy the disclosure requirements of this
regulation, such as when:
• An institution changes a term that
triggers a notice under Regulation E, and the
timing and disclosure rules of Regulation E
are used for sending change-in-term notices.
• A consumer adds an ATM access feature
to an account, and the institution provides
disclosures pursuant to Regulation E,
including disclosure of fees before the
consumer receives ATM access. (See 12 CFR
§ 205.7.) If the institution complies with the
timing rules of Regulation E, fees related to
electronic services (such as balance inquiry
fees imposed if the inquiry is made at an
ATM) that are required to be disclosed by
this regulation but not by Regulation E may
also be provided at that time.
• An institution relies on Regulation E’s
disclosure rules regarding limitations on the
frequency and amount of electronic fund
transfers, including security-related
exceptions. But any limitation on the number
of "intra-institutional transfers” from other
accounts at the institution during a given
time period must be disclosed, even though
those transfers are exempt from Regulation E.
(e) Oral Response to Inquiries
1. Application o f rule. Institutions need not
provide fate information orally.
2. Relation to advertising. A n oral response
to a question about rates is not covered by
the advertising rules.

5543

(f) Rounding and Accuracy Rules for Rates
and Yields (f)(2) Accuracy
1. A nnual percentage yield and annual
percentage yield earned. The tolerance for
annual percentage yield and annual
percentage yield earned calculations is
designed to accommodate inadvertent errors.
Institutions may not purposely incorporate
the tolerance into their calculation of yields.
2. Interest rate. There is no tolerance for an
inaccuracy in the interest rate.
Section 230,4—Account Disclosures
(a) Delivery o f A ccount Disclosures
(a)(1) A ccount Opening
1. New accounts. New account disclosures
must be provided when:
• A time account that does not
automatically rollover is renewed by a
consumer
• A consumer changes the term for a
renewable time account (from a one-year
time account to a six-month time account, for
instance)
• Funds in an MMDA account are
transferred by an institution to open a new
account for the consumer, such as a NOW
account, because the consumer exceeded
transaction limitations on the MMDA
account
• An institution accepts a deposit from a
consumer to an account the institution
previously deemed to be “closed” by the
consumer
New account disclosures are not required
when an institution acquires an account
through an acquisition of or merger with
another institution (but see § 230.5(a)
regarding advance notice requirements if
terms are changed).
(a)(2) Requests
(a)(2)(i)
1. Inquiries versus requests. A response to
an oral inquiry (by telephone or in person)
about rates and yields or fees does not trigger
the duty to provide account disclosures.
However, when a consumer asks for written
information about an account (whether by
telephone, in person, or by other means), the
institution must provide disclosures.
2. General requests. When a consumer
generally asks for information about a type of
account (a NOW account, for example), an
institution that offers several variations may
provide disclosures for any one of them.
3. Timing for response. Ten business days
is a reasonable time for responding to a
request for account information that a
consumer does not make in person.
(a)(2)(ii)(B)
1. Term. Describing the maturity of a time
account as “ 1 year” or “6 m onths,” for
example, illustrates a response stating the
maturity of a time account as a term rather
than a date ("January 10,1995”).
(b)

Content o f A ccount Disclosures

(b)( 1) Rate information
(b)(l)(i) A nnual Percentage Yield and Interest
Rate
1. Rate disclosures. In addition to the
interest rate and annual percentage yield, a

5544

Federal Register / Vol. 59, No. 25 / Monday, February 7 , 1994 / Proposed Rules

periodic rate corresponding to the interest
rate may be disclosed. No other rate or yield
(such as “tax effective yield”) is permitted.
If the annual percentage yield is the same as
the interest rate, institutions may disclose a
single figure but must use both terms.
2. Fixed-rate accounts. To disclose the
period of time the interest rate will be in
effect, institutions may state the maturity
date for fixed-rate time accounts that pay the
opening rate until maturity. (See Appendix
B, B-7—Sample Form.) For other fixed-rate
accounts, institutions may disclose a date
(such as “This rate will be in effect through
June 30,1994”) or a period (such as “This
rate will be in effect for at least 30 days”).
3. Tiered-rate accounts. Each interest rate,
along with the corresponding annual
percentage yield for each specified balance
level (or range of annual percentage yields,
if appropriate), m ust be disclosed for tieredrate accounts. (See Appendix A, Part I,
Paragraph D.)
4. Stepped-rate accounts. A single annual
percentage yield must be disclosed for
stepped-rate accounts. (See Appendix A, Part
I, Paragraph B.) However, the interest rates
and the period of time each will be in effect
also must be provided. When the initial rate
offered on a variable-rate account is higher or
lower than the rate that w ould otherwise be
paid on the account, the calculation of the
annual percentage yield must be made as if
for a stepped-rate account. (See Appendix A,
Part I, Paragraph C.)
(b)(l)(ii) Variable Bates
(b)(l)(ii)(B)
1. Determining interest rates. To disclose
how the interest rate is determined,
institutions must:
• Identify the index and specific margin, if
the interest rate is tied to an index
• State that rate changes are solely within
the institution’s discretion, if the institution
does not tie changes to an index
(b)(l)(ii)(C)
1. Frequency o f rate changes. Institutions
that reserve the right to change rates at any
time must state that fact.
(bj(l)(ii)(D)
1. Limitations. A floor or ceiling on rates
or on the amount the rate may decrease or
increase during any time period must be
disclosed. Institutions need not disclose the
absence of limitations on rate changes.
(b)(2) Compounding and Crediting
(b)(2)(ii) Effect o f Closing an A ccount
1. Deeming an account closed. Institutions
may provide in their deposit contract the
actions by consumers that the institution will
treat as closing the account and that will
result in the forfeiture of accrued but
uncredited interest, such as when a
consum er withdraws all funds from the
account prior to the date interest is credited.
(b)(3) Balance Information
(b)(3)(ii) Balance Computation Method
1. Methods and periods. Institutions may
use different methods or periods to calculate
minim um balances for purposes of imposing

