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FEDERAL RESERVE BANK
OF NEW YORK
o
[
Circular No. 10533
April 21, 1992
”1
TRUTH IN SAVINGS
Comment Invited by June 10
on Proposed New Regulation DD
To All Depository Institutions, and Others
Concerned, in the Second Federal Reserve District:
Following is the text of a statement issued by the Board of Governors of the Federal Reserve
System:
The Federal Reserve Board has published for public comment a proposed new Regulation DD to
implement the Truth in Savings Act. In general, the Act and the proposed regulation require depository
institutions to provide consumers with more information about their deposit accounts, including savings
and checking accounts and certificates of deposit. Comment is requested by June 10.
The Board’s proposed regulation requires depository institutions to disclose to consumers all fees
imposed in connection with an account, the simple interest rate, the annual percentage yield (APY), and
other terms before an account is opened and upon the consumer’s request. Existing account holders must
be notified that disclosures are available.
To ensure that institutions use a uniform method of calculating the return on accounts, the Act calls
for the Board to develop formulas for computing the APY and the law requires institutions to calculate
interest on the full principal balance in the account each day. If any adverse change in the terms of an
account should occur, an institution is required to send a notice to the consumer 30 days prior to its
occurrence. Provisions of the Act establish new rules for the advertisement of deposit accounts.
The Board is also soliciting comment on the definition of a variable rate and what should be reflected
by the annual percentage yield on a periodic statement.
Enclosed, for depository institutions, is an excerpt from the F e d e r a l R e g is te r of April 13, con
taining the text of the Board’s proposal. Additional, single copies may be obtained at this Bank (33
Liberty Street) from the Issues Division on the first floor, or by contacting the Circulars Division
(Tel. No. 212-720-5215 or 5216). Comments thereon should be submitted by June 10, and may be
sent to the Board, as indicated in the notice, or to our Compliance Examinations Department.
E.
G
erald
C
o r r ig a n
,
President.
10533
Monday
April 13, 1992
Vol. 57, No. 71
Pp. 12735-12760
TRUTH IN SAVINGS
Proposed Regulation DD
Docket No. R-0753
(Com m ents due June 10, 1992)
[Enc. Cir. No. 10533]
i 0533*1
Proposed Rules
12735
Federal Register
Vol. 57. No. 71
Monday. April 13, 1992
This section of the FEDERAL REGISTER
contains notices to the public of the
proposed issuance of rules and
regulations. The purpose of these notices
is to give interested persons an
opportunity to participate in the rule
making prior to the adoption of the final
rules.
FEDERAL RESERVE SYSTEM
12CFR Part 230
[R eg ula tion DD; D ocket No. R -0753]
Truth in Savings
AGENCY: B oard o f G o v e r n o r s o f the
F e d e r a l R e se r v e S y ste m .
ACTION: P r o p o se d rule.
T h e B oard is p u b lish in g for
c o m m e n t a n e w r eg u la tio n , R eg u la tio n
D D, to im p le m e n t th e T ruth in S a v in g s
A ct. T h e a c t req u ires d e p o sito r y
in s titu tio n s to d is c lo s e fe e s , in te r e st
r a te s a n d o th er term s co n c e r n in g
d e p o s it a c c o u n ts to c o n su m e r s b e fo r e
th e y o p e n a c c o u n ts . T h e a c t req u ires
d e p o sito r y in s titu tio n s th a t p r o v id e
p e r io d ic s ta te m e n ts to c o n su m e r s to
in c lu d e in fo r m a tio n a b o u t fe e s im p o se d ,
in te r e st e a r n e d a n d th e a n n u a l
p e r c e n ta g e y ie ld o n th o s e s ta te m e n ts .
T h e a c t im p o s e s s u b s ta n tiv e lim ita tio n s
o n th e m e th o d s b y w h ic h in s titu tio n s
d e te r m in e th e b a la n c e o n w h ic h in te r e st
is c a lc u la te d . R u les d e a lin g w ith
a d v e r tis e m e n ts for d e p o s it a c c o u n ts are
a ls o in c lu d e d in th e la w .
sum m ary:
DATES: C o m m e n ts m u st b e re c e iv e d on
or b e fo r e June 1 0 ,1 9 9 2 .
ADDRESSES: C o m m en ts, w h ic h sh o u ld
refer to D o c k e t N o . R -0753, m a y b e
m a ile d to Mr. W illia m W . W ile s ,
S ecreta ry , B oard o f G o v e r n o r s o f th e
F e d era l R e se r v e S y ste m , 20th S tr e e t an d
C o n stitu tio n A v e n u e N W „ W a sh in g to n ,
D C 20551. C o m m e n ts a d d r e s s e d to Mr.
W ile s m a y a ls o b e d e liv e r e d to th e
B oard ’s m a il room b e tw e e n 8:45 a.m .
a n d 5:15 p.m , w e e k d a y s , a n d th e
se c u r ity c o n tr o l room o u ts id e o f th o s e
h ou rs. B oth th e m a il room a n d th e
se c u r ity co n tr o l room are a c c e s s ib le
from th e co u rty a rd e n tr a n c e o n 20th
S tr e e t b e tw e e n C o n stitu tio n A v e n u e and
C S tr e e t N W . C o m m e n ts m a y b e
in s p e c te d in room B -1 1 2 2 b e tw e e n 9
a.m . a n d 5 p.m . w e e k d a y s , e x c e p t a s
p r o v id e d in § 261.8 o f th e B o a rd ’s ru le s
regard in g th e a v a ila b ility o f in form ation .
12 CFR 261.8.
FOR FURTHER INFORMATION CONTACT:
Leonard Chanin, Senior Attorney, or
Jane Ahrens, Kurt Schumacher, or Mary
Jane Seebach, Staff Attorneys, Division
of Consumer and Community Affairs, at
(202) 4 5 2 -2 4 1 2 or (202) 452-3667; for the
hearing impaired only, contact Dorothea
Thompson, Telecommunications Device
for the Deaf, at (202) 4 5 2 -3 5 4 4 , Board of
Governors of the Federal Reserve
System, Washington, DC 20551. For
information about the Board's proposed
action concerning the recordkeeping and
disclosure requirements under the
Paperwork Reduction Act only, contact
Frederick J. Schroeder, Federal Reserve
Board Clearance Officer, Division of
Research and Statistics, Board of
Governors of the Federal Reserve
System, Washington, DC 20551, at (202)
4 5 2 -3 8 2 9 , or Gary Waxman, OMB Desk
Officer, Office of Information and
Regulatory Affairs, Office of
Management and Budget, New
Executive Office Building, room 3208,
Washington, DC 20503, at (202) 3 9 5 7340.
SUPPLEMENTARY INFORMATION:
(1) Background
T h e T ruth in S a v in g s A c t (c o n ta in e d
in th e F e d e r a l D e p o s it In su ra n ce
C o rp o ra tio n Im p ro v em en t A c t o f 1991,
P u b lic L a w N o . 1 0 2 -2 4 2 ,1 0 5 S tat. 2236)
w a s e n a c te d in D e c e m b e r 1991. T h e
sta tu te d ir e c ts th e B oard to is s u e fin a l
r e g u la tio n s b y S e p te m b e r 1 9 ,1 9 9 2 , a n d
p r o v id e s th a t th e sta tu to r y p r o v is io n s
a n d ru le s a d o p te d b y th e B oard sh a ll
a p p ly s ix m o n th s a fter th at d a te . R ath er
th a n d e la y a c tio n u n d er th e ru lem ak in g
m oratoriu m is s u e d b y th e P resid en t, d u e
to the sta tu to r y tim e ta b le for
im p le m e n tin g th e a c t a n d th e n e e d for
a d e q u a te tim e for p u b lic co m m en t, th e
B oard is g o in g fo rw a rd w ith th e
r u lem a k in g p r o c e s s a t th is tim e.
T h e B oard is p r o p o sin g re g u la tio n s for
co m m en t, a n d e x p e c ts to a d o p t fin a l
im p le m e n tin g re g u la tio n s b y S e p te m b e r
1 9 ,1 9 9 2 . C o m p lia n c e w ith th e la w w o u ld
b e m a n d a to r y b y M arch 1 9 ,1 9 9 3 ,
The purpose of the statute and
proposed regulation is to assist
consumers in comparing deposit
accounts offered by depository
institutions, principally through the
disclosure of fees, the simple interest
rate, the annual percentage yield, and
other account terms whenever a
consumer request the information and
before an account is opened. The statute
and regulation also require that fees and
other information be provided on any
periodic statement the institution sends
to the consumer. Rules are set forth for
the information contained in
advertisements of deposit accounts and
advance notice to account holders of
adverse changes in terms. The statute
and regulation place one substantive
restriction on institutions' practices, that
is, how institutions determine the
account balance on which interest is
calculated.
The Board is publishing proposed
sample disclosure forms and model
clauses to assist institutions in preparing
their account disclosures. They appear
in appendix B to the proposed
regulation.
T h e B oard is r e q u e stin g c o m m e n t on
w h e th e r to e lim in a te th e e x is tin g ru les
in R e g u la tio n Q (12 CFR P art 217), th at
req u ire d is c lo s u r e s (§ 217,4) a n d th at
re g u la te a d v e r tise m e n ts for in te r e stb e a r in g a c c o u n ts a t m em b er b a n k s
(§ 217.6). A s d is c u s s e d m ore fu lly in th e
a d v e r stisin g s e c tio n b e lo w , th e B oard
s o lic its c o m m e n t o n w h e th e r R eg u la tio n
Q 's a d v e r tisin g ru le s sh o u ld b e
e lim in a te d or r e ta in e d a s part o f
R e g u la tio n D D , T h e B oard h a s c o n s u lte d
w ith th e o th e r fe d e r a l fin a n c ia l
reg u la to ry a g e n c ie s a s d ir e c te d in
s e c t io n 269(a)(1) o f th e sta tu te , a n d th e
a g e n c ie s are c o n sid e r in g w h e th e r to
r e ta in or e lim in a te th eir e x is tin g ru les
d e a lin g w ith a d v e r tism e n ts for d e p o s it
a c c o u n ts .
(2) Proposed Regulatory Provisions
T h e T ruth in S a v in g s A c t is q u ite
d e ta ile d an d , fdr th e m o s t part, th e
p r o p o se d r e g u la tio n m irrors th e
sta tu to r y req u irem en ts. T h e sta tu te
r e c o g n iz e s th a t im p le m e n ta tio n o f a
c o m p r e h e n s iv e sc h e m e su c h a s th is m a y
req u ire so m e a d ju stm e n ts an d , in
s e c tio n 269(a)(3), it a u th o r iz e s th e B oard
to m a k e “su c h c la s s ific a tio n ,
d iffe r e n tia tio n s , * * * a d ju stm e n ts a n d
e x c e p tio n s * * * a s, in th e ju d gm en t o f
th e B oard, are n e c e s s a r y or p rop er to
carry o u t th e p u r p o se s o f th is A ct, to
p r e v e n t c ir c u m v e n tio n or e v a s io n o f th e
r e q u irem en ts o f th is A c t, or to fa c ilita te
c o m p lia n c e w ith th e req u irem en ts o f th is
A c t.” T h e sta tu te a ls o a u th o r iz e s th e
B oard to v a r y th e req u irem en ts w ith
regard to s e v e r a l p a rticu la r ty p e s o f
a c c o u n ts .
The section-by-section description
which follows points out those
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Federal Register
/ Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
provisions that differ in any significant
w a y from the statute— for example,
creating an exception to a statutory
provision, adding a disclosure, or
departing significantly from the
language o f the statute— and explains
w h y the differences exist. In addition,
the section-by-section description in
m any cases indicates possible
alternatives to the positions reflected in
the proposed regulation and solicits
comment on these alternatives. In those
cases w here the statute is not specific
and parallel rules w o u ld be beneficial,
the Board has bo rrow e d definitions and
provisions from other consumer
regulations (for example, Regulation Z
(12 CFR Part 226), which implements the
Truth in Lending Act, and Regulation E
(12 CFR Part 205), which implements the
Electronic Fund Transfers A ct).
Section 230.1— Authority, Purpose,
C overage an d Effect on State Law s
Paragraph (c)— Coverage
The paragraph on coverage reflects
the fact that the act and proposed
regulation cover depository institutions,
as defined in section 1 9 (b )(1 )(A ) o f the
Federal Reserve A ct (12 U.S.C. 461).
Thus the regulation w o u ld cover
depository institutions such as national
banks, state m em ber banks, thrift
institutions, and nonm em ber banks and
savings banks, w hether federally
insured or not. This regulation does not
apply to credit unions; those entities w ill
be covered b y rules issued by the
N ational Credit U nion Administration
(N C U A ). The act provides that the
N C U A shall prescribe substantially
similar regulations for credit unions
within 90 days o f the effective date o f
regulations established b y the Board.
Securities brokers and dealers are not
considered depository institutions under
the act and proposed regulation.
H ow ever, if advertisements for deposit
accounts are placed by brokers and
dealers w h o are deposit brokers, as that
term is defined in section 29(g)(1) o f the
FD IC Act, they are subject to the
advertising rules set forth in § 230.8.
(See the supplemental information
accom panying the definition o f
“ advertisement.”)
Paragraph (d )— Effect on State L a w s
Section 273 o f the act provides a
narrow standard for preemption o f state
law s. To be preempted, a state la w must
be inconsistent with the disclosure
provisions o f the act and the
implementing provisions o f the
regulation. A state la w is preempted
only to the extent o f the inconsistency.
W h ile the statute refers only to
disclosure requirements, the Board
requests comment on whether the same
standard should apply to all provisions
o f the law , including the payment of
interest provision.
Section 230.2—Definitions
Paragraph (a )— Account
Section 274(1) o f the statute defines an
account as "an y account offered to 1 or
more individuals or an unincorporated
nonbusiness association o f individuals
b y a depository institution into w hich a
customer deposits funds, including
dem and accounts, savings accounts,
time accounts, and negotiable order of
w ith d raw al accounts.” The B oard is
proposing to define account as any
deposit account available to, or held by,
a consumer. The regulation w o u ld cover
interest-bearing as w e ll as noninterest
bearing accounts. It w o u ld include all
accounts offered to consumers by
depository institutions, whether those
accounts are federally or state insured
or uninsured. The Board solicits
comment on whether the regulation
should be limited to insured deposit
accounts.
The B oard does not believe the
Congress intended to cover certain other
accounts that m ay b e offered b y or
through depository institutions, such as
mutual fund accounts. Both the findings
and purpose provisions o f the statute
speak o f “deposit accounts” offered by
institutions, and all o f the exam ples
listed in the statutory definition are the
more traditional type o f deposit
accounts.
Similarly, the term “account” w o u ld
not include a consumer’s interest in the
securities or obligations o f a depository
institution or any other entity that are
being held b y the institution on the
consumer’s behalf, or offered by the
institution to the consumer. For
example, the purchase o f a government
security or an annuity through a
depository institution w o u ld not be an
“account” subject to the regulation.
Some institutions permit consumers to
open accounts denom inated in a foreign
currency. Typically, these accounts are
offered as money market accounts,
though certificates o f deposit m ay be
designated as foreign currency accounts.
A consumer m ay purchase one or more
o f several currencies, depending on the
institution’s program. Such accounts are
eligible for deposit insurance, but are
not insured for losses resulting from
exchange rate fluctuations. Institutions
m ay or m ay not pay interest on these
accounts. These accounts m ay be
subject to capital gains or losses due to
fluctuations in exchange rates.
W h e n such accounts are offered to or
held b y consumers (as opposed to
businesses), the Board believes they
meet the definition o f an account and
are covered by the regulation. In light of
the risk o f loss o f principal for these
accounts and the fact that they are not
traditional accounts, consumers m ay not
fully understand h o w they operate. Thus
the Board is proposing special
disclosure and advertising rules for
these accounts. These proposals are
discussed in the supplemental
information accom panying § 230.4(b)(9)
and 230.8(a).
Paragraph (b )— Advertisem ent
U nder the act, each “advertisement,
announcement, or solicitation” relating
to an account at a depository institution
must comply with specified rules. The
act does not define advertisement.
U nder the B oard’s proposal, an
advertisement (which includes any
announcement or solicitation) is defined
in the same m anner as that term is
defined under the B o ard ’s Regulation Z.
Thus, an advertisement w o u ld be any
commercial m essage appearing in any
medium (for example, newspaper,
television, or radio) if it directly or
indirectly promotes the availability of
an account.
The B oard requests comment on
whether some o f the savings instrument
"rate sheets” that are currently
published in new spapers, periodicals, or
trade journals should be considered
“advertisements.” Some rate sheet
publishers gather information b y simply
calling various depository institutions
and inquiring about their current rates;
to this extent, they do not appear to be
the type o f commercial m essage
intended to be covered.
The statute cover advertisements
“initiated by a depository institution or
deposit broker." The Board is proposing
to define “advertisement” without
regard to the party initiating it. In light
o f this approach, the Board does not
have a definition o f deposit broker in the
proposed regulation, apart from the
reference in § 230.1(c). The Board
solicits comment on whether deposit
brokers w h o place advertisements that
refer to deposit accounts at depository
institutions should be covered b y the
advertising rules. The question arises
since the regulation only covers deposit
accounts offered by depository
institutions to consumers. If a third
party, such as a deposit broker, opens
an account (such as a large certificate o f
deposit) at an institution in its ow n
name and then offers its o w n accounts
to the public, the certificate o f deposit
does not appear to be a consumer
account. (T a x information, for example,
w o u ld be reported in the name of the
Federal Register
/ VoL 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
third party.) Thus, an advertisement
placed b y a third party for its o w n
accounts is not an advertisement for a
consumer account. (This circumstance is
clearly different from a third party w h o
acts as an agent for a consumer and
opens an account for the consumer at an
institution— w hich w o u ld be covered by
the regulation.) The Board solicits
comment on w hether non-agent third
parties w ho advertise their o w n
accounts b ased on accounts at a
depository institution should be covered
by the advertising rules.
Paragraph (c)— A nnu al Percentage Yield
The B oard proposes that the
regulation incorporate a definition o f the
annual percentage yield substantially
the same as that stated in the act. The
act defines annual percentage yield as
“the total amount o f interest that w o u ld
be received on a $100 deposit, b ased on
the annual rate o f simple interest and
the frequency o f compounding for a 365day period, expressed as a percentage
calculated by a method w hich shall be
prescribed b y the Board in regulations."
The proposal does not incorporate the
reference to a $100 deposit, since the
annual percentage yield calculation can
be perform ed with any amount o f
principal, and the Board believes
reference to $100 might be confusing,
especially for accounts that have a
higher minimum balance requirement to
earn interest or that have a tiered rate
structure.
In computing the annual percentage
yield, the statute requires institutions to
use a basis o f 365 days. The Board
believes this provision requires
institutions to calculate an annual
percentage yield b y using a 365-day
year. The Board proposes that the term
"annual percentage yield " be used in
both advertisements and disclosures to
ensure uniformity and facilitate easy
comparisons. (If multiple annual
percentage yields are stated, for
exam ple, for tiered rate accounts, the
term “annual percentage yield s" m ay be
used.)
Paragraph (e )— Bonus
The B oard proposes to define the term
“bonus" to encom pass any cash,
premium, gift, aw ard, or other
consideration (except interest due to the
application o f a periodic rate) regardless
o f the form the payment takes. Thus, it is
intended that anything o f value that is
given or offered to a consumer, aside
from interest, w o u ld be a bonus for the
purposes o f this regulation. U n der the
proposal an item could be a bonus if a
depository institution gave or offered
such a premium to a third party, rather
than to the consumer.
Paragraph (f)— Business D ay
The Board is proposing to define
business day as one during w hich the
offices o f the institution are open for
carrying on substantially all business
functions. This definition is the same
one used in other regulations o f the
Board (such as Regulation Z and
Regulation E) and the B oard believes
this same approach w o u ld w ork w e ll for
this regulation.
Paragraph (g)— Consum er
The act does not define the term
“consumer." It is clear from the act and
legislative history that the protections
w ere intended to apply only to
consumer purpose— and not business
purpose— accounts. For instance, in
section 262, strengthening “the ability o f
the consumer to make informed
decisions regarding deposit accounts" is
among the act's goals. M oreover, the
statutory definition o f an “account” is
expressly limited to those “offered to 1
or more individuals or an
unincorporated nonbusiness association
o f individuals . . .”
The Board proposes to use the term
“natural person” rather than
“individual” and to ad d the term
“primarily for personal, family,
household, or other non-business
purposes" to the definition. A similar
definition has w o rk ed w e ll in Regulation
Z in determining whether credit is for a
consumer purpose, and the Board
believes it w o u ld be equally helpful in
determing coverage for deposit products.
The statute does not expressly
exclude from coverage accounts held by,
or offered to, individuals operating
businesses in the form o f a sole
proprietorship, The B oard proposes to
n ot cover such accounts, on the grounds
that the act is aim ed at protecting
consumers. O n the other hand, an
account held b y or offered to an
unincorporated association o f natural
persons (such as a softball team or a
book club) w o u ld be a consumer
account covered b y the proposed
regulation if that account is primarily for
non-business purposes. The Board does
not believe an account held by an
incorporated, not-for-profit organization
is covered b y the law , since the act
limits its protection to unincorporated
associations.
If the legal holder o f an account is a
natural person, and the account is
primarily for a personal, family,
household, or other non-business
purpose, it w o u ld be covered by the
regulation. The Board requests comment
on whether the regulation should cover
an account such as a custodial account,
in which a natural person (or
12737
unincorporated nonbusiness association
o f persons) is a beneficial ow n er but the
legal holder (the custodian) m ay or m ay
not be a consumer. There m ay be
circumstances w here the act’s purposes
are served b y requiring disclosures for
accounts held b y custodians that are not
natural persons. There m ay be other
custodial accounts, however, such as
those held b y institutional investors (for
example, a pension plan administrator)
for numerous consumers, w here
disclosures are not needed.
Paragraph (h)— Depository Institution
and Institution
Section 274(6) o f the act defines a
“depository institution" as that term is
defined in “clauses (i) through (vi) of
section 19 (b )(1 )(A ) o f the Federal
Reserve A ct.” The Federal Reserve A ct
includes in its definition any insured
bank or any ban k that is eligible to
apply to be insured under the Federal
Deposit Insurance A ct (F D IA ). The F D IA
definition o f an insured bank includes a
foreign bank that has an insured branch
as w e ll as any other bank with deposits
insured in accordance with the FD IA .
B ased on these definitions, the Board
believes the statute’s coverage is very
broad, and covers both state and
federally chartered institutions,
regardless o f whether or not the
institution is insured (by federal, state,
or private insurance). Foreign banks that
meet this definition also w o uld be
covered.
A s discussed in § 230.1, the proposed
regulation does not apply to credit
unions.
Paragraph (i)— Interest
This definition states that bonuses
and similar offers do not constitute
interest for purposes o f the regulation.
This differs from the interpretation of
the rule in Regulation Q (12 CFR
217.2(d)), w hich does include bonuses as
part o f its definition o f interest, due to
the prohibition o f paying interest on
dem and accounts, and the fact that in
that context a bonus is the equivalent o f
interest. The proposed definition makes
clear that a depository institution’s
practice o f charging higher fees to non
account holders than to account holders
does not make the differential
“interest.” A lso , an institution’s
absorption o f expenses incident to
providing a normal banking function or
its forbearance from charging a fee in
connection with a service is not
considered to be a payment o f interest.
Paragraph (j)— Periodic Statement
The statute does not define "periodic
statement,” although the term, or similar
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Federal Register
/ Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
term “account statement," is used in tw o
provisions (sections 266 and 268).
Section 266(e) o f the statute (which
requires a notice to b e given to existing
account holders) refers to account
statements provided on a quarterly
basis. The B oard has looked to this
provision and to requirements in other
regulations in defining periodic
statement. For example, Regulation E
requires a periodic statement to be
provided monthly if electronic transfers
have taken place, but at least quarterly
if no transfer has occurred. In addition,
Regulation Z generally provides that
periodic statements must be provided at
the end o f any billing cycle— w hich must
b e at least quarterly— for open-end
credit accounts. The B oard believes this
approach has w o rk ed w e ll and proposes
to define periodic statement as one sent
on a quarterly or more frequent basis.
The Board solicits comment on whether
this is an appropriate time interval, or
whether a n arrow er or broader
definition is more appropriate. The
B oard also solicits comment on whether
a longer time interval should b e applied
to statements sent on accounts such as
time deposits.
A n exam ple o f a periodic statement is
a monthly statement for a N O W account
w hich sets forth account information,
such as a listing o f transactions. O n the
other hand, regularly providing general
service information to consumers which
does not discuss specific transaction
activity or other aspects o f a particular
consum er’s account (for example, a
quarterly newsletter describing services
and other deposit accounts) w o u ld not
b e considered a periodic statement.
If an institution sends a periodic
statement due to other legal
requirements (for example, if the
account can be accessed b y electom ic
fund transfers and is covered b y
Regulation E), then such a statement
w o u ld be a periodic statement for
purposes o f this regulation. A lso , if an
institution provides a combined
statement containing both credit and
deposit account activity, such a
statement w o u ld be covered b y the
periodic statement rules.
Paragraph (k)— Simple Interest Rate
Section 274(3) o f the statute defines
the “annual rate o f simple interest” as
“the annualized rate o f interest paid
with respect to each compounding
period, expressed as a percentage.” The
B oard is proposing to simplify the
phrase and rew ord the definition to
clarify that the "sim ple interest rate” is
the rate o f interest paid without regard
to compounding, sh o w n as an annual
figure and expressed as a percentage.
Section 274(3) o f the act also provides
that the simple interest rate m ay be
referred to as the “annual percentage
rate.” The B oard is proposing to require
that institutions refer to this figure using
the term “single interest rate” and to
permit institutions to use the term
“annual percentage rate" only in
addition to the term "sim ple interest
rate” and only for account disclosures
(not in advertisements).
The Board believes it is essential to
assist consumers in comparing accounts
to require the use of standardized
terminology in this area. The Board
believes it may be confusing for
prospective account holders to see the
same figure labeled as the “simple
interest rate” in some advertisements
and disclosures and as the “annual
percentage rate” in others. Also, the
term "annual percentage rate,” as
required to be disclosed under
Regulation Z, is commonly understood
by consumers to encompass the total
cost of credit—including both interest
and other finance charges. The Board is
concerned that consumer confusion may
result if the term "annual percentage
rate” is used to designate a simple
interest rate for the consumer’s deposit
account at a depository institution, if the
same terminology is used to designate a
rate that includes both simple interest
and, for example, points, for the
consumer’s mortgage loan with the same
institution. Since the potential for
confusion is greatest in advertisements,
the Board proposes to permit use of the
term “annual percentage rate" only in
the account disclosures and then only in
addition to the term “simple interest
rate.” In no cases would an institution
be required to refer to the simple
interest rate as the annual percentage
rate.
Paragraph (m)—Stepped Rate Account
The act defines “multiple rate”
accounts, and authorizes the Board to
adjust its general annual percentage
yield disclosure rules to ensure that
meaningful disclosures are provided for
such accounts. The Board proposes to
define "stepped rate” and "tiered rate”
accounts, both of which would be
“multiple rate” accounts under the
statute. While both accounts involve
multiple rates, the characteristics of
each have different implications for
calculating and disclosing the annual
percentage yield.
The Board proposes to define stepped
rate accounts as those in which two or
more simple interest rates (known at the
time the account is opened) will take
effect in succeeding periods. An
example of a stepped rate account is a
one-year certificate of deposit in which
a 5.00% simple interest rate is p aid for
the first six months, and 5.50% for the
second six months.
Paragraph (n)— Tiered Rate A ccount
The B oard proposes to define tiered
rate accounts as those in w hich tw o or
more simple interest rates p aid on the
account are determined b y reference to
a specified balance level. A n exam ple o f
a tiered rate account is one in w hich an
institution pays 5.00% simple interest
rate on balances b e lo w $1,000, and
5.50% on balances $1,000 and above.
There are tw o types o f tiered accounts
w hich are described more completely in
appendix A , Part I, (D ).
Paragraph (o )— V a ria b le Rate Account
The statute does not define variable
rate accounts, but section 265 o f the act
authorizes the B oard to adjust its annual
percentage yield disclosure rules for
such accounts. The legislative history
accom panying the la w also indicates
that modifications to the act’s ad vance
notice requirement for changes in terms
w e re contemplated for variable rate
accounts (see discussion o f proposed
§ 230.5 b e lo w ). The B oard requests
comment on h o w variable rate accounts
m ay best be defined to further the
purpose o f the act. T w o alternative
definitions are included in the proposed
regulation.
C lassifying an account as a “v ariable
rate” has tw o implications: (1) The
B oard is proposing certain additional
account disclosures for those accounts
in § 230.4(b)(l)(ii); and (2) the B oard is
proposing to exempt rate decreases on a
variable rate account from the change in
terms rule (see the discussion o f changes
in terms in § 230.5).
A variable rate account clearly w o u ld
include one with rates b ased on either
an external or an internal index— for
example, if an institution tied rate
changes to the 1-year Treasury bill or to
the institution’s o w n “prim e” rate. The
majority o f institutions, how ever,
currently set rates b a s e d on a variety o f
factors and do not tie changes to an
identifiable index.
The first alternative in the proposed
regulation w o u ld define a variab le rate
account narrowly, as one tied to an
index (either an external or an internal
index).
The B oard solicits comment on
w hether the definition o f a variable rate
account should b e broader, so as to
encom pass all accounts which, pursuant
to an account agreement, permit the
institution to change the rate at the
election o f the institution. The B oard is
a w a re that most if not all institutions
routinely include a contractual right to
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change rates in their account
agreements (other than time deposits),
although in some cases the right is
seldom exercised and holders o f such
accounts likely consider the account to
b e fixed rate. The B o ard is concerned
that, if the definition o f a variable rate
account encom passes all such
situations, consumers w h o v ie w their
accounts as essentially fixed rate
accounts w o u ld not receive advance
notice o f rate changes.
O ne w a y to deal with this is reflected
in the second alternative in the
proposed regulation. It w o u ld treat as
fixed rate those accounts w here the
institution contracts to provide at least a
30-day ad vance written notice o f rate
changes. This w o u ld provide a w a y for
institutions that prefer to offer— and
consumers w h o prefer to hold— “fixedrate” accounts to do so, w hile providing
the advance notice the Congress
intended. In other cases, w here the
institution does not commit itself to a 30day notice, the accounts w o u ld be
variable rate accounts, and w o u ld not
require advance notice w h en rates
changed. For those accounts in which
the institution does not guarantee the
rate for at least 30 days, it w o u ld be
required to give full disclosure o f the
variable rate feature w h en the accounts
are opened (under proposed
§ 230.4(b)(l)(ii)).