a fee (daily balance for a calendar month, for
example) and accruing interest (average daily
balance for a statement period, for example).
Each method and period must be disclosed.

(b)(6) Features o f Time Accounts

as having been received the following
business day, and may use additional
descriptive terms such as "ledger” or
“collected” balances to disclose when
interest begins to accrue.

(b)(6)(H) Early Withdrawal Penalties
1. General. The term “penalty” need not be
used to describe the loss that may be
incurred by consumers for early withdrawal
of funds from time accounts.
2. Examples. Examples of early withdrawal
penalties are:
• Monetary penalties, such as “$10.00” or
"seven days’ interest plus accrued but
uncredited interest”
• Adverse changes to terms such as the
interest rate, annual percentage yield, or
compounding frequency for funds remaining
on deposit
• Reclamation of bonuses
3. Relation to rules fo r IRAs or similar
plans. Penalties imposed by the Internal
Revenue Code for certain withdrawals from
IRAs or similar pension or savings plans are
not early withdrawal penalties.

(b)(6)(i) Tim e Requirements
1. “Callable" tim e accounts. In addition to
the maturity date, institutions must state the
(b)(3)(iii) When Interest Begins to Accrue
date or the circumstances under which the
1. Additional information. Institutions may institution may redeem a time account at the
institution’s option (a “callable” time
disclose additional information such as the
account).
time of day after w hich deposits are treated

(b)(4) Fees
1. Types o f fees. The following are types of
fees that must be disclosed in connection
with an account:
• Maintenance fees, such as monthly
service fees
• Fees related to deposits or withdrawals,
such as fees for use of the institution’s ATMs
• Fees for special services, such as stop
paym ent fees, fees for balance inquiries or
verification of deposits, and fees associated
with checks returned unpaid
• Fees to open or to close accounts
Institutions need not disclose fees such as the
following:
• Fees assessed for services offered to
account and nonaccount holders alike, such
as fees for travelers checks and wire transfers
(even if different for nonaccount holders)
• Incidental fees, such as fees associated
with state escheat laws, garnishment or
attorneys fees, and fees for photocopying
forms
2. A m ount o f fees. Institutions must state
the am ount and conditions under which a fee
may be imposed. Naming and describing the
fee typically satisfies this requirement. Some
examples are:
• “$4.00 monthly service fee”
• “$7.00 and u p ” or “fee depend on style
of checks ordered” for check printing fees
3. Tied-accounts. Institutions must state if
fees that may be assessed against an account
are tied to other accounts at the institution.
For example, if an institution ties the fees
payable on a NOW account to balances held
in the NOW account and in a savings
account, the NOW account disclosures must
state that fact and explain how the fee is
determined.

(b)(6)(iv) Renewal Policies
1. Rollover time accounts. Institutions
offering a grace period on rollover time
accounts that automatically renew need not
state w hether interest will be paid if the
funds are withdrawn during the grace period.
2. Nonrollover time accounts. Institutions
that pay interest on funds following the
maturity of time accounts that do not renew
automatically need not state the rate (or
annual percentage yield) that may be paid.
Section 230.5—Subsequent Disclosures
(a) Change in Terms