The Board considered a variety of
other approaches to defining a variable
rate account. For example, it could be
viewed as one in which the institution
expressly provides for the option to
change the rate at a specified frequency,
such as every week or every month.
Adoption of such an approach may not
be effective in distinguishing between
fixed and variable rates, however, since
institutions could add such a “variable
rate feature” by simply modifying their
agreements to reflect such a right
without changing their pricing practices
in any way.
Another alternative considered was to
define as variable rate accounts those in
which the rate had in fact changed a
specified number of times during a
specified prior period. Although such an
approach has the appeal of being based
on actual experience, the Board is
concerned that compliance would be
complicated and cumbersome.
The Board expressly solicits comment
on the two alternatives reflected in the
proposal, the advantages and
disadvantages of each, and any other
alternatives.
S ection 230.3— G eneral D isclosure
R equirem ents
Paragraph (a )— General
Section 264 o f the act requires
depository institutions to maintain a
written schedule o f fees, interest rates
and other terms applicable to each class
o f accounts offered b y the depository
institution. The statute requires the
disclosures to b e written in “clear and
plain language." The proposed
regulation requires information to be
disclosed “clearly and conspicuously,"
the standard required b y other
regulations adopted b y the Board, such
as Regulation Z. The B oard believes that
use o f a commonly used and understood
standard facilitates compliance with the
la w and carries out the act’s
requirement that disclosures be written
in clear and plain language. For
uniformity, the format requirement o f
“clear and conspicuous" w o u ld apply to
all disclosures provided to consumers,
including the change in terms notice and
information given on periodic
statements, and not just the account
opening disclosures. The B oard also
proposes to include a provision
requiring disclosures to reflect the legal
obligation betw een the parties in order
to provide guidance about the basis for
disclosures; this parallels the standard
used in Regulation Z. The proposal
w o u ld require that disclosures be
provided in a form the consumer can
retain, since that seems to be clearly
w h at the Congress intended in order to
facilitate com parison shopping.
Disclosures need be m ade only as
applicable. Therefore, disclosures for
noninterest bearing accounts w o u ld not
include disclosure o f an annual
percentage yield, simple interest rate, or
any other disclosures that pertain to
interest calculations.
The Board is not proposing a rule
dealing with the use o f estimates in
making disclosures. Regulation Z
contains such a provision since many
fees are not within the control o f the
lender, and since the timing o f a
transaction m ay not be precisely know n
w h en disclosures are required to be
provided. Regulation E does not contain
a rule permitting estimates, and it seems
more analogous to this regulation on this
question. Since the fees to be disclosed
are those established b y the institution
and are not a function o f the amount
deposited by the consumer, the Board
does not believe a rule on estimates is
needed. The B oard solicits comment on
this issue.
The proposed regulation provides
depository institutions with flexibility in
designing the order o f the disclosures, so
long as the information is presented in a
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format that allows consumers to readily
understand the terms of their own
accounts. The disclosures required by
the regulation may be made on more
than one page and may use both the
front and reverse sides, as long as the
pages are part of one document.
Institutions could use inserts to a
document or fill in blanks to show
current rates. Since rates may change on
a frequent basis and rate information
needs to be current, the Board believes
requiring such information to be
preprinted in a document could impose
substantial costs and burdens on
institutions, with no particular benefit to
consumers.
In designing the account disclosures,
depository institutions have several
alternatives. Institutions could prepare a
single document that contains
disclosures for all accounts offered, or
prepare different documents for
different types o f accounts. For exam ple,
institutions m ay provide a single
document for all transaction accounts,
such as N O W and dem and deposit
accounts. Institutions that choose to
com bine information about accounts
w o u ld have to clearly indicate the terms
that apply to the account selected b y the
consumer. (See, for example, the
approach taken in B -3 Sam ple Form, in
appendix B.) Institutions m ay provide
disclosures for each type o f account,
such as a document that describes all
time deposits offered. The regulation
also w o u ld permit institutions to provide
disclosures describing a single account
product; for example, an institution
offering three different N O W accounts
m ay provide a separate document for
each account. In all o f these situations,
the B oard proposes to permit depository
institutions to include in the document
containing the account disclosures
contract terms and other disclosures
that relate to the account, such as
disclosures required b y Regulation E or
b y Regulation C C (12 CFR part 229),
w hich implements the Expedited Funds
A vailability Act.
The regulation does not require any
particular type size or typeface, nor does
it. require any term to be stated more
conspicuously than any other term in the
account disclosures. Sections 230.4(b),
230.6(a) and 230.8 o f the regulation
w o u ld require the "annual percentage
yield ” (and, in some cases, the “simple
interest rate”) to be so labeled in
account disclosures, periodic statements
and advertisements. A part from this,
there is no required terminology.
Finally, the act and regulation do not
contain any special requirements
regarding whether disclosures m ay be
m ade in a foreign language rather than
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in English. Regulation Z allo w s creditors
in Puerto Rico the option o f providing
disclosures in Spanish, so long as those
that do so furnish disclosures in English
upon request. The Board requests
comment on whether the purposes o f the
act w o u ld be furthered b y permitting
institutions to deliver disclosures in
other languages (in Puerto Rico or
elsew here), provided that disclosures in
English are furnished upon request.
Paragraph (b )— M ultiple Consum ers
The B oard proposes that in the case o f
an account held b y more than one
consumer, institutions could provide the
account disclosures to any consumer
w h o holds the account. Similarly, if the
account is held by a group or
organization, depository institutions
m ay provide the disclosures to any one
individual w h o represents or acts on
beh a lf o f the group.
Paragraph (c)— O ral Responses to
Inquiries
The Board is proposing to ad d this
rule to the regulation, w hich has no
counterpart in the statute. Since
consumers m ay call institutions to
obtain rate information, the Board
believes it is important for uniformity
and com parison shopping that any rates
quoted be stated as an annual
percentage yield. The regulation w o u ld
also permit institutions to state the
simple interest rate, but w o u ld prohibit
any other rate. A n approach similar to
this is used in Regulation Z.
Section 230.4—A ccount D isclosures
The statute requires institutions to
maintain an “account schedule” that is
provided to consumers before an
account is opened, and under certain
other circumstances. The Board
proposes to use the more general and
commonly understood terminology o f
“disclosures” (rather than schedule) in
connection with the information
required to be provided to consumers.
Paragraph (a)— Delivery o f Account
Disclosures
Paragraph (a)(1)—Account opening.
Section 266 o f the act requires account
disclosures to be provided before an
account is opened or a service is
rendered. The act also allow’s the
disclosures to be sent within 10 days o f
“the initial deposit” if the consumer is
not physically present w hen the deposit
is accepted and the disclosures have not
been provided previously. To simplify
the timing rules, the proposed regulation
applies the 10-day rule to the provision
o f services, as w e ll as to opening
accounts, and defines the period as 10
business days rather than calendar
days. The B oard solicits comment on
whether business days or calendar days
should be used in setting forth the timing
rules.
The statute suggests that institutions
are required both to "m aintain” a
schedule and to provide it to consumers
in the designated circumstances. The
B oard believes that b y providing
disclosures as required b y the act and
regulation, institutions satisfy the
statutory requirement to "m aintain” a
schedule. Thus, the regulation w o u ld not
place an independent duty on
institutions to “maintain” schedules or
disclosures.
The B oard believes the provision
requiring disclosures to be given before
a service fee is im posed covers the
infrequent circumstance w here a fee is
assessed for a service prior to the
opening o f an account. For example, if
an institution obtained a copy o f a
consumer’s credit report and charged
the consumer for the report prior to
opening the account, the institution
w o u ld have to provide the consumer
with the account disclosures prior to
assessing the fee. This provision,
however, does not require institutions to
give disclosures to existing account
holders prior to imposing a service fee
connected w ith the account, such as for
stopping paym ent on a check or
transferring funds into or out o f an
account b y wire.
If an account is opened or a service is
requested b y m eans such as telephone,
w ire transfer or mail, the account
disclosures must be m ailed or delivered
within 10 business days o f the time the
account is opened or service is provided.
This time rule w o u ld apply, for example,
if a consumer opens a time deposit by
mailing in the funds. Institutions w o u ld
comply with the provision if the account
disclosures are m ailed or delivered to
the consumer at the address show n on
the records o f the depository institution.
The statute states that disclosures
need not be provided to the absent
consumer if the disclosures w ere
previously provided. The Board believes
that institutions m ay rely on this
provision only if the disclosures
previously provided contained
information about fees, interest rates,
and other terms o f the account that are
still current. The Board requests
comment on whether it w o u ld be
desirable to specify a time limit, for
example, 60 days, beyond which prior
disclosures w o u ld be deem ed not to be
current— even if they have not changed.
Paragraph (a)(2) — R equests. The act
requires that the account disclosures be
m ade available to any person upon
request. The proposal implements the
act b y requiring depository institutions
to mail or deliver the disclosures no
later than three business days follow in g
receipt o f a consumer’s oral or written
request. Requests are likely to come
from consumers w h o are com parison
shopping for accounts. W h ile a timing
rule o f 10 days (business or calendar
d ays) m ay be appropriate w hen
providing written disclosures to a
consumer w h o has already decided to
open an account b y m ail or telephone,
the Board believes it w o u ld be more
consistent w ith the act’s goals if a
consumer’s request for account
disclosures w ere fulfilled within a
shorter time period, since it is likely the
consumer is shopping for an account.
Three business days is a timing rule
used in Regulation Z for certain
transactions, and the B oard believes
that the rule w o u ld w o rk w e ll for this
regulation. The B oard solicits comment
on whether it is necessary to establish a
specific time period in w hich institutions
must respond to requests for disclosures,
and whether the appropriate period
should be three business days or longer,
such as 10 business days. (O f course,
w h en the consumer is present at the
institution and requests information
about an account, the disclosures must
be given at that time.)
The B oard believes an institution
w o u ld n ot have a duty to provide
account disclosures if a consumer
merely asks about current rates for an
account. For example, the common
practice o f telephone inquiries about
rates and yields on certificates o f
deposit w o u ld not trigger an institution’s
duty to send disclosures to the caller—
so long as the consumer does not ask for
such information to be sent.
Paragraph (a)(3)—R en ew als o f tim e
d ep o sits — Paragraph (a)(3)(H )— Tim e
deposits that renew automatically. The
ren ew al o f a time deposit is the
equivalent o f opening another account,
and requires a set o f disclosures about
the n e w account, as stated in paragraph
(a)(3 )(i) o f this section. The act requires
account disclosures to be provided to
consumers at least 30 days prior to the
maturity o f a time deposit that is
ren ew able without notice from the
consumer ( “automatically re n ew ab le” or
“rollover” time deposits). The proposed
regulation requires depository
institutions to mail or deliver the
account disclosures described in § 230.4
to such consumers, but creates an
exception for short-term time deposits.
The proposed regulation w o u ld not
require institutions to provide an
advance copy o f disclosures for
automatically ren ew able time deposits
with a maturity o f three months or less.
In such cases, institutions w o u ld provide
Federal Register
disclosures no later than 10 business
days after the account is renew ed.
The legislative history accom panying
the act recognizes that the B oard m ay
w ish to establish special rules for short
term time deposits. (See the Committee
Report accom panying H.R. 2654, o f the
Committee on Banking, Finance and
U rb a n A ffairs, Septem ber 12,1991.) T w o
policy reasons for providing advance
notice to consumers w ith automatically
ren ew able time deposits are: (1) To
remind the consumer that the account is
nearing maturity and that funds w ill be
reinvested for a set period o f time (thus
limiting access to funds) if the consumer
does not act; and (2) to give the
consumer an opportunity to com parison
shop before reinvestment occurs. The
B oard believes consumers w ith short
term accounts do not have the same
need o f a rem inder o f impending
maturity as do those with longer term
instruments. Furthermore, a consumer
m ay derive little or no benefit by
receiving a second virtually identical set
o f disclosures, for example, 15 days
after purchasing a 45-day certificate o f
deposit. In addition, compliance with a
30-day advance notice requirement
w o u ld literally be im possible for very
short-term instruments (such as 7-day
certificates o f deposit).
The B oard solicits comment on
whether the proposed exception from
ad vance disclosures should be m ade for
short-term accounts, and, if so, whether
a three-month period is the appropriate
cutoff.
The B oard considered other
alternatives for creating an exception
from the ad vance disclosures for short
term autom atically ren ew able deposits,
such as a tiered approach. For example,
institutions could be required to give
account disclosures 30 days prior to
maturity for deposits with a maturity
greater than six months, 15 days for
accounts with a maturity betw een one
and six months, and no advance
disclosures for accounts less than one
month. The B oard solicits comment on
this tiered approach, as w e ll as the
timing requirements and cutoffs that
might be used in such an approach.
O ne problem presented b y the 30-day
advance disclosure requirement for both
short- and long-term accounts is that the
simple interest rate and the annual
percentage yield generally w ill not be
kn ow n at the time disclosures must be
given. The Board does not believe the
statute requires institutions to "lock in"
or guarantee the rates for an account at
the time o f the advance notice. The
B oard proposes as an alternative to
stating the simple interest rate and the
annual percentage yield in effect at the
time the advance notice is sent, that
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institutions instead state that the simple
interest rate and the annual percentage
yield for the account have not yet been
determined, the dates w h en they w ill be
determined, and a telephone num ber the
consumer can call to obtain the simple
interest rate and the annual percentage
yield that w ill be p aid w h en the account
is renew ed. The B oard believes this
approach w o u ld facilitate comparison
shopping.
The B oard considered an alternative
approach: requiring institutions to
provide consumers with an annual
percentage yield that is current w hen
the notice is provided, but that m ay
change before the time deposit renews. ‘
The B oard is concerned, however, that
consumers might believe the annual
percentage yield disclosed in an
advance notice w o u ld be the annual
percentage yield applicable for the
ren ew ed account. Since the annual
percentage yield could fluctuate
betw een the time the disclosures are
sent and the re n ew al date, stating the
rate at the time o f mailing could thus be
misleading. The B o ard believes
consumers w o u ld be better served b y
receiving the actual annual percentage
yield that w ill apply, even if they must
contact the institution to do so.
Furthermore, since consumers w h o
received an ad vance annual percentage
yield w o u ld likely have to call the
institution to determine the current
annual percentage yield at the time o f
re n ew al anyw ay, the alternative o f
including the most recent annual
ercentage yield appears to be o f little
enefit to consumers.
Institutions w ith short-term time
deposits proposed to b e exempt from the
ad vance disclosure rule w o u ld still be
required to provide disclosures under
the general rule (within 10 business days
after the account is renew ed). The Board
proposes, however, that if institutions
choose to provide advance account
disclosures 30 days prior to the rollover
date for those accounts, additional
disclosures w o u ld n o t have to be
provided at ren ew al— even if the exact
simple interest rate and annual
percentage yield had not been disclosed
earlier. The Board solicits comment on
this proposal.
Paragraph (a)(3 )(iii)— Time deposits
that renew b y consumer request. For
non-autom atically ren ew able time
deposits (that is, those that are renew ed
only if the consumer affirmatively
requests the institution prior to or at
maturity to renew the account),
institutions w o u ld provide account
disclosures in accordance with the
normal timing rules— within 10 days o f
renew al if not done in person.
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Paragraph (b )— Content o f Account
Disclosures
Paragraph (b)(1)—R a te inform ation —
Paragraph ( b ) (l ) (i ) — A n n u al percentage
yield and simple interest rate.
Institutions w o u ld be required to
disclose the "annu al percentage yield,"
using that term, computed in accordance
w ith appendix A , Part I. Institutions also
w o u ld b e required to disclose the
“simple interest rate," using that term,
and w o u ld be permitted to use the term
"an n u al percentage rate" in addition to
the simple interest rate. (See the
discussion in the supplementary
information accom panying § 230.2 (c)
and (k) regarding the proposal to use
standardized terminology for these
figures.) Institutions must also disclose
the period o f time the simple interest
rate w ill b e in effect. This requires
institutions to state the length o f time, if
any, the institution guarantees that this
rate w ill continue to b e paid after the
account is opened. If an institution does
not guarantee a rate for any period of
time beyond the day the account is
opened, the B oard does not propose to
require that fact to b e stated, since the
v ariable rate disclosures w o u ld reflect
this fact.
If an institution sets a minimum
balan ce to earn interest, for exam ple
$400, the institution w o u ld not have to
state that the annual percentage yield is
0% for those days the balance in the
account drops b e lo w $400.
In the case o f stepped rate accounts,
each simple interest rate and the period
o f time each w ill b e in effect w o u ld be
provided. For exam ple if an institution
offered a 1-year certificate o f deposit
w ith a simple interest rate o f 5.00% for
the first six months and 5.50% for the
second six months, it w o u ld disclose
both simple interest rates, the
corresponding annual percentage yield
(5.39%, assuming interest is com pounded
daily), and the fact that each simple
interest rate w o u ld be in effect for
successive six month periods. A n
institution offering tiered rate accounts
w o u ld disclose each simple interest rate
along w ith the corresponding annual
percentage yield (or range o f annual
percentage yields if appropriate) for that
specified balance level. For exam ple, if
an institution pays a 5.00% simple
interest rate for balances b e lo w $1,000
and a 5.50% simple interest rate for
balances $1,000 or above, both rates
w o u ld have to be provided, as w e ll as
the annual percentage yields that w ould
apply to the account. (See appendix A
for the calculation o f the annual
percentage yields for stepped rate and
tiered rate accounts.)
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Paragraph (b)(l)(ii)— Variable rates.
The statue does not expressly require
specific additional disclosures for
variable rate accounts. (See the
supplemental information to § 230.2(o),
where a variable rate account is
defined.) Sections 264(d) and 265(2) of
the act, however, recognize that the
Board may wish to prescribe specific
disclosures for variable rate accounts.
The Board proposes to require certain
basic information about a variable rate
feature in the account disclosures. These
disclosures are similar to the
abbreviated variable rate requirements
for open-end credit found in Regulation
Paragraph (b)(3)—Compounding a n d
crediting. The proposed regulation
requires institutions to disclose the
frequency with which interest is
compounded and credited. If the
frequency of either would change if the
consumer does not meet a minimum
time requirement, or under any other
circumstance, such frequency would
also have to be disclosed. (See the
supplemental informaiton accompanying
§ 230.7(b) for a discussion of crediting
practices.)
Paragraph (b)(4)—B alance
inform ation —Paragraph (b)(4) (ii)—
Minimum balance requirements. This
provision requires institutions to
disclose any minimum balance required
Institutions offering variable rate
accounts would be required to state that to open the account, to avoid the
imposition of fees, or to obtain the
the simple interest rate and annual
annual percentage yield. For example, if
percentage yield may change. They
an institution provides that a $3 fee will
would also have to explain how the
be assessed if the average daily balance
simple interest rate is determined. For
drops below $500, that provision would
example, if the simple interest rate is
have to be disclosed. Institutions would
tied to the 1-year Treasury bill plus or
also have to describe the method they
minus a specified margin, the index
use to determine that balance. The
must be clearly identified and the
explanation of the balance computation
specific margin stated. If “variable rate
methods can be combined with the
account” is defined broadly (see the
disclosure under paragraph (b)(4)(ii) if
discussion of § 230.2(o) above), an
the methods are the same. Institutions
institution that contractually reserves
the right to change rates and does not tie would not be required to describe the
changes to an index would disclose that method used to determine the balance
needed to open the account since it is
rate changes are solely within the
simply the dollar amnount that must be
institution’s discretion. Depository
deposited by the consumer.
institutions would also be required to
explain the frequency with which the
Paragraph (b)(4)(H)—Balance
simple interest rate may change. For
com putation m ethod. Institutions would
example, if the institution retains the
be required to describe the method used
right to change the rate on a weekly or
to determine the balance on which
monthly basis, that would be stated.
interest is paid, (see discussion of
Institutions that reserve the right to
§ 230.7(a) regarding permissible balance
change rates at any time would state
computation methods.) Thus, if the
that fact
institution uses the daily balance
If the deposit contract places any
method it would state that it uses the
limits on the amount the simple interest
daily balance method and could
rate will change at any one time or for
describe it as one in which interest is
any period, that would be stated. For
computed by applying a periodic rate to
example, if the institution places a floor the principal balance in the account
or ceiling on rates or provides that a rate each day. If it uses the average daily
may not decrease or increase more than balance method the institution would
a specified amount during any time
state that and describe the method as
period that would be disclosed.
one in which interest is computed by
applying a periodic rate to the average
The proposed regulation refers to the
balance in the account for the period or
simple interest rate rather than the
cycle, with the average balance
annual percentage yield in discussing
the variable rate disclosures. The Board calculated by adding the balance in the
account for each day of the period or
believes this is more accurate since
cycle, and dividing that sum by the
changes in the annual percentage yield
number of days in the period or cycle.
derive from changes in the simple
Z.
interest rate.
Paragraph (b)(2)—Tim e requirem ents.
This provision requires institutions to
state any time requirement for time
deposits, that must be met to obtain the
annual percentage yield. Thus, an
institution would state the maturity date
for certificates of deposit
The Board solicits comment on
whether institutions also should be
required to disclose when they begin to
accrue intrest on noncash deposits. For
example, some institutions begin to pay
interest on the day such a deposit is
received by the institution (sometimes
called the “ledger balance” method).
Others begin paying interest no later
than the business day specified in
section 606 of the Expedited Funds
Availability Act and its implementing
Regulation CC (the “collected balance”
method).
Paragraph (b)(5) —Fees. The statute
requires disclosure of fees that may be
assessed against the “account holder”
as well as against the account. The
Board believes the wording of the
proposal, which requires disclosure of
ail fees that may be assessed in
connection with the account, captures
the same information required by the
statute.
The statute requires the Board to
specify, in the regulation, which fees
must be disclosed. Since the proposal
requires all fees assessed in connection
with the account to be disclosed, the
Board is not proposing to list in the
regulation every fee that might be
imposed. The proposed regulation does
not mandate terminology for fees, and
the Board does not believe that all fees
could be identified by name in the
regulation in any event. Institutions use
different names to describe the same
type of fee. For example, a monthly fee
imposed regardless of the consumer’s
balance or activity might be identified
as a “monthly service” fee, a “monthly
maintenance” fee, or simply "monthly”
fee.
The proposed regulation requires
institutions to state the “conditions”
under which the fee may be imposed.
The Board believes that typically the
name and description of the fee will
satisfy this requirement. For example, if
an institution charges a $.25 fee for each
ATM withdrawal from an account, and
describes it in that manner, no further
information need be provided.
While the Board believes any attempt
to list all fees by name would be
ineffective, the Board is providing
guidance as to the types of fees that are
and are not “assessed in connection
with the account.” Fees that may be
assessed in connection with the account
wuld include, for example, maintenance
fees, fees charged for each check written
on an account, fees to obtain or use an
access device (3uch as a debit card),
fees due to lack of account activitiy for
any period of time, wire transfer fees,
and fees to have checks printed. The
type of fee required to be disclosed
under this section is a broader category
than the “maintenance or activity fee”
discussed in the advertising rules in
§ 230.8(a), under § 230.4(b)(5),
institutions would disclose fees relating
to checks that have been returned
unpaid and fees to stop payment on a
check, even through these would not be
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Federal Register / Vol. 57, No, 71 / Monday, April 13, 1992 / Proposed Rules________ 12743
deemed an “activity” or “maintenance"
fee for purposes of 5 230.8(a).
Fees that may be charged to a
consumer for services unrelated to the
account—and that would be assessed
against nonaccount holders^—such as
fees to purchase a cashier’s check or to
lease a safe deposit box are not required
to be disclosed. Such fees need not be
disclosed even if die amount of the fees
differ for account and nonaccount
holders.
Paragraph (b)(6)—Transaction
lim itations. The statute requires
institutions to disclose the “terms and
conditions * * * and account
restrictions” applicable to accounts. The
Board believes this requires institutions
to state any limitations on the number or
amount of deposits or withdrawals, or
checks that may be written on an
account for any time period. If an
institution does not permit withdrawals
or deposits (for example, for a time
deposit) that fact would have to be
stated.
Paragraph (b)(7)—Early w ithdraw al
penalties. Proposed § 230.4(b)(7)
implements section 264(c)(lG) of the
statute. The act requires institutions to
disclose any requirement relating to the
nonpayment of interest, including any
early withdrawal penalty. The statute
places no limitation on how early
withdrawal penalties are calculated.
The Board proposes to limit this
requirement to time deposits, although
the statute does not explicitly do so,
since an early withdrawal contemplates
a maturity date, which exists only in
time deposits.
Section 284(c)(9) of the statute
requires institutions to provide a
statement, if applicable, that interest
that has accrued but not been credited
to the account at the time of a
withdrawal will not be paid (or credited)
due to the withdrawal The regulation
does not contain a parallel provision
because, to the extent this is read to
refer to a practice other than the
imposition of early withdrawal
penalties, if appears to conflict with
section 267 of the statute. As discussed
below in connection with § 230.7(a),
section 267 of the statute requires
institutions to calculate interest on the
full amount of principal in the account
each day and prohibits calculating
interest using methods such as the “low
balance" method. The Board believes
the Congress did not intend the
disclosure provisions of section 264 to
be interpreted as overriding the general
rule regarding payment of interest Thus,
the Board believes institutions may not
fail to pay interest on amounts
withdrawn, and so this disclosure is
inapplicable. As stated above, however.
institutions may impose early
withdrawal penalties on time deposits
and may use any method they choose to
calculate the amount of the penalty.
(Model clause B-l(b), in appendix B,
provides three examples of how early
withdrawal penalties may be
determined.)
Paragraph (b)(8)—R enew al policies.
For time deposits, the Board proposes to
require institutions to include a
statement of whether or not the account
will automatically renew at maturity.
The statute does not expressly mandate
disclosures of an institution’s policies
about renewal, but does require
institutions to disclose the “terms and
conditions" applicable to accounts
generally. In addition, section 264(d) of
the act recognizes that the Board may
wish to require information to be given
regarding renewal policies for time
deposits.
The Board believes it is important for
consumers to be informed whether a
time deposit will automatically renew or
whether the consumer must contact the
institution at a later time to renew an
account, since time deposits limit die
consumer’s access to his or her funds in
a way other accounts do n o t The Board
also proposes to require institutions to
disclose what will happen to funds after
maturity if the consumer does not renew
the account in the case of “non
rollover" accounts. For example, an
institution might disclose that the funds
will be placed in a non-interest bearing
account The Board solicits comment on
whether institutions also should be
required to disclose whether the rollover
account has a “grace period” (a period
after maturity during which the
consumer may withdraw the funds
without being assessed a penalty) and
the length of such a period
Paragraph (b)(9) P otential loss o f
principal. As discussed in the definition
of “account" in § 2302, the Board
believes accounts denominated in a
foreign currency that are offered to or
held by consumers are covered by the
statute. The Board believes that in light
of potential changes in exchange rates,
consumers are especially in need of
certain disclosures to ensure they are
aware of how these products operate.
Any significant decline in the value of
the currency may result in a loss of
principal for the consumer, which is
typically not a risk associated with
other accounts covered by the law.
For these—and any other accounts
offered—that involve the risk of loss of
principal (other than when that “loss" is
due to an early withdrawal penalty for a
time deposit), the Board proposes to
require institutions to disclose this fact.
Thus for foreign currency accounts, -
institutions would state that fluctuations
in exchange rates of foreign currencies
may result in a loss of principal. The
Board solicits comment on whether
institutions should also state that any
such loss is not covered by deposit
insurance.
Paragraph (c)—N otice to existing
account holders. Section 226(e) of die
act requires institutions to include a
notice on or with any regularly
scheduled periodic statement sent to
existing account holders “within" 180
days of issuance of the regulation.
Section 269(a) of the act provides that
regulations adopted by the Board shall
take effect six months after they are
published in final form. Section 269(a)(4)
of the act provides the law “shall not
apply with respect to any depository
institution before the effective date of
regulations prescribed by die Board."
Despite the language in section 226(e),
the Board believes the general rule that
compliance duties do not begin until six
months after the Board has adopted
final regulations should apply to the
notice given to existing account holders
as well as to all other provisions.
Otherwise, institutions would be
required to include a notice to existing
account holders prior to the effective
date of the regulation. The Board
believes requiring institutions to provide
this notice before disclosures are
required to be available could be
confusing to consumers who might
request the disclosures. Furthermore,
consumers who open accounts before
the effective date of the regulation but
after the mailing date of the periodic
statement in which the notice was sent
would not receive disclosures or be
alerted to their availability. H ie Board
therefore proposes to require institutions
to give the notice on or with the first
periodic statement sent to existing
account holders after the effective date
of the final regulation. The Board solicits
comment on this approach.
The notice required by this section
need only be provided once and informs
current account holders that they may
wish to request terms and conditions
about the account If the institution
receives a request it would provide the
account disclosures described in § 230.4,
including the current simple interest rate
and annual percentage yield for the
consumer's account As an alternative to
including this notice on a periodic
statement the Board proposes to permit
institutions to send the account
disclosures themselves, as long as they
are sent with the periodic statement
The statute requires that the notice
state both that the account holder has a
right to request disclosures and that he
12744
Federal Register
/ Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
or she may wish to make such a request.
The proposal merely requires a
statement that the account holder may
wish to request the disclosures.
issue in § 230.2(o).) The Board believes
that requiring an advance change in
terms notice for changes to the simple
interest rate in variable rate accounts
may be very burdensome to institutions,
Section 230.5—A dvan ce N otice o f
and may reduce the products available
Change in Terms an d A dvan ce N otice o f
to consumers. As discussed earlier
M atu rity
under § 230.4(b)(l)(ii), the Board is
Paragraph (a)—Change in Terms
proposing to require institutions to
disclose certain information about
Section 266(c) of the act requires
variable rate features, so consumers will
institutions to send a 30-day advance
notice to the consumer of any change in be aware of the potential for rate
the items required to be disclosed in the changes and how often they can occur.