(a)(1) A dvance Notice Required
1. Form o f notice. Institutions may provide
a change-in-term notice on or with a regular
periodic statement or in another mailing. If
an institution provides notice through
revised account disclosures, the changed
term must be highlighted in some manner.
For example, institutions may state that a
particular fee has been changed (also
specifying the new amount) or use an
accompanying letter that refers to the
changed term.
2. Effective date. An example of a
(b)(5) Transaction Limitations
1. General rule. Examples of limitations on disclosure that complies is:
• "As of May 11,1994”
the number or dollar am ount of deposits or
3. Terms that change upon the occurrence
withdrawals that institutions must disclose
o f an event. Institutions that offer terms such
are:
as a fee waiver for employee account holders
• Limits on the number of checks that may during their employment or for students
be written on an account for a given time
enrolled at a local university need not send
period
advance notice of a change resulting from
• Limits on withdrawals or deposits
termination of employment or enrollment if:
during the term of a time account
• The account-opening disclosures given
• Limitations required by Regulation D,
(to the employee, for example) describe the
such as the number of withdrawals permitted term and the event that would cause the term
from money market deposit accounts by
to change (such as the consum er’s leaving the
check to third parties each month (but they
institution’s employment), and
need not disclose that the institution reserves
• Notices are sent when the term is
changed for other account holders, even
the right to require a seven-day notice for a
though the term remains unchanged for the
withdrawal from an account).

Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules
consumer while employment or enrollment
continues.
(a)(2) No Notice Required
(a)(2)(H) Check Printing Fees
1. Increase in fees. A notice is not required
even if an increase in check printing fees
includes an amount added by the institution
to the price charged by a vendor.

(b)( 1) Maturities o f Longer Than One Year
1. Highlighting changed terms. Institutions
need not highlight terms that have changed
since the last account disclosures were
provided.

(c) Notice fo r Time Accounts One Month or
Less That Renew Autom atically
1. Providing disclosures within a
reasonable time. Generally, 10 calendar days
(b)
Notice Before Maturity fo r Tim e Accounts
after an account renews is a reasonable time
Longer Than One Month That Renew
for providing disclosures. For time accounts
Autom atically
shorter than 10 days, disclosures should be
1. Maturity dates on nonbusiness days. For given prior to the next-scheduled renewal
determining the term, institutions may ignore date.
the fact that the disclosed maturity falls on
(d) N otice B efore M a tu rity for T im e
a nonbusiness day and the term is extendedA c c o u n ts L onger T h a n O n e Y ear T h a t
beyond the disclosed number of days. For
D o N ot R en ew A u to m a tic a lly
example, a holiday or weekend may cause a
1. Subsequent account. When funds are
"one-year” time account to extend beyond
transferred following maturity of a
365 days (or 366, in a leap year), or a "onenonrollover time account, institutions need
m onth" time account to extend beyond 31
not provide account disclosures unless a new
days.
account is established.
2. Disclosing when rates will be
determined. Disclosures that illustrate when
Section 230.6—Periodic Statement
the annual percentage yield will be available
Disclosures
include:
(a) General Rule
• A specific date, such as “October 28"
• A date that is easily discernable, such as
1. General. Institutions are not required to
"the Tuesday prior to the maturity date
provide periodic statements. If they provide
stated on the notice” or "as of the maturity
periodic statements, disclosures need only be
date stated on this notice”
furnished to the extent applicable. For
Institutions must indicate when the rate
example, if no interest is earned for a
will be available if the date falls on a
statement period, institutions need not
disclose “SO” interest earned and "0%"
nonbusiness day.
annual percentage yield earned.
3. Alternative timing rule. To illustrate the
2. Regulation E interim statements. When
alternative timing rule: An institution that
offers a 10-day grace period must provide the an institution provides regular quarterly
statements, and in addition provides a
disclosures at least 10 days prior to the
monthly interim statement to comply with
scheduled maturity date.
Regulation E, the interim statement need not
4. Club accounts. Club accounts that are
comply with this section unless it states
time accounts are covered by this paragraph,
interest or rate information. (See 12 CFR
even though funds may be withdrawn at the
205.9.)
end of the current club period. For example,
3. Combined statements. Institutions may
if the consumer has agreed to the transfer of
provide certain information about an account
payments from another account to the time
(such as an MMDA) on the periodic
account for the next club period, the
statement for another account (such as a
institution must comply with the
NOW account) without triggering the
requirements for automatically renewable
disclosures required by this section, as long
time accounts.
as:
5. Renewal o f a time account. The
• The information is limited to the account
following applies to a change in a term that
number,
the type of account, or balance
becomes effective if a rollover time account
information, and
is subsequently renewed:
• The institution also provides consumers
• If the change is initiated by the
a periodic statement that complies with this
institution, the disclosure requirements of
section for the account (the MMDA, in the
this paragraph. (Paragraph 5(a) applies if the
example).
change becomes effective prior to the
4. Other information. Institutions may
maturity of the existing time account.)
include additional information on or with a
• If initiated by the consumer, the account- periodic statement, such as:
opening disclosure requirements of
• Interest rates and periodic rates
§ 230.4(b). (If the notice required by this
corresponding to the interest rate applied to
paragraph has been provided, institutions
balances during the statement period
may give new account disclosures or
• The dollar amount of interest earned
disclosures that reflect the new term.)
year-to-date
For example, if a consumer who receives
• Bonuses paid (or any de m inim is
a prematurity notice on a one-year time
consideration of $10 or less)
account requests a rollover to a six-month
• Fees for other products, such as safe
accouht, the institution must provide either
deposit boxes
account-opening disclosures that reflect the
(a)(1) A nnual Percentage Yield Earned
new maturity date or, if all other terms
previously disclosed in the prematurity
1. Ledger and collected balances.
notice remain the same, only the new
Institutions that accrue interest using the
maturity date.
collected balance method may use either the

5545

ledger or the collected balance in
determining the annual percentage yield
earned.
(a)(2) A m ount o f Interest
1. Accrued interest. Institutions must state
the amount of interest that accrued during
the statement period, even if it was not
credited. For interest not credited,
institutions may disclose when funds will
become available for the consum er’s use.
2. Terminology. In disclosing interest
earned for the period, institutions must use
the term "interest” or terminology such as:
• "Interest paid,” to describe interest that
has been credited
• "Interest accrued” or “ interest earned,"
to indicate that interest is not yet credited
3. Closed accounts. If a consumer closes an
account between crediting periods and
forfeits accrued interest, the institution may
not show any figures for “ interest earned” or
annual percentage yield earned for the
period.
(a)(3) Fees Imposed
1. General. Periodic statements must state
fees debited to the account during the
statement period even if assessed for an
earlier period.
2. Itemizing fees by type. In itemizing fees
by type, institutions may group together fees
of the same type that are imposed more than
once in the period. If fees are grouped, the
description must make clear that the dollar
figure represents more than a single fee, for
example, “total fees for checks written this
period.” Examples of fees that may not be
grouped together are:
• Monthly maintenance and excess
activity fees
• "Transfer" fees, if different dollar
amounts are imposed—such as $.50 for
deposits and $1.00 for withdrawals
• Fees for electronic fund transfers and
fees for other services, such as balance
inquiry or maintenance fees
3. Identifying fees. Statement details must
enable the consumer to identify the specific
fee. For example:
• Institutions may use a code to identify a
particular fee if the code is explained on the
periodic statement or in documents
accompanying the statement.
• Institutions using debit slips may
disclose the date the fee was debited on the
periodic statement and show the amount and
type of fee on the dated debit slip.
4. Relation to Regulation E. Compliance
with Regulation E complies with this section
for the disclosure of fees related to electronic
fund transfers on periodic statements (for
example, totaling all electronic funds transfer
fees in a single figure).
(a)(4) Length o f Period
1. General. Institutions that provide the
beginning and ending dates of the period
must make clear whether both dates are
included in the period.
2. Opening or closing an account m id­
cycle. If an account is opened or closed
during the period for which a statement is
sent, institutions must calculate the annual
percentage yield earned based on account
balances for each day the account was open.

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Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules

(b) Special Rule fo r Average Daily Balance
Method
1. General. To illustrate, this rule applies
when an institution calculates interest on a
quarterly average daily balance and sends
m onthly statements. The first two monthly
statements may not state annual percentage
yield earned and interest earned figures; the
third "m onthly” statement will reflect the
interest earned and the annual percentage
yield earned for the entire quarter.
2. Length o f the period. Institutions must
disclose the length of both the interest
calculation period and the statement period.
For example, a statement could disclose a
statement period of April 16 through May 15
and further state that “the interest earned and
the annual percentage yield earned are based
on your average daily balance for the period
April 1 through April 30."
3. Quarterly statem ents and m onthly
compounding. Institutions that use the
average daily balance method to calculate
interest on a monthly basis, but send
statements on a quarterly basis, may disclose
a single interest (and annual percentage yield
earned) figure. Alternatively, an institution
may disclose three interest earned and three
annual percentage earned figures, one for
each month in the quarter, as long as the
institution states the number of days (or
beginning and ending date) in the interest
period if it is different from the statement
period.
Section 230.7—Payment of Interest
(al Permissible Methods
1. Prohibited calculation methods.
Calculation methods that do not comply with
the requirement to pay interest on the full
amount of principal in the account each day
include:
• The "ending balance” method, where
institutions pay interest on the balance in the
account at the end of the period
• The "investable balance” method, where
institutions pay interest on a percentage of
the balance, excluding an amount
institutions set aside for reserve requirements
2. Use of365-day basis. Institutions may
apply a daily periodic rate that is greater than
Vs65 of the interest rate—such as Vina of the
interest rate—as long as it is applied 365 days
a year.
3. Periodic interest payments. A n
institution can pay interest each day on the
account and still make uniform interest
payments. For example, for a one-year
certificate of deposit an institution could
make monthly interest payments that are
equal to V12 of the amount of interest that
will be earned for a 365-day period, or 11
uniform monthly payments and a final
payment that accounts for the total interest
earned for the period.
4. Leap year. Institutions may apply a daily
rate of V366 or V3*>5 of the interest rate for 366
days in a leap year, if the account will earn
interest for February 29.
5. Maturity o f time accounts. Institutions
are not required to pay interest after time
accounts mature, such as:
• During any grace period offered by an
institution for an automatically renewable
time account, if the consumer decides during
that period not to renew the account