In addition, where periodic statements
account disclosures if the change might
are sent for accounts (such as for NOW
reduce the annual percentage yield or
or money market accounts), the
adversely impact the consumer. The
consumer will receive information about
proposed regulation requires a written
the annual percentage yield that will
notice describing the change and its
reflect
rate changes that occurred.
effective date to be sent 30 days before
Commenters are requested to address
the effective date of the change. For
the advantages and disadvantages of
example, if an institution increases the
requiring an advance notice of rate
minimum balance required to earn
changes for variable rate accounts.
interest or to avoid imposition of a fee
The Board is concerned, however, that
or increases the fee it charges for stop
in cases where periodic statements are
payment orders, an advance notice must not sent for variable rate accounts—
be provided. The notice must be given
such as a passbook savings account—
whenever a change occurs after the
considerable time may pass before
account disclosures are given. The rule
consumers learn about rate changes on
would apply to all accounts, not solely
their accounts. Thus, the Board solicits
accounts opened after the effective date comment on whether institutions should
of the regulation.
be required to send a notice after the
The notice requirement applies only to rate is decreased on a variable rate
items required to be included with the
account, if periodic statements are not
account disclosures. For example, if an
furnished. Comment is also requested on
institution reduces any grace period for
whether the subsequent notice
rollover certificates of deposit—a term
requirement should extend to variable
not required to be stated under proposed rate time deposits where the consumer
§ 230.4(b)—a change in terms notice
has agreed to keep funds on deposit
would not be required. (See the
until maturity. Comment is requested on
discussion of whether any grace period
the appropriate time period for sending
should be disclosed in § 230.4(b)(8),
such a notice, such as within 30 days
however.) If a combined disclosure
after an adverse change.
statement for two types of accounts was
In addition to variable rate accounts,
initially provided (and indicated which
there is another situation in which the
terms applied to each account), and the
Board is proposing that a change in
institution later changed a term for one
terms notice not be required. As
of the accounts, the change in terms
discussed earlier, institutions must
notice would need only be given to
provide account disclosures 30 days
those consumers holding that type of
before maturity for rollover time
account, and not the holders of the
deposits. (See discussion of
second type of account.
§ 230.4(a)(3)(ii).) Since the Board is not
The Board solicits comment on
proposing to require institutions to state
whether an exception to the change in
the exact simple interest rate and
terms notice requirements should be
annual percentage yield with the other
made for rate changes that occur in
disclosures, the Board believes a change
variable rate accounts. Section 265 and
in terms notice should not be required if
269 of the act authorize the Board to
the simple interest rate and the annual
make exceptions to the act’s
percentage yield change from the date
requirements for variable rate accounts, the disclosures are provided to the date
and the Committee report accompanying the consumer opens the account. Of
H.R. 2654 of the House Committee on
course, if other terms change, the 30-day
Banking, Finance and Urban Affairs
notice would have to be provided.
indicates the change in terms
requirement was not intended to apply
to changes in the simple interest rate
(and corresponding changes in the
annual percentage yield) for variable
rate accounts. (See discussion of this
Paragraph (b)—Notice of Maturity for
Certain Time Deposits
As discussed earlier under
§ 230.4{a)(3)(ii), the act requires that
account disclosures be provided to
consumers 30 days prior to the maturity
of an automatically renewable time
deposit. The act does not address
whether any notice or disclosures
should be provided to consumers prior
to the maturity of a time deposit that
renews only upon the consumer’s
request at the time of maturity. The
Board is proposing to require a brief
advance notice to be sent to consumers
holding such time deposits. The
proposed notice would require
depository institutions to identify the
maturity date of the time deposit and
explain to the consumer what will
happen to the funds after maturity if the
consumer does not renew the account.
The Board believes it is important for
consumers to receive a notice of pending
maturity, especially since a periodic
statement or other reminder may not be
provided. The rule would apply to
existing time deposits as of die effective
date of the regulation.
The Board would not require such a
notice for short-term time deposits,
however, since there does not seem to
be a need for a reminder in such cases.
The proposal uses the same definition of
short-term time deposit (three months or
less) as is used in § 230.(4)(a)(3)(ii)
dealing with account disclosures for
automatically renewable time deposits.
It also uses the same timing rule; that is,
notices must be mailed or delivered at
least 30 days and not more than 60 days
before maturity. Of course, if the time
deposit is renewed, the disclosures
required by § 230.4 must be provided to
the consumer prior to renewal (or within
10 business days thereof, if the
consumer does not renew in person at
the institution).
The Board solicits comment on
whether such a prematurity notice
should be provided, whether an
exception for short-term deposits is
appropriate, and whether a short-term
time deposit should be defined as three
months or less.
Section 230.6—P eriodic S tatem ent
D isclosures -
Section 268 of the act requires
depository institutions to include
specific information on or with each
periodic statement provided to
consumers. The Board does not believe
the act requires periodic statements to
be sent by an institution, but requires
that if an institution sends a periodic
statement certain information must be
included. (The statute does not define a
periodic statement. See the definition in
§ 230.2(j) above.) This requirement
applies to existing accounts as of the
effective date, as well as to new
accounts opened after the effective date.
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Federal Register / Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules________ 12745
The information listed in this section
w o u ld be given only to the extent
applicable; for exam ple, a periodic
statement for a non-interest bearing
account w o u ld not include interest or an
annual percentage yield.
Paragraph (a )— A n n u al Percentage Y ield
Earned
The annual percentage yield
calculation as used for both advertising
and account disclosures is an
annualized rate that reflects the
frequency o f compounding, but it is not
b ased on an actual account balance.
The act requires that “ the annual
percentage yield earned” b e included on
the periodic statem ent Several options
w ere considered b y the B oard in
determining w hat w o u ld b e the most
appropriate w a y o f calculating this
figure for the periodic statement. W h ile
the B oard proposes the first method
discusssed belo w , other alternatives are
set forth.
Annual percentage yield earned
reflecting relation o f interest to the
average daily balance. T h e Board
proposes to require that the annual
percentage yield reflect the relation
betw een the interest actually earned
during the statement period to the
average d aily balan ce fo r the period.
This figure w o u ld not reflect an y fees
im posed during the statment period or
bonuses earned. The figure w o u ld show
true interest earnings for a particular
period b y show ing the relationship
betw een the actual interest earned and
the actual b alance m aintained during
that period. It w o u ld also capture all
rate changes that occurred.
This method w o u ld produce a single
composite annual percentage yield for
tiered rate accounts, demonstrating the
effect o f the institution’s tiering method
on total earnings. Thus, institutions that
pay a lo w e r simple interest rate on
deposits up to a certain level, and a
higher rate only on amounts abo ve the
cutoff figure, w o u ld sh o w a lo w e r
annual percentage yield fo r a given
balance than w o u ld institutions that pay
the same higher rate for the entire
balance in die account if the balance
exceeds the cutoff figure.
In spite o f these advantages, this
method has d raw backs. This approach
w o u ld not provide a figure the consumer
could use to verify earnings fo r the
period if multiple rates w ere used. The
figure also w o u ld not sh o w rate
fluctuations during the period.
This method w o u ld produce, however,
a single figure that sh o w s die true
interest earnings for the period. Thus the
impact o f minimum balance
requirements to earn interest, tiering
structure, as w e ll as differing rates
applied during the cycle, w o u ld all be
reflected in a single yield figure.
Annual percentage yield earned as a
net earnings figure. A second option
w o u ld require the annual percentage
yield to represent a n e w earnings figure
b y taking die total interest p aid during
the period, adding cash bonuses paid,
subtracting all fees im posed during the
period, and dividing the difference by
the average d aily balan ce for die period
to obtain a percentage figure.
The calculation might b e more
realistic and useful to the consumer to
see w h at happened during a particular
cycle, as com pared to an annual
percentage yield that factors in only
interest. This method presents several
problems, how ever. This option raises
the issue o f w hether all fees required to
be disclosed should be factored into the
annual percentage yield. For exam ple,
should a stop payment fee or a fee for
writing a check on insufficient funds be
included in the calculation? If not, there
w o u ld appear to b e no simple test for
determining w hich fees should be
reflected in the computation o f the
annual percentage yield. Including fees
in the calculation could m ean that for
some periods there might b e a 0% (o r
even a negative) annual percentage
yield. This approach w o u ld raise
difficult issues about including the value
o f bonuses— particularly those p aid in
merchandise. Finally, the B oard believes
that using the sam e terminology to
describe different types o f annual
percentage yield figures (one on periodic
statements and another in
advertisements and opening account
disclosures) w o u ld b e confusing to the
consumer since different information
w o u ld be factored into the calculation—
only one taking into account fees and
bonuses.
Like the first alternative, this
approach does not provide the consumer
w ith a w a y to verify that the rate w a s
correctly applied to the accou n t It also
does not sh o w rate fluctuations within
the period for accounts w here rates
change. Com paring the annual
percentage yield earned w ith the annual
percentage yield advertised b y other
institutions w o u ld b e difficult if not
impossible, since the annual percentage
yield in advertisements and account
disclosures is calculated without regard
to any fees or bonuses.
Annual percentage yield earned
reflecting historical rate information. A
third option considered b y the Board
w o u ld use the sam e general annual
percentage yield calculation for the
periodic statement a s is used for
advertising and initial disclosures. This
figure w o u ld not take into account the
precise amount o f interest earned or the
relation o f the interest to the actual
balance in the account during the
period, or the imposition o f fees or
payment o f bonuses. TTius, the annual
percentage yield w o u ld sim ply reflect
the institution’s most recent simple
interest rate plus any compounding
frequency for the accou n t
This third option w o u ld provide the
most accurate description o f fluctuating
rates during a period b y detailing the
rates applied during the cycle. The
annual percentage yield could easily be
com pared with the advertised rates o f
other institutions and w o u ld require
only one approach for the annual
percentage yield calculation for opening
disclosures, advertising and periodic
statements.
This method has its d raw b ac k s as
w ell. It w o u ld be even less useful to the
consumer than the first tw o alternatives
to verify earnings for the period, since it
w o u ld not reflect factors such as
minimum balance requirements (an d the
statute does not require balance
information to b e given on the periodic
statement). In addition, this method
might require providing multiple annual
percentage yields (possibly a large
num ber for an account that h ad both
variable and tiered rates) that could be
confusing to consumers and burdensom e
to institutions. A rgu ab ly this figure
w o u ld not sh o w the annual percentage
yield “ earned” as contemplated b y the
statute. Finally, it w o u ld not provide
information about the impact o f a tiered
rate structure on the consum er's actual
earnings.
Proposal. The option proposed to b e
used b y the Board is the first one
described above, an annual percentage
yield that sh o w s the relationship
betw een the interest earned and the
balan ce in the account for the cycle. The
proposal carries over the general
concept o f the annual percentage yield
used in advertising an d the opening
account disclosures w hich measures
only the interest earned. In the periodic
statement, how ever, it w o u ld sh o w the
relation betw een the actual interest
earned and the balan ce because that
information is kn ow n at that time. This
approach w o u ld sh o w in a single figure
h o w w e ll the consum er's account
perform ed dining the period, reflecting
the true rate earned on tiered accounts,
the impact o f rate changes, an d the
effect o f minimum balance
requirements, w hile avoiding the
difficulties that could b e produced if
fees an d bonuses w ere factored in. It
also calls for sim ilar computations to
those fo r other annual percentage yields,
w hich w ill ease the ability o f consumers
to understand and compare accounts
12746
Federal Register /
Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed, Rules
among institutions. The Board solicits
comment on all three options with
special consideration given to which of
the three approaches will most
effectively communicate to consumers
the appropriate information on earnings
for the statement period. The Board also
solicits comment on whether the
disclosure on the periodic statement
should be identified as the "annual
percentage yield earned” rather than the
"annual percentage yield” to distinguish
it from the yields stated in
advertisements and opening account
disclosures.
Paragraph (b)—Amount of Interest Paid
The proposed regulation requires the
periodic statement to include a dollar
figure for the amount of interest that has
been paid during the statement period.
The figure would not include accrued
interest that has not been credited to the
account during the period, since the
consumer has no access to the funds.
The Board proposes that any cash
bonuses paid to the consumer during the
statement period not be included in the
total interest figure, although comment
is requested on this issue. Since the
Board is not proposing to include any
bonus in the annual percentage yield
calculation, the Board believes including
it in an interest figure on the periodic
statement would be confusing to
consumers. (It could be shown
separately on the statement, of course,
as additional information.) The Board
solicits comment on whether the
regulation should require use of the term
"interest” for purposes of this
disclosure.
Paragraph (c)—Fees Imposed
The periodic statement w o u ld include
all fees o f the type required to be
disclosed under § 230.4(b)(5) that w ere
im posed during the statement period.
For exam ple, a monthly maintenance
fee, N S F charge, or stop payment fee
w o u ld have to b e disclosed. Fees not
im posed in connection with the account,
such as those for a cashier’s check or
lease o f safe deposit box, could be
included in the periodic statement as
additional information, at the
institution's option. The regulation
w o u ld not require fees im posed in
connection with a credit account to be
disclosed— for exam ple, a fee im posed
for accessing an overdraft feature on a
checking account— since they are
related to a credit feature and currently
required to be disclosed under
Regulation Z.
Section 268(3) o f the act requires
disclosure o f die “amount o f any fees or
charges im posed,” without specifying
w hether the fees should b e totaled or
itemized. The B oard considered different
methods for disclosing fees. The
regulation could require: (1) A single
figure showing the total amount o f fees;
(2) an itemization o f fees (perhaps also
requiring the date the fee w a s imposed);
(3) both an itemization and a total o f
fees; or (4) at the institution’s option, an
itemization, a total, or a combination o f
these approaches.
The B oard believes requiring all
institutions to provide an itemization o f
fees b y type is the most desirable
approach, and that is reflected in the
proposal. A listing o f all fees w o u ld
enable consumers to see the types and
amount o f fees im posed during the cycle.
The B oard proposes to permit fees o f the
same type to b e grouped together. For
example, all A T M charges im posed
during the cycle or all per-check fees
could b e stated as a single figure, or
show n separately.
Comment is requested on w hether the
regulation should also require the
periodic statement to include a total fees
figure or even a net earnings figure—
that is, the total interest earned less any
fees imposed. The latter might be
desirable, especially since the B oard is
recommending that the annual
.
percentage yield calculation not factor
in fees.
Paragraph (d)— N um ber o f D ay s in
Period
The proposal tracks the statutory
language in requiring that the total
num ber o f days in the statement period
b e given on the periodic statement. The
B oard requests comment on whether
providing the beginning and ending
dates for the period w o u ld provide
adequate information to consumers
(assuming it is clearly stated whether or
not both o f these days are included as
part o f the period).
Section 230.7—Payment o f Interest
Paragraph (a )— Perm issible M ethods
Section 230.7(a) implements section
267(a) o f the statute. The statute
provides that interest on interestbearing accounts shall b e calculated b y
institutions "o n the fu ll amount of
principal in the account fo r each day o f
the stated calculation period” at the rate
disclosed (em phasis added). Although a
literal reading o f this language might
appear to require institutions to
calculate interest b y using a daily
balance calculation method (also know n
as the day-in-day-out method or day-ofdeposit-to-day-of-w ithdraw al method),
the legislative history confirms that the
Congress considered the average daily
balan ce method an acceptable
alternative to the daily balance method.
The B oard proposes to a llo w both
methods.
The legislative history states that the
provision is intended to prohibit
institutions from using certain other
balance computation methods, such as
the " lo w balan ce” or "investable
balan ce” method o f computing interest.
The investable balance method o f
paying a disclosed rate on only 88% o f
the funds deposited b y the consumer, for
example, w a s clearly one target o f the
legislation. The lo w balan ce method
pays a disclosed rate only on the low est
amount o f principal in the account on
any day in the period. The Committee
report accom panying H.R. 2654 (the bill
p assed b y the H ouse in 1991, w hich
contains language identical to that in the
la w as enacted) discusses the provision
as follow s:
Thus, institutions would not be permitted
to calculate interest on the "investable
balance” or overbalances that are less than
the full amount deposited * * *. [It is]
Congressional intent to prohibit calculation
methods such as the low balance, FIFO and
LIFO (First In First Out and Last in First Out)
that do not meet the criteria stipulated in
[this] section * * * . It is the Committee’s
intent that [this] section * * * be construed
broadly to prohibit the use of any other
methods that do not pay the same amount of
interest, based on the full amount of principal
in the account each day, as do either the
average daily balance or daily balance
methods.