• Following the maturity of nonrollover
time accounts
• When the maturity date falls on a
holiday, and the consumer must wait until
the next business day to obtain the funds
(See 12 CFR part 217, the Board’s Regulation
Q, for limitations on duration of interest
payments.)
6. Dormant accounts. Institutions may
contract w ith a consumer not to pay interest
if the account becomes “dormant,” as
defined by applicable state or other law'.
(a)(2) Determination o f M inimum Balance To
Earn Interest
1. Daily balance accounts. Institutions that
use the daily balance method to calculate
interest and require a minimum balance to
earn interest may choose not to pay interest
for days when the balance drops below the
required daily minimum balance.
2. Average daily balance accounts.
Institutions that use the average daily balance
method to calculate interest and require a
minimum balance to earn interest may
choose not to pay interest for the period in
which the average daily balance does not
meet the required minimum.
3. Beneficial method. Institutions may not
require consumers to maintain both a
minimum daily balance and a minim um
average daily balance to earn interest, such
as by requiring the consumer to maintain a
$500 daily balance and an average daily
balance that is higher or lower. But an
institution could determine the minimum
balance to earn interest by using a method
that is "unequivocally beneficial” to the
consumer such as the following: An
institution using the daily balance method to
calculate interest and requiring a $500
minim um daily balance could choose to pay
interest on the account (for those days the
minimum balance is not met) as long as the
consumer maintained an average daily
balance throughout the month of $400.
4. Paying on fu ll balance. Institutions must
pay interest on the full balance in the
account once a consumer has met the
required minimum balance. For example, if
an institution sets $300 as its minimum daily
balance requirement to earn interest, and a
consumer deposits $500, the institution must
pay the stated interest rate on the full $500
and not just on $200.
5. Negative balances prohibited.
Institutions must treat a negative account
balance as zero to determine:
• The daily or average daily balance on
w hich interest will be paid
• Whether any minimum balance to earn
interest is met (See commentary to Appendix
A, Part II, w hich prohibits institutions from
using negative balances in calculating the
interest figure for the annual percentage yield
earned.)
6. Club accounts. Institutions offering club
accounts (such as a "holiday” or "vacation”
club) cannot impose a minimum balance that
is based on the total number or dollar amount
of payments required under the club plan.
For example, if a plan calls for $10 weekly
payments for 50 weeks, the institution cannot
set a $500 minim um balance and then pay
only if the consumer makes all 50 payments.
7. M inim um balances not affecting interest.
Institutions may use the daily balance.

average daily balance, or other computation
method to calculate minimum balance
requirements not involving the payment of
interest—such as to compute minimum
balances fof assessing fees.
(b) Compounding and Crediting Policies
1. General. Institutions that choose to
compound interest may compound or credit
interest annually, semi-annually, quarterly,
monthly, daily, continuously, or on any other
basis.
2. Withdrawals prior to crediting date. If
consumers withdraw funds, w ithout closing
the account, prior to a scheduled crediting
date, institutions may delay paying the
accrued interest on the withdrawn amount
until the scheduled crediting date, but may
not avoid paying interest.
3. Closed accounts. If consumers close
accounts prior to the date accrued interest is
credited, institutions may choose not to pay
accrued interest as long as they have
disclosed that fact to the consumer. Whether
(and the conditions under which) institutions
are permitted to deem an account closed by
a consumer is determined by state or other
law, if any.
4. Dormant accounts. Subject to state or
other law defining when an account becomes
dormant, an institution may contract with a
consumer not to pay accrued but uncredited
interest if the account becomes dormant prior
to the regular interest crediting date.
(c) Date Interest Begins To Accrue
1. Relation to Regulation CC. Institutions
may rely on the Expedited Funds Availability
Act (EFAA) and Regulation CC (12 CFR part
229) to determine, for example, when a
deposit is considered made for purposes of
interest accrual, or when interest need not be
paid on funds because a deposited check is
later returned unpaid.
2. Ledger and collected balances.
Institutions may calculate interest by using a
"ledger” balance or "collected" balance
method, as long as the crediting requirements
of the EFAA are met.
3. Withdrawal o f principal. Institutions
must accrue interest on funds until the funds
are withdrawn from the account. For
example, if a check is debited to an account
on a Tuesday, the institution must accrue
interest on those funds through Monday.
Section 230.8—Advertising
(a) Misleading or Inaccurate Advertisem ents
1. General. All advertisements must
comply with the rule against misleading or
inaccurate advertisements, even though the
disclosures applicable to various media
differ.
2. Indoor signs. An indoor sign advertising
an annual percentage yield is not misleading
or inaccurate if:
• For a tiered-rate account, it also provides
the upper and lower dollar amounts of the
advertised tier corresponding to the annual
percentage yield
• For a time account, it also provides the
term required to obtain the advertised yield
3. "Free" or "no cost" accounts. For
purposes of determining whether an account
can be advertised as “ free” or "no cost,”
maintenance and activity fees include:

Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules
• Any fee imposed if a minim um balance
requirement is not met, or if the consumer
exceeds a specified number of transactions
• Transaction and service fees that
consumers reasonably expect to be regularly
imposed on an account
Examples of maintenance and activity fees
include:
• A flat fee, such as a monthly sendee fee
• Fees imposed to deposit, withdraw or
transfer funds, including per-check or pertransaction charges (for example, $.25 for
each withdrawal, whether by check, in
person or at an ATM owned by the
institution)
Examples of fees that are not maintenance
or activity fees include:
• Fees that are not required to be disclosed
under § 230.4(b)(4)
• Check printing fees of any type
• Fees for obtaining copies of checks,
whether the original checks have been
truncated or returned to the consumer
periodically
• Balance inquiry fees
• Fees assessed against a dormant account
• Fees for using an ATM not owned by the
account-issuing institution
• Fees for electronic transfer services that
are not required to obtain an account, such
as preauthorized transfers or home banking
services
4. Similar terms. An advertisement may
not use a term such as “fees w aived” if a
maintenance or activity fee may be imposed
because it is similar to the terms “free" or
“no cost.”
5. Specific account services. Institutions
may advertise a specific account service or
feature as free as long as no fee is imposed
for that service or feature. For example,
institutions that provide free access to their
ATMs could advertise that fact.
6. Free for lim ited time. If an account or a
specific account service is free only for a
limited period of time—for example, for one
year following the account opening—the
account or service may be advertised as free
as long as the time period is stated.
7. Conditions not related to deposit
accounts. Institutions may advertise accounts
as "free” for consumers that meet conditions
not related to deposit accounts such as age.
For example, institutions may advertise a
NOW account as “free for persons over 65
years old,” even though a maintenance or
activity fee may be assessed on accounts held
by consumers that are 65 or younger.
(b) Permissible Bates
1. Tiered-rate accounts. An advertisement
for a tiered-rate account that states an annual
percentage yield must also state the annual
percentage yield for each tier, along with
corresponding minim um balance
requirements. Any interest rates stated must
appear in conjunction with the annual
percentage yields for the applicable tier.
2. Stepped-rate accounts. An
advertisement that states an interest rate for
a stepped-rate account must state each
interest rate and the time period each rate is
in effect.
3. Representative examples. An
advertisement that states an annual
percentage yield for a type of account (such

as a time account) need not state the annual
percentage yield applicable to every variation
offered by the institution. For example, if
rates vary depending on the amount of the
initial deposit and term of a time account,
institutions need not list each balance level
and term offered. Instead, the advertisement
may:
• Provide a representative example of the
annual percentage yields offered, clearly
described as such. For example, if an
institution offers a S25 bonus on all time
accounts and the annual percentage yield
will vary depending on the term selected, the
institution may provide a disclosure of the
annual percentage yield as follows: “For
example, our 6-month certificate of deposit
currently pays a 3.15% annual percentage
yield.”
• Indicate that various rates are available,
such as by stating short-term and longer-term
maturities along with the applicable annual
percentage yields: “We offer certificates of
deposit with annual percentage yields that
depend on the maturity you choose. For
example, our one-month CD earns a 2.75%
APY. Or, earn a 5.25% APY for a three-vear
CD.”
(c) When Additional Disclosures Are
Required
1. Trigger terms. Disclosures are triggered
by statements such as “We will pay a bonus
of 1% over our current rate for one-year
certificates of deposit opened before April 15,
1995." The following are examples of
information stated in advertisements that are
not “trigger” terms:
• “One, three, and five year CDs available"
• “Bonus rates available”
(c)(2) Time A nn ual Percentage Yield Is
Offered
1. Specified recent date. If an
advertisement discloses an annual percentage
yield as of a specified date, that date must
be recent in relation to the publication or
broadcast frequency of the media used. For
example, the printing date of a brochure
printed once for a deposit account promotion
that will be in effect for six months would
be considered “recent,” even though rates
change during the six-month period. Rates
published in a daily newspaper or on
television must be a rate offered shortly
before (or on) the date the rates are published
or broadcast.
(c)(5) Effect o f Fees
1. Scope. This requirement applies only to
maintenance or activity fees as described in
paragraph 8(a).
(c)(6) Features o f Time Accounts
(c)(6)(i) Time Requirements
1. Club accounts. If the maturity date of a
club account is set but the term may vary
depending on when the account is opened,
institutions may use a phrase such as: “The
term of the account varies depending on
when the account is opened. However, the
maturity date is November 15.”

5547

by-case basis may disclose that they “may”
(rather than “w ill”) impose a penalty if that
accurately describes the account ierms.
(d) Bonuses
1. General reference to "bonus." General
statements such as “bonus checking” or "get
a bonus when you open a checking account”
do not trigger the bonus disclosures.
(e) Exemption for Certain Advertisem ents
(e)(1) Certain Media
(e)(l)(iii)
1. Tiered-rate accounts. Solicitations for
tiered-rate accounts made through telephone
response machines must provide all annual
percentage yields and the balance
requirements applicable to each tier.
(e)(2) Indoor Signs
(e)(2)(i)
1. General. Indoor signs include
advertisements displayed on computer
screens, banners, preprinted posters, and
chalk or peg boards. Any advertisement
inside the premises that can be retained by
a consumer (such as a brochure or a printout
from a computer) is not an indoor sign.
2. Consumers outside the premises.
Advertisements may be "indoor signs" even
though they may be viewed by consumers
from outside. An example is a banner in an
institution's glass-enclosed branch office,
that is located behind a teller facing
customers but also may be seen by passersby.
Section 230.9—Enforcement and Record
Retention
(c) Record Retention
1. Evidence o f required actions. Institutions
comply with the regulation by demonstrating
they have done the following:
• Established and maintained procedures
for paying interest and providing timely
disclosures as required by the regulation, and
• Retained sample disclosures for each
type account offered to consumers, such as
account-opening disclosures, copies of
advertisements, and change-in-term notices;
and information regarding the interest rates
and annual percentage yields offered.
2. Methods o f retaining evidence.
Institutions must retain information needed
to reconstruct the required disclosures or
other actions. They need not keep disclosures
or other business records in hard copy.
Records evidencing compliance may be
retained on microfilm, microfiche, or by
other methods that reproduce records
accurately (including computer files).
3. Payment o f interest. Sufficient rate and
balance information must be retained to
permit the verification of interest paid on an
account, including the payment of interest on
the full principal balance.
Appendix A to Part 230—Annual Percentage
Yield Calculation

Part I. A nnual Percentage Yield fo r A ccount
Disclosures and Advertising Purposes
1. Rounding fo r calculations. The
(c)(6)(H) Early Withdrawal Penalties
following are examples of permissible
1. Discretionary penalties. Institutions that rounding rules for calculating interest and
impose early withdrawal penalties on a casethe annual percentage yield:

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Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules

• The daily rate applied to a balance
rounded to five or more decimals
• The daily interest earned rounded to five
or more decimals

Part n. Annual Percentage Yield Earned
for Periodic Statements
1. Balance method. The interest figure used
in the calculation of the annual percentage
yield earned may be derived from the daily
balance method or the average daily balance
method. The balance used in the annual
percentage yield earned formula is the sum
of the balances for each day in the period
divided by the number of days in the period.
2. Negative balances prohibited.
Institutions must treat a negative account
balance as zero to determine the balance on
which the annual percentage yield earned is
calculated. (See commentary to § 230.7(a)(2).)
A. General Formula
1. Accrued but uncredited interest. To
calculate the annual percentage yield earned,
accrued but uncredited interest:
• Shall not be included in the balance for
statements that are issued at the same time
or jess frequently than the account’s
compounding and crediting frequency. For
example, if monthly statements are sent for
an account that compounds interest daily
and credits interest monthly, the balance may
not be increased each day to reflect the effect
of daily compounding.
• Shall be included in the balance for
succeeding statements if a statement is issued
more frequently than compounded interest is
credited on an account. For example, if
monthly statements are sent for an account
that compounds interest daily and credits
interest quarterly, the balance for the second
monthly statement would include interest
that had accrued for the prior month.
2. Hounding. The interest earned figure
used to calculate the annual percentage yield
earned must be rounded to two decimals to
reflect the am ount actually paid. For
example, if the interest earned for a statement
period is $20,074 and the institution pays the
consumer $20.07, the institution must use
$20.07 (not $20,074) to calculate the annual
percentage yield earned. For accounts that
pay interest based on the daily balance
method, compound and credit interest
quarterly, and send monthly statements, the
institution may, but need not, round accrued
interest to two decimals for calculating the
annual percentage yield earned on the first
two monthly statements issued during the
quarter. However, on the quarterly statement
the interest earned figure must reflect the
amount actually paid.
B. Special Formula for Use Where Periodic
Statem ent Is Sent More Often Than the
Period for Which Interest Is Compounded
1. Statem ents triggered by Regulation E.
Institutions may, but need not, use this
formula to calculate the annual percentage
yield earned for accounts that receive
quarterly statements and that are subject to
Regulation E’s rule calling for monthly
statements w hen an electronic fund transfer
has occurred. They may do so even though
no monthly statement was issued during a
specific quarter. This formula must be used