A verage d a ily balance method.
Since the Statutory language itself is
am biguous w ith regard to use o f the
average daily balance method, the
B oard solicits comment on whether
institutions should be permitted to use
this method.
Evidence indicates that a substantial
num ber o f banks use either the daily
balance or the average daily balance
method to calculate interest. W h ile most
banks use the daily balance method,
betw een 8% and 36% (depending on the
type o f account) use die average daily
balance method. O ne survey found that
for N O W accounts, 91% to 95% o f all
bank s use either a daily balan ce or
average daily balance method. For
m oney market accounts, 88% to 93% use
one o f these methods, and for savings
accounts, 90% to 99%.3
The Board believes permitting
institutions to use either the daily
balance method or the average daily
balance is consistent with the purpose
of the legislation which requires that
consumers be paid interest on the full
amount of principal in the account each
day. It also comports with the
* Retail Banking Report, 1990-1991, American
Bankers Association, p. 49.
Federal Register
10533*J
/ Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules________
Committee report accompanying H.R.
2654 as quoted above. In addition, the
statute requires disclosure of the
balance computation method, which
would be unnecessary if only one
method were allowed.
Both methods require institutions to
compute interest by applying a periodic
rate to the full amount of principal in the
account each day.4*In the daily balance
method the institution applies a periodic
rate to the exact daily balance. In the
average daily balance method the
institution adds the full amount of
principal in the account each day of the
period or cycle, divides that figure by
the number of days in the period or
cycle, and applies a periodic rate to the
result. Assuming the same compounding
and crediting frequency, the interest
calculated under either method would
be identical in an account with little or
no account activity in the period. In
most cases, even where there is
significant account activity, both
methods will produce the same or
substantially the same amount of
interest In some instances the daily
balance method produces a slightly
higher return, and in other situations the
average daily balance method produces
a slightly higher return. In all cases,
under the proposed annual percentage
yield calculation for the periodic
statement, any differences in these
methods would be captured by that
figure.
Tiered rate accounts. There is one
circumstance in which the daily balance
and average daily balance methods can
produce more significant differences in
interest: tiered rate accounts. To
illustrate this point, assume daily
compounding occurs for the following
account:
Simple interest rate
(percent)
Deposit balance to earn
rate (with the rate paid
on the full balance)
5.00................................ $.01-<$5,000.
6.00................................ $5,000 and higher.
The two methods can produce
differences in interest, depending on
account activity—in particular,
depending on whether the average daily
balance falls above or below the break
point, in this case, $5,000.
4 Since the act and regulation require interest to
be paid each day funds remain on deposit, the rate
the Board proposes to permit institutions to apply is
a daily rate of 1/365 of the simple interest rate for
365 days (or, at the institution's option, 1/366 of the
simple interest rate for 366 days during a leap year).
The Board also proposes to permit institutions to
apply 1/365 of the simple interest rate for 365 days
in a leap year, but requests comment on this
proposal
For purposes of illustration, assume
the principal balance in the account for
January and February is $5,000 for the
first 20 days of each month and $4,000
for the remaining days of the month,
(interest remains on deposit until the
end of each month.) The daily balance
method produced $22.52 in January and
$20.86 in February. The average daily
balance method produces $19.77 in
January and $18.12 in February. In this
example the daily balance method
generates more interest ($2.75 and $2.74
per month) because the average daily
balance falls below the break point of
$5,000. As a second illustration, assume
the balance in the account for each
month is $4,500 for the first 20 days of
the month and $6,500 for the remaining
days of the month. In this example the
average daily balance method generates
more interest ($2.49 and $2.48 per
month) because the average daily
balance falls above the break point.
A^these examples illustrate, in some
instances for tiered rate accounts, the
daily balance method produces a higher
return, and in other situations the
average daily balance method produces
a higher return.
In spite of these differences, the Board
believes institutions should be permitted
to use either the daily balance or the
average daily balance method. First, in
many cases the two methods produce
the same or a substantially similar
return. Second, where the results differ,
neither one consistently produces a
higher return. Third, under the proposed
APY calculation for the periodic
statement, any differences in these
methods would be captured by that
figure. Fourth, institutions will disclose
the method they use under § 230.4(b) so
that consumers who prefer one method
over the other have the necessary
information on which to base their
choices. Fifth, the legislative history
accompanying the legislation
contemplates the use of either method.
Finally, requiring institutions to use a
daily balance method could impose
significant costs on some institutions
that would have to change from the
average daily balance method without
any real benefit to consumers.
Minimum balance and tiered balance
requirements. In addition to prohibiting
use of the low balance method of
balance calculation, the Board believes
section 267(a) prohibits use of a “low
balance” type of method to determine if
a consumer has met a minimum balance
requirement to earn interest.8*
* The discussion of this provision addresses only
the payment of interest as it relates to the m inim um
balance requirement. For discussion of the
assessment of fees and minimum balance
12747
Institutions are permitted under the law
to set minimum balance requirements
that must be met for the consumer to
earn interest, or to earn a specified rate
for tiered balance accounts. For
example, an institution may choose to
pay a 5.00% simple interest rate on an
account only for those days a minimum
balance of $500 is maintained. The
Board believes that statute further
permits an institution to provide that it
will not pay interest on the account for
those days the balance drops below the
required minimum balance.
The Board does not believe, however,
that the statute permits an institution to
provide that the consumer does not earn
any interest for a given period unless the
consumer maintains a minimum balance
for the entire period. For example, under
the proposal an institution may not
provide that a consumer will earn a
5.00% simple interest rate only if the
consumer maintains a minimum balance
of $500 for each day of a specified
period or cycle. Such a practice, in
effect, uses a low balance computation
method to calculate whether interest is
earned on an account. Permitting such a
practice would enable an institution to
refuse to pay intrest even if—under the
example above—a consumer maintained
a $10,000 balance for 29 days in a cycle,
but permitted the balance to drop below
$500 for one day in the same cycle.
Similarly, the Board does not believe
institutions would be permitted to refuse
to pay interest on a portion of a balance
once a consumer has met any required
minimum balance. If an institution sets
its minimum balance requirement to
earn interest, for example, at $300 and a
consumer deposits $500, the institution
must pay the stated simple interest rate
on the full $500, and could not pay
interest only on $200 of that deposit. The
Board believes that this would be
contrary to the statutory requirement
and the intent of the Congress to require
payment of interest at the disclosed rate
on the full amount of principal in the
account each day.
A related issue arises with regard to
tiered rate accounts and calculation of
the balance on which interest is paid.
For example, assume an institution pays
and discloses a 5.00% simple interest
rate on deposit balances below $5,000,
and a 6.00% simple interest rate on
balances of $5,000 and above. The Board
believes the statute would not permit an
institution to pay the $5.00% rate for the
entire cycle if the balance dropped
below $5,000 for a few days during the
cycle. For example, assume a consumer
requirements, see the supplemental information
accompanying S 230.4(b)(4)(A).
12748
Federal Register
/ Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
maintained a $10,000 balance for 29
days in a cycle, but permitted the
balance to drop to $4,999 for two days.
The Board does not believe the statute
would permit the institution to pay only
5.00% on $10,000 for 29 days, since the
full amount of principal in the account
for 29 days was actually $10,000 and
should earn the stated 6.00% rate. The
Board solicits comment on all of these
issues.
M inimum balance requirem ents a n d
balance com putation provision s.
basis. The institution's crediting policy
must be disclosed under § 230.4(b)(3).
An institution may credit or post interest
to the account at any frequency, thus
establishing the intervals at which the
consumer can withdraw such interest.
Establishing crediting policies, however,
does not permit an institution to treat
accrued but uncredited interest as
unearned. Because the statute and
proposed regulation require that interest
accrue based on the full balance in the
account each day, the consumer's
underlying right to such interest cannot
be altered. Thus, the institution may not
refuse to pay interest that has accrued,
even if the consumer withdraws some of
the principal in the account prior to the
time the interest would be credited.
This, of course, does not require an
institution to pay interest for those days
the consumer fails to meet a minimum
balance requirement. Nor does this
provision require the institution to
permit the consumer to withdraw
interest that is earned but not yet
credited. If the consumer withdraws
funds or closes an account before
interest is credited, the institution may
delay payment of the accrued interest
until the crediting date. Finally, for time
deposit accounts, institutions may
assess a penalty for early withdrawal,
as discussed in the supplemental
information accompanying § 230.4(b)(7).
Comment is also requested on related
technical points. For example, should
institutions be required to use a daily
balance method to determine whether a
minimum balance requirement to earn
interest has been met, or may an
average daily balance method be used
instead (given that both methods are
proposed to be allowed for purposes of
calculating interest)? May institutions
use both a minimum balance and an
average daily balance measurement in
determining whether a consumer has
met the minimum balance requirement
to earn interest? For example, should an
institution be permitted to apply both a
$500 daily balance and a $700 average
daily balance requirement to determine
whether interest is paid on an account
for a particular day? Should institutions
be permitted to calculate interest using
one method and establish the minimum
balance by use of a different method?
For example, should an institution be
Paragraph (c)—Date Interest Begins to
permitted to use the daily balance
Accrue.
method to compute interest but require a
Section 267(c) of the statute requires
consumer to meet a minimum balance
that institutions must begin to accrue
by averaging a month’s daily balances?
interest for all accounts no later than the
In commenting on these provisions,
commenters should address the specific business day specified in section 606 of
the Expedited Funds Availability Act
advantages and disadvantages to
(EFAA) (12 U.S.C. 4005), subject to
consumers and institutions for all of
subsection 608 (a) and (b). Thus, the
these issues.
Truth in Savings Act provides that the
Paragraph (b)—Compounding and
accrual of interest rules in the EFAA
Crediting Policies
apply to nontransaction accounts, such
as certificates of deposit, as well as to
Section 230.7(b) of the proposed
transaction accounts covered by the
regulation implements section 267(b) of
EFAA. The EFAA and the Board’s
the statute. It provides that § 230.7(a)
implementing Regulation CC generally
does not mandate the frequency of any
require an institution to begin accruing
compounding. Thus institutions may
interest when the institution receives
compound bi-annually, annually,
“provisional” credit. The Board believes
quarterly, monthly, daily, continuously,
or on any other basis. The compounding a consistent rule is essential for
determining the principal balance on
frequency is required to be disclosed
which interest accrues. The Board
under proposed § 230.4(b)(3) and is
proposes to permit institutions to use the
factored into the computation of the
methods set forth in Regulation CC for
annual percentage yield. (See the
determining the principal balance. If an
discussion of the annual percentage
institution accrues interest on funds
yield in the supplemental information
represented by a deposited check that is
accompanying appendix A )
Section 230.7 also does not mandate a later returned due to insufficient funds
on deposit, or for another reason, the
specific crediting policy. Thus
institution would not be required to pay
institutions could credit interest earned
interest for the time period the check
on the account on an annual, semi
annual, quarterly, monthly, or other
was outstanding.
While the EFAA establishes the time
institutions must begin to accrue
interest, because of the general rule in
section 267(a) of the Truth in Savings
Act that interest must be computed on
the full amount of principal in the
account for each day, the Board believes
institutions must accrue interest on
funds up to the date of withdrawal from
the account. Thus, if a check written by
the consumer on an account is debited
from the account by the account-holding
institution on a Wednesday, the
institution must accrue interest on those
funds on deposit through Tuesday.
(Because the check is debited on
Wednesday, the balance in the account
that day has been reduced. Thus, the
Board believes the institution need not
pay interest for Wednesday.)
Section 230.8—Advertising
This section of the proposal
incorporates the advertising provisions
of section 263 of the act. While the act's
disclosure rules apply to accounts of all
depository institutions, section 263(a) of
the act’s advertising provisions are
phrased in terms of accounts offered by
insured depository institutions. (Section
263 (b) and (c) of the advertising
provisions, however, are not limited to
insured depository institutions.) The
Board's proposal would apply all of the
advertising provisions to all depository
institutions, whether insured or n o t The
Board believes that the act’s purposes
are furthered if all deposit account
advertisements provide uniform
disclosures to compare accounts, and
does not believe it desirable for only
some advertising rules to apply to
uninsured depository institutions.
The Board requests comment on
whether certain provisions from the
Board’s Regulation Q (as noted below)
should be included in this regulation,
and removed from Regulation Q.
Paragraph (a)—Misleading or Inaccurate
Advertisements
The statute and regulation prohibit
institutions from making misleading or
inaccurate advertisements. Since section
271 of the act extends the possibility of
civil liability to advertising violations,
the Board is interested in construing the
term “misleading” appropriately. The
Board solicits comment on whether
examples of what constitute “misleading
or inaccurate statements” in advertising
beyond the two in the regulation should
be provided in the supplementary
information accompanying the
publication of the Board’s final rule. The
Board also request commenters to
provide specific examples.
r
Federal Register /
Vol. 57, No. 71 /
U se o f the term "profit”. The Board
also requests comment on whether
institutions should be permitted to refer
to interest paid on an account as
“profit," or if the use of the term in
advertisements could mislead
customers. The Board’s Regulation Q (12
CFR 217.6(f)) and the advertising rules
for deposit accounts of the other federal
regulatory agencies have for years
prohibited use of that term in deposit
account advertisements on the grounds
that the term implies a return on an
investment, something typically
associated with nondeposit accounts.
A dvertisin g "free” accounts. Section
263(c) of the act prohibits an institution
from advertising ah account as a free or
no-cost account if: (1) A regular service
or transaction fee may be imposed; (2) a
fee may be imposed if any minimum
balance requirement is not met; or (3) a
fee is imposed if the consumer exceeds a
specified number of transactions. The
proposed regulation captures these
rules, but provides a different
organizational approach. Institutions
would not be permitted to describe any
account as “free" or “no-cost" (or words
of similar meaning) if any "maintenance
or activity” fee might be imposed on the
account. A maintenance or activity fee
includes, for example, periodic service
charges; per check fees; fees imposed to
deposit, withdraw or transfer funds; and
fees to receive copies of checks written
on the account. It also includes fees
imposed if a minimum balance
requirement is not met or if a
transaction limit is exceeded. A
maintenance or activity fee would not
include fees such as stop payment fees
or fees for returned checks, or fees
unrelated to the account such as a fee
for purchasing a cashier’s check or
traveller’s checks.
P oten tial lo ss o f principal. The Board
proposes one additional disclosure
beyond those in the statute, for
advertisments for deposits that involve
the risk of loss of principal, such as
those denominated in a foreign currency
(as discussed in § 230.2 in the definition
of “account"). To ensure that consumers
are not misled about such accounts, the
Board believes any advertisement
should state that fluctuations in the
exchange rate of foreign currencies
could result in a loss of principal. The
Board requests comment on whether
institutions also should state that any
such loss is not covered by deposit
insurance. As with all advertisements,
institutions would be prohibited from
stating any rate or yield figure in
advertisements unless it is stated as an
annual percentage yield. Furthermore,
the annual percentage yield stated
i
13, 1992 / Proposed Rules
would not factor in any value derived
from currency fluctuations. A figure that
reflected fluctuations in exchange rates
would factor in information
fundamentally different from that used
for other deposit account offerings, and
could lead consumers to be confused
about the yield when comparing
accounts. The Board solicits comment
^on whether institutions should be
permitted to provide an example to
illustrate potential returns on such a
product based on currency fluctuations.
If such an example were permitted, the
Board believes all institutions should
use a standardized length of time in
calculating such a return. The Board
requests comment on what amount of
time should be used, and whether more
than one example should be provided to
show both a short-term and a longerterm effect of currency fluctuations on
such an account.
12749
to refer to the simple interest rate as the
“annual percentage rate" in
advertisements. (See the discussion of
this issue in the supplementary
information accompanying § 230.2(k).)
Paragraph (c)—Advertisement of Terms
That Require Additonal Disclosures
Section 263(a) of the act requires
additional information to be provided in
deposit account advertisements if the
advertisement refers to a specific rate of
interest, yield, or rate of earnings. The
act also imposes special format rules in
certain cases to ensure that a
consumer’s attention is drawn to terms
such as any differences in the annual
percentage yield if a minimum balance
is not met. The proposal generally
follows the act’s approach for the format
and content of advertisements, but
simplifies the order of the information
provided.
Paragraph (b)—Permissible Rates
The proposed regulation provides that
Section 263(a) of the act provides that a reference to an annual percentage
a reference to a specific interest rate,
yield "triggers” advertising disclosures.
yield, or rate of earnings in an
Since other rates are not permitted
advertisement triggers a duty to state
certain additional information, including (except for the simple interest rate,
which in turn requires a statement of the
the annual percentage yield. The
annual percentage yield), the regulation
proposed regulation requires that if any
does not include any other "rate
rate or yield is stated it must be the
triggers.” (See, however, the discussion
“annual percentage yield,” using that
of bonuses in § 230.8(d).)
term. The Board requests comment on
whether institutions should be permitted
There is no requirement that deposit
to use the abbreviation “APY” in
account advertisements state an annual
advertisements, given the space and
percentage yield figure. Stating other
time constraints typically involved in
information in advertisements—such as
advertisements.
“one, three, and five year CDs
Except for the simple interest rate, as
available” or “high rates available"—
explained below, no other rate or yield
does not trigger the duty to state other
(such as an “average” or "aggregate”
terms of the account. The Board
percentage yield) could be included in
requests comment on whether a
an advertisement. The Board believes
reference to a rate such as “we pay the
that allowing institutions to state rates
rate available for 90-day U.S. Treasury
or yields in addition to the annual
percentage yield would conflict with the bills” is so closely akin to stating a
specific rate that the advertising
act’s stated purpose of providing
disclosures
should be triggered.
uniform disclosures to enable consumers
Special rules apply to tiered rate
to compare accounts. Also, the Board is
concerned that permitting other rates to accounts: if an institution states an
be stated in addition to the annual
annual percentage yield in an
percentage yield would result in
advertisement, it would have to state all
advertisements with a confusing array
of the annual percentage yields,
of terms and numbers.
including those required to be shown as
The Board believes, however, that the a range, as well as the corresponding
act permits the simple interest rate to
minimum balance requirements. (See
the stated in advertisements in addition appendix A for annual percentage yield
to the annual percentage yield. Thus, the calculations for tiered rate accounts.)
Board’s proposal allows the simple
For example, assume an institution pays
interest rate, using that term, to appear
a stated simple interest rate only on that
in conjunction with (but not more
portion of the balance within the
conspicuously than) the annual
following specified balance levels (that
percentage yield. (The standard of
is, Tiering Method B described in
allowing simple interest rates but
appendix A), and compounds interest
limiting their prominence is one that is
daily:
in Regulation Z.) The proposed
regulation would not permit institutions
12750
Federal Register / V ol 57, No, 71 / Monday, April 13, 1992 / Proposed Rules
Simple interest rate
(percent)
Deposit balance
required to earn rate
5.25............ ............... ........ $.01- <$2,500.
5.50.... ........................ ....... $2,500- <$t5,000.
5.75...
$15,QG0-$t00,000
Computing the figures in-accordance
with appendix A , the institution w o u ld
have to state the follow ing annual
percentage yields:
Annual percentage yield
Balance required
5.39.... ___ „
$.01- <$2,500.
5.39-5.61___ _____
$2,500- <$15,000.
5.61-5.87..... ...... ............ $15,000-$100,000.
If a trigger term is stated, the
advertisement must provide the
disclosures listed in paragraph (c) in a
clear and conspicuous manner.
Paragraph (c)(1)
The regulation w o uld require
institutions that advertise v ariable rate
accounts to state that the rate m ay
change after the account is opened.
Although the act does not expressly
require the statement, section 265(2)
authorizes the B oard to prescribe
modifications fo r advertising rules
'relating to die annual percentage yield
on v ariab le rate accounts. T h e B oard
believes that a brief statement alerting
the consum er to p ossible changes in the
annual percentage yield is necessary in
advertisements.
time requirements greater than one year.
That rule requires that, if a time
requirement is greater than one year, the
advertisement must state that period in
equal prominence to the annual
percentage yield, along with any lo w e r
annual percentage yield that w ill apply
if funds are w ith d raw n prior to maturity.
Paragraph (c)(6)
The act requires deposit account
advertisements to contain a statement
that “fees or other conditions” could
reduce the “yield ” on the acc o u n t The
proposed regulation requires the
statement but uses the term “earnings”
rather than yield. The act does not
m andate terminology, and the B oard
believes the term earnings more
accurately conveys the impact o f fees on
the account, since in no event d oes the
annual percentage yield take fees into
account. T h e B oard proposes to require
this statement if an institution can
impose any o f the maintenance and
activity fees discussed in § 230.8(a)
(discussing “free” accounts). Thus, for
example, the statement w o u ld ap pear on
advertisements for interest-bearing
transaction accounts that impose a
monthly service charge or a fee if a
minimum balan ce is not maintained.
The B oard solicits comment on
whether the phrase “or other
conditions” should b e retained as part
o f the notice. A r e there account terms
other than fees that should b e
communicated b y this statement?
Paragraph (c)(2)
Paragraph (c)(7)
The act and proposed regulation
require that advertisements that state
the annual percentage yield also state
the period during which accounts with
that annual percentage yield w ill b e
offered. For example, if an institution
only guarantees its rates for a w eek, its
advertisement might state “this annual
percentage yield is av aila b le horn June 1
through June 8.”
The B o ard proposes that
advertisements for time deposits w ith
stated maturities o f less than one y ear
include a statement that the d isclosed
annual percentage yield assum es all
funds w ill be on deposit for a full y ear at
the initial simple interest rate. The act
does not expressly require such a
statement, but section 265 o f the act
authorizes the Board to m odify diclosure
requirements relating to advertising
annual percentage yields for accounts
with an annual percentage yield
guaranteed for less than a year. The
Board believes the statement w o u ld be
an important reminder to consumers
that the annual percentage yield is
calculated on a certain assum ption (that
is, that the funds rem ain on deposit for
one year, at the initial advertised rate)
which m ay not, in fact, occur. The B oard
requests comments on whether the
statement should b e required, and
whether it should b e limited to accounts
with stated maturities, such as
certificates o f d ep o sit Should the
statement also b e required in
advertisements for transaction accounts
and savings accounts, for exam ple, since
Paragraph (c)(5)
This paragraph implements section
263(a)(3) o f the a c t It requires that
advertisements state any time
requirement necessary to earn the
advertised yield. The B oard proposes to
limit this provision to time deposits. If
an institution advertises a one-year
certificate o f deposit, it w o u ld state that
time period. It also requires
advertisem ents to state any lo w e r
annual percentage yield that w ill b e
earned if funds are w ithdraw n prior to
meeting the minimum time requirement.
The Board solicits comment on
w hether to incorporate the current rule
contained in Regulation Q (12 CFR
217.6(d)) that addresses deposits with
actual account activity in such cases
also m ay not correspond to the one-year
assumption on which the annual
percentage yield is based?
Paragraph (c)(8 )
The act requires that advertisem ents
include a statement that an interest
penalty w ill be im posed fo r early
w ith d raw al. The B o ard 's Regulation Q
and the deposit account advertising
rules o f the other federal financial
regulatory agencies currently require a
similar notice, but limit it to
advertisements fo r time deposits. T h e
act is not so limited. The B o ard requests
comment on whether the statement
should be required only for time
deposits containing provisions for
possible early w ith d raw al penalties (the
position reflected in the proposed
regulation), or whether it should b e
required in other cases. For exam ple,
some accounts offer bonuses that m ay
b e “reclaim ed” if funds are w ith d raw n
before an agreed upon date. Som e non
time deposits assess a fee if a consumer
closes the account within 30 d ay s o f
account opening. The B oard requests
comment on w hether a disclosure under
§ 230.8(c)(8) should b e required in cases
such a s these.
T h e terminology o f the proposed
disclosure is similar to the act, but does
not include the w o rd “interest” (o r
“ substantial,” a s is required b y
Regulation Q ). T h e Board requests
comments w hether either term should b e
required in the statement.
Paragraph (d )— Bonuses
The proposed regulation treats
bonuses a s a trigger term. If a bonus is
advertised, an explanation o f the
conditions that must b e met for bonuses
to be paid and w hen they w ill b e p aid
also must b e stated, along w ith the
annual percentage yield and the items
listed in paragraph (c) o f this section.
A lthough the act does not expressly
require the bonus disclosures, the B oard
believes the additional information is
consistent w ith the act’s purpose to
provide uniform disclosures to com pare
accounts, an d requests comments on the
proposal. The B oard is concerned that
consumers m ay b e m isled i f full
information is included in
advertisements about interest earnings
w hile bonus ’’earnings” are not
explained.
P ossible lim ited exem ption fo r
bro a d ca st a n d oth er m edia. Section
263(b) o f the act authorizes the Board, if
it finds the disclosures to b e
unnecessarily burdensom e, to exem pt
“broadcast an d electronic m edia and
outdoor advertising” from stating any
Federal Register /
10533
Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
initial deposit requirement, or stating
that fees or other conditions could
reduce the return. The statute limits any
relaxation o f the advertising rules to
these tw o disclosures. The B oard solicits
comment on whether such an exemption
should be m ade and, if so, w h y these
disclosures place an unnecessary
burden on depository institutions. The
B oard also requests comment on the
merits o f an additional exem ption for
the statement for accounts with a
maturity o f less than one y ear that the
annual percentage yield assum es that
funds rem ain on deposit for a full y ear
at the initial rate (a provision not in the
statute).
Although the statute is quite specific
in the categories o f advertising that can
qualify from a relaxation o f
requirements, there m ay b e other
com parable situations that perhaps
should b e treated similarly. For
exam ple, should an exemption b e
considered for advertisements inside a
depository institution, such as lo b b y
boards, since consumers can obtain
account disclosures during business
hours?
Section 230.9—Enforcement and R ecord
Retention
Paragraph (c )— Record Retention
The B oard proposes to require
institutions to retain records regarding
their com pliance w ith their
responsibilities under the proposed
regulation for a minimum o f tw o years
after disclosures are required to b e
m ade. T w o years is the period
commonly used under the B o ard ’s other
consumer regulations (fo r exam ple,
Regulations Z and E). Furthermore,
given the frequency o f exam inations b y
the enforcement agencies, a record
retention requirement o f this length
should a llo w an institution’s exam iners .
adequate re v iew o f pertinent
documentation during periodic
examinations.
The B oard contemplates that records
m ay be stored b y use o f microfiche,
microfilm, magnetic tape, or other
methods cap able o f accurately retaining
and reproducing information. The
institution need not retain disclosures in
hard copy, as long as it retains enough
information to reconstruct the required
disclosures or other records.
Appendix A—Annual Percentage Yield
Calculation
n
Appendix A establishes the rules that
institutions would use to calculate the annual
percentage yield. The proposed appendix
contains two main parts: Part I discusses the
calculations for advertisements and account
disclosures, and Part Q deals with periodic
statement calculations. The Board is
proposing only two annual percentage yield
formulas in Part I: a “general" formula that
can be used for all types of accounts and a
“simple” formula that can be used for those
accounts that have a maturity of one year, or
that have an unstated maturity. The appendix
provides several examples to illustrate how
these formulas work. The appendix explains
the general rules and describes how they
should be applied in more complicated
accounts, such as stepped rate and tiered rate
accounts. If an account has two types of
features, such as variable and tiered rates, all
applicable rules would have to be followed.
Part II contains a single formula for
calculating the annual percentage yield of
periodic statements, with no special rules for
multiple rate accounts.
The appendix provides that the annual
percentage yield shall reflect only interest,
and may not include the value of any
bonuses. Factoring in the value of a bonus
would add significant complexity to the
calculation of the annual percentage yield.
For example, the value would have to be
established as well as when the merchandise
is provided to the consumer. If a cash bonus
is given, assumptions would have to be made
about whether the bonus is deposited and
whether interest is accrued on the sum. The
Board solicits comment on this proposal to
exclude all bonuses from the calculation.
The proposed annual percentage yield
calculation also excludes any amounts that
are determined by circumstances that may or
may not occur. For example, an institution
may provide earnings to the consumer based
on changes in certain stock market indicators
(from the date an account is opened to the
date it matures or is closed, for example) or
on foreign currency fluctuations. The annual
percentage yield for these and similar types
of accounts would exclude such potential
earnings. Similarly, if an institution chooses
to pay .01% additional interest for each point
scored in a future sporting event, that
potential would not be reflected in the annual
percentage yield Such features would be
disclosed as variable rate features under
proposed S 230.4(b)(l)(ii). (To the extent the
institution paid such interest on the account,
the annual percentage yield on the periodic
statement would capture this interest)
The Board is proposing that institutions
calculate the annual percentage yield by
rounding the figure to the nearest onehundredth of one percentage point and
showing it to two decimal places. Thus, if an
institution calculated an anuual percentage
yield to be 5 644%, that figure should be
rounded down and shown as 5.64%; 6.645%
would be rounded up and disclosed as 5.65%.
The Board believes it is necessary to show
annual percentage yields to two decimal
places to enable consumers to adequately
compare accounts.
The Board solicits comment on whether a
tolerance for accuracy should be provided for
calculating the annual percentage yield. The
statute does not expressly provide a
tolerance. The appendix includes a proposed
tolerance of Yxo of 1 percentage point (.05%).
The Board is not proposing to use the same
tolerance for the annual percentage rate
found in Regulation Z (Vfc of one percentage
point for regular transactions, or V4 of one
12751
percentage point for irregular transactions).
First, the Truth in Lending Act itself provides
for a Vi percent tolerance and authorizes the
Board to designate a tolerance for more
complex transactions. Second, the calculation
of the annual percentage rate is more
complicated than the calculation of the
annual percentage yield, since the annual
percentage rate factors in fees paid by the
consumer (as well as interest), the frequency
and amount of the consumer’s payments, the
timing of disbursements from the creditor to
the consumer, and other factors. Such
complexities are not present in the annual
percentage yield calculation. The Board
solicits comment on whether a tolerance is
needed at all, and, if so, whether Vio of 1
percent would be an appropriate one.
Parti. Annual Percentage Yield for Account
Disclosures and Advertising Purposes
A. General Rules
In general, the annual percentage yield
reflects the relationship between the amount
of interest to be.eamed by the consumer for
the term of the account (including any
compounding of interest) and the amount of
principal assumed to have been deposited to
earn that amount of interest Institutions
would be required to calculate the annual
percentage yield based on the actual number
of days in the term of the account If an
account has an unstated maturity, institutions
would calculate the annual percentage yield
based on an assumed term of 365 days.