for accounts that compound and credit
interest quarterly and that receive monthly
statements, triggered by Regulation E, which
comply with the provisions of § 230.6.
2. Days in com pounding period.
Institutions using the special annual
percentage yield earned formula must use the
actual number of davs in the compounding
period.
Appendix B to Part 230—Model Clauses and
Sample Forms
1. Modifications. Institutions that modify
the model clauses will be deemed in
compliance as long as they do not delete
information required by the act or regulation
or rearrange the format so as to affect the
substance or clarity of the disclosures.
2. Format. Institutions may use inserts to
a document (see Sample Form B—4) or fill-in
blanks (see Sample Forms B-5, B-6 and B7, w hich use double underlining to indicate
terms that have been filled in) to show
current rates, fees or other terms.
3. Disclosures for opening accounts. The
sample forms illustrate the information that
must be provided to a consumer when an
account is opened, as required bv
§ 230.4(a)(1). (See § 230.4(a)(2), which states
the requirements for disclosing the annual
percentage yield, the interest rate, and the
maturity of a time account in responding to
a consum er’s request.)
4. Compliance with Regulation E.
Institutions may satisfy certain requirements
under Regulation DD with disclosures that
meet the requirements of Regulation E. (See
§ 230.3(c).) The model clauses and sample
forms do not give examples of disclosures
that would be covered by both this regulation
and Regulation E (such as disclosing the
amount of a fee for ATM usage). Institutions
should consult appendix A to Regulation E
for appropriate model clauses.
5. Duplicate disclosures. If a requirement
such as a minim um balance applies to more
than one account term (to obtain a bonus and
determine the annual percentage yield, for
example), institutions need not repeat the
requirement for each term, as long as it is
clear w hich terms the requirement applies to.
6. Guide to m odel clauses. In the model
clauses, italicized words indicate the type of
disclosure an institution should insert in the
space provided (for example, an institution
might insert “March 25,1993” in the blank
for “ (date)” disclosure). Brackets and
diagonals (“/ ”) indicate an institution must
choose the alternative that describes its
practice (for example, (daily balance/average
daily balance]).
7. Sam ple forms. The sample forms (B-4
through B-8) serve a purpose different from
the model clauses. They illustrate various
ways of adapting the model clauses to
specific accounts. The clauses shown relate
only to the specific transactions described.
B -l Model Clauses fo r A ccount Disclosures
B -l(h ) Disclosures Relating to Time Accounts
1. Maturity. The disclosure in Clause (h)(i)
stating a specific date may be used in all
cases. The statement describing a time period
is appropriate only when providing
disclosures in response to a consumer's
request.

B-2 Model Clauses fo r Change in Terms
1. General. The second clause, describing
a future decrease in the interest rate and
annual percentage yield, applies to fixed-rate
accounts only.
B-4 Sam ple Form (Multiple Accounts)
1. Format. The sample form has been
marked with an "X" to indicate it is for a
NOW account and provides for both a fee
schedule insert and a rate sheet insert.
2. Rate sheet insert. In the rate sheet insert,
the calculations of the annual percentage
yield for the three-month and six-month
certificates are based on 92 days and 181
days respectively.
B-6 Sam ple Form (Tiered-Rate M oney Market
Account)
1. General. Sample Form B-6 uses Tiering
Method A (discussed in Appendix A and
Clause (a)(iv)) to calculate interest. It gives a
narrative description of a tiered-rate account;
institutions may use a different format (for
example, a chart similar to the one in Sample
Form B-4), as long as all required
information for each tier is clearly presented.
The form does not contain a separate
disclosure of the minimum balance required
to obtain the annual percentage yield; the
tiered-rate disclosure provides that
information.
B -9 Sam ple Form (Money Market A ccount
Advertisem ent)
1. General. The advertisement is for a
tiered-rate money market account that uses
Tiering Method A.
By order of the Board of Governors of the
Federal Reserve System, January 28,1994.
William W. Wiles,
Secretary o f the Board.
(FR Doc. 94-2505 Filed 2-4-94; 8:45 am]
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