For time deposits that are offered in
multiples of months, the Board proposes to
permit institutions to base the number of
days on either the actual number of days
during the applicable period, or the number
that would occur for any actual sequence of
that many calendar months. For example, if
an institution offers a six-month certificate of
deposit, the institution could calculate the
annual percentage yield based on the number
of days in a particular six-month period, or in
any six-month period. The Board believes
this will minimize the need of institutions to
recalculate the annual percentage yield on an
ongoing basis. The Board proposes, however,
that institutions that choose to use this
permissive rule would have to use the same
number of days to calculate the interest
figure used in the annual percentage yield
formula (where “Interest” is divided by
"Principal”). Thus, the institution with the
six-month certificate of deposit above could
base the annual percentage yield calculation
on any number of days from 181 to 184, since
various six-month periods could contain that
range of days. If the institution chose to use
181 days as the “Days in Term,” it must also
use 181 days to compute the "Interest” figure
used in the formula. An.institution would not
be permitted to use 181 as the “Days in
Term” and use an “Interest” figure based on
183 days. (The amount of interest paid by the
institution would have to be based on the
actual number of days in the account due to
the requirement to pay interest on the
principal in the account each day. See § 230.7
of the regulation.)
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/ Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
D. Accounts With Tiered Rates (Different
Rates Apply Depending on Balance Level)
Due to the nature of tiered rate accounts (in
which the simple interest rate paid on the
account is determined by reference to
specified balance levels), the Board believes
special rules are required to enable
consumers to compare annual percentage
yields for such accounts.
The appendix sets out the two basic
methods of tiering used by institutions to
calculate the interest they will pay on such
accounts. In the first method (shown in the
appendix as "Tiering Method A"), an
institution pays the applicable “tiered”
interest rate on the entire amount of the
deposit. For accounts of this type, institutions
must state the annual percentage yield that
applies to each balance tier. In the example
given in the appendix, this results in three
separate annual percentage yields to be
disclosed—one for each tier. Other than the
fact that multiple annual percentage yields
must be stated for these types of accounts,
each annual percentage yield is calculated
according to the general rule in the appendix.
In the second method of calculating interest
on tiered rate accounts (shown in the
appendix as ‘Tiering Method B”), institutions
do not pay the applicable tiered intertest rate
on the entire amount of the deposit, but only
on the portion of the deposit balance that
falls within each specified tier. For
institutions that compute interest in this
manner, a range of annual percentage yields
must be provided for each tier, other than for
the first tier—to accurately reflect how
interest is paid. The low end of each range is
figured on the highest balance in the tier. This
approach requires an assumed balance for
the highest tier in cases where the balance in
the account is not limited. The appendix is
written with an assumed high balance of
$100,000. The Board solicits comment on what
the high end of each range should be. Several
alternatives exist: Using any limit established
by the institution in its account agreement;
permitting any amount to be used if a limit is
not set forth in an agreement; or using
$100,000, since that is the current amount for
which accounts are federally insured.
Part III. Annual Percentage Yield for Periodic
Statements
The. annual percentage yield calculation for
the periodic statement is similar to that used
for advertising and opening account
disclosures. The annual percentage yield is
transaction specific for the periodic
statement. It reflects the relationship of the
interest actually paid and credited to the
consumer’s account during the period and the
average daily balance in die account for the
period. Thus, the annual percentage yield
factors in the actual number of days in the
statement period, as well as the actual
interest and principal. It uses the same basic
general formula as used in Part I, but reflects
the actual interest earned and average daily
balance during the period covered by the
statement.
Appendix B—Model Clauses and ,
Sample Forms
The model clauses and sample forms in
appendix B are intended for optional use by
financial institutions to aid compliance with
the disclosure requirements of §§ 230.4
(account disclosures) and 230.5 (change in
terms). Section 269(b) of the act provides that
institutions that use these forms and clauses
will be in compliance with the disclosure
provisions of die act. In addition, use of any
modified model form or clause will also be
considered in compliance as long as the
institution does not delete information
required by the act of rearrange the format so
as to affect the substance, clarity, or
meaningful sequence of the forms and
clauses.
As discussed in the supplemental
information to § 230.3(a), the proposal
provides for flexibility in designing the
format of the disclosures. Institutions can
either prepare a single document that
contains disclosures for several accounts
offered or prepare individual disclosures for
each type of account.
The Board requests comment on what
additional model forms and clauses should
be included in appendix B. For example, a
model form for periodic statemets was not
included with the proposal since the
disclosure requirements only duplicate of
slightly augment the information currently
provided. Comment is requested on whether
such a model form is necessary.
1. B -l Model Clauses
Clause (a)(ii) contains alternative language
for disclosing how the annual percentage
yield is determined in variable rate accounts.
This reflects the alternative definitions of a
variable rate account proposed in § 230.2(o).
Clause (a)(iv) contains alternative language
for describing tiered rate accounts. As
explained in appendix A, there are two types
of tiered rate accounts. The first type pays
the same higher rate on the entire balance in
the account if the balance exceeds the cutoff
figure. The second type of tiered rate account
pays a lower simple interest rate on deposits
Up to a certain cutoff level, and a higher rate
only on amounts above the cutoff level. An
institution must provide the disclosure that
describes its method of calculating interest.
Clauses (d)(i)—(iii) contain alternatives for
disclosing any minimum' balance
requirements associated with the account.
The regulation requires that the disclosures
state any minimum balance that is required
to open the account, avoid the imposition of
fees or obtain the annual percentage yield
disclosed. If a fee is incurred for not
maintaining a minimum balance, it may be
stated either with this disclosure or with
other fees (of both).
Clause (f) contains a model format for use
in disclosing fees. Institutions would be
required to disclose either the amount of any
fees that may be imposed in connection with
the account or provide an explanation of how
the fee will be determined. In addition, the
disclosure must state the conditions under
which the fee may be imposed if that is not
clear from name and description of the fee.
(See discussion of § 230.4(b)(5) regarding
examples of fees that may be assessed in
connection with the account.)
Clause (g) contains model language for
disclosing transaction limitations. If a fee is
imposed for exceeding the established
limitation, it may either be stated with this
disclosure or with other fees (or both).
Clauses (h) (early withdrawal penalty) and
(i) (renewal policy) would be required osdnly
for time deposits.
2. B-3 Sample Form
This sample illustrates the use of one
general multi-purpose disclosure form for
several accounts offered by an institution.
The disclosures are for a money market
account. Through the use of check marks, the
disclosure clearly indicates which fees and
terms apply to the money market account. A
chart is included to illustrate one method of
presenting information for multiple accounts.
Institutions could either have the form
preprinted (and marked accordingly) for each
account listed, or have the information filled
out at the time the account is opened. The fee
shown in this sample (as well as in B—
4) are
based on average charges for particular
services found in various national studies.
3. B-4 and B-5 Sample Forms
These samples illustrate individual
disclosures for two different types of
accounts (a certificate of deposit and a NOW
account).
4. Samples B-6 and B-7
These samples illustrate the requirements
for advertisements, fount in 5 230.8 of the
proposed regulation. Specifically, the samples
demonstrate how a certificate of deposit and
a money market account could be advertised
in compliance'with the regulation. The
advertisement for the money market account
shows how an institution that pays the
simple interest rate on the entire deposit
would state the annual percentage yields.
(This method is discussed in appendix A as
“Tiering Method A.”) Since civil liability
applies to violations of the advertising
requirements, the Board is proposing to
include sample forms for institutions for
advertising. Comment is requested on
whether sample advertisements should be
included at all and, if so, whether the
samples provided are useful.
Appendix C—Effect on State Laws
This appendix outlines the standards
and process used for state law
determinations.
Appendix D—Issuance of Staff
Interpretations
The Board is proposing to use the same
method of providing interpretations to the
regulation as for Regulations B, E, and Z. An
official staff commentary is expected to be
issued in proposed form after die proposed
regulation becomes effective in the spring of
1993. Such a proposal would be issued in
final form after an opportunity for public comment, with an immediate effective date
but with compliance not becoming mandatory
for another six months—likely sometime inf
1994. Thereafter periodic updates of the
official staff commentary would be
contemplated.
The Board has established a pattern for
updating several of its consumer regulation
commentaries: publish changes for public
Federal Register /
10533
Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
comment in the.autumn, with final rules
effective the following spring, but optional
until the next October. The Board proposes to
follow this pattern with its official staff
commentary to this new regulation and
solicits comment on whether this approach
would be helpful. If the public felt that
issuance of so many proposals at the same
time would be difficult to deal with, the
Board could adopt a different schedule for
this regulation—for example, publishing the
proposed interpretations for comment in the
spring with final versions adopted in the fall.
Effective Date
Institutions will have to provide
disclosures to any consumer who opens an
account after the effective date of the
regulations. Institutions also will have to
provide disclosures for any time account
renewed after the effective date, even if the
account was an automatically-renewable one
and had been opened prior to the effective
date. Similarly, periodic statement
disclosures and change in term notices would
have to be provided, as applicable, to all
accounts—including those opened prior to the
effective date. Finally, the Board believes the
substantive provision regarding the payment
of interest will apply to existing accounts as
of the effective date; it is not limited to new
account holders.
(3) Form of Comment Letters
As discussed above, comment letters
should refer to Docket No. R-0753. The Board
requests that, when possible, comments be
submitted using a standard typeface with a
type size of 10 or 12 characters per inch. This
will enable the Board to convert the text into
machine-readable form through electronic
scanning, and will facilitate automated
retrieval of comments for review.
(4) Economic Impact Statement
The Board’s Division of Research and
Statistics has prepared an economic impact
statement on the proposed regulation. A copy
of the analysis may be obtained from
Publications Services, Board of Governors of
the Federal Reserve System, Washington, DC
20551, or by telephone at (202) 452-3245.
(5) Paperwork Reduction Act
In accordance with section 3507 of the
Paperwork Reduction Act of 1980 (44 U.S.C.
35; 5 CFR 1320.13), the proposed information
collection will be reviewed by the Board
under the authority delegated to the Board by
the Office of Management and Budget after
consideration of the comments received
during the public comment period.
A detailed description of the proposed
recordkeeping and disclosure requirements
(including the reasons for them, the
institutions that would be subject to them,
and how frequently disclosure may be
required) is contained elsewhere in this
notice.
The information collection is mandatory
(105 Stat 2236, 2334). The requirements will
apply to both large and small institutions.
The impact on small institutions will depend
upon the extent of the disclosures and the
options for compliance offered by the final
regulations. Model disclosures forms in the
regulation will somewhat ease compliance
burdens on institutions. (The proposed model
forms and clauses are set forth in appendix
B.)
The following information about
paperwork burden relates only to the effect
of the proposal on state member banks.
Institutions that will be subject to Regulation
DD other than state member banks are
supervised by other federal agencies: the
Federal Deposit Insurance Corporation, the
Office of the Comptroller of the Currency,
and the Office of Thrift Supervision. For
purposes of the Paperwork Reduction Act,
these agencies will report their own estimates
of the paperwork burden imposed by the
Truth in Savings requirements.
The Board preliminarily estimates that the
disclosure requirement will result in a one
time reporting burden of 206,000 hours and an
annual reporting burden of 1,560,160 hours for
state member banks.
Proposed Information Collection
Report title: Recordkeeping and Disclosure
Requirements in Connection with Regulation
DD (Truth in Savings).
Report number: Not applicable.
OMB docket number 7100-0255.
Frequency: As needed.
Reporters: State member banks.
•No. of reco rd s
subject to
requirem ent
N otice to Existing A cc o u n th o ld e rs (o n e tim e b u rd e n ).......
C o m p le te D isclosures:
U p o n R e q u e s t............................................................................
N e w A c c o u n ts ............................................................................
R ollover C D s ..............................................................................
N o tice for N o n -R o llo v e r C D s .......................................................
C h a n g e in T e r m s ................................................................................
Periodic S ta te m e n ts ......................................................................
A dvertisin g............................... ........................................... ..................
List of Subjects in 12 CFR Part 230
Advertising, Banks, Banking,
Consumer protection, Deposit accounts,
Interest, Interest rates, Federal reserve
system, Truth in savings.
Pursuant to authority granted in
section 269 of the Truth in Savings Act
(Pub. L. No. 102-242) the Board proposes
to amend 12 CFR chapter II as follows:
Part 230 would be added to read as
follows:
PART 230— TRUTH IN SAVINGS
230.1 Authority, purpose, coverage and
effect on state laws.
230.2 Definitions.
230.3 General disclosure requirements.
230.4 'Account disclosures.
230.5 Advance notice of change in terms
and advance notice of maturity.
230.6 Periodic statement disclosures.
8 ,2 4 0 ,0 0 0
x
Estim ated tim e per
respon se
1.5 min.
90 7 ,0 0 0
.............
2 6 7 ,0 0 0
82 500 000
.............
230.7 Payment of interest.
230.8 Advertising.
230.9 Enforcement and record retention.
Appendix A—Annual percentage yield
calculation
Appendix B—Model clauses and sample
forms
Appendix C—Effect on state laws
Appendix D—Issuance of staff
interpretations.
Authority: 12 U.S.C. 4301 et seq.
12753
' 12*000
2 min.
1 min.
1 m in.
1 min.
1 m in.
60 min.
Estim ated total
no. of hours of
annual reporting
bu rden
2 0 6,00 0
45 ,375
91 £ 6 7
13,334
4 ,4 50
18,334
1,375,0 00
12,000
Information collection requirements
contained in this regulation have been
approved by the Office of Management
and Budget under the provisions of 44
U.S.C. 3501 et seq. and have been
assigned OMB No. 7100-0255.
(b) Purpose. The purpose of this
regulation is to enable consumers to
make informed decisions about deposit
accounts at depository institutions. The
regulation requires depository
§ 230.1 Authority, purpose, coverage and
institutions to provide disclosures of the
effect on state laws.
terms and conditions on which interest
(a)
Authority. This regulation, known is paid and fees are assessed against
as Regulation DD, is issued by the Board deposit accounts so that consumers can
of Governors of the Federal Reserve
make meaningful comparisons among
System to implement the Truth in
depository institutions.
Savings Act of 1991, contained in the
(c) Coverage. This regulation applies
Federal Deposit Insurance Corporation
to depository institutions except for
Improvement Act of 1991 (Pub. L No.
credit unions. In addition, the
102-242,105 Stat. 2236) ("the act”).
advertising rules in § 230.8 apply to any
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Federal Register /
Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
person who advertises a deposit account
offered by a depository institution,
including deposit brokers as defined in
section 29(g)(1) of the Federal Deposit
Insurance Corporation Act (12 U.S.C.
183lf).
(d)
E ffec t on s ta te la w s. State law
requirements that are inconsistent with
the disclosure requirements of the act
and this regulation are preempted to the
extent of the inconsistency. Additional
information on inconsistent state laws
and the procedures for requesting a
preemption determination from the
Board are set forth in appendix C.
savings banks and mutual savings
banks.
(i) In te re st means any payment to a
consumer or to a consumer’s account for
the use of funds in an account. For
purposes of this regulation, the term
does not include the payment of a
bonus, the waiver or reduction of a fee,
or the absorption of expenses.
(j) P e rio d ic s ta te m e n t means a
statement setting forth account
information that is provided to a
consumer on a regular basis four or
more times a year.
(k) S im p le in te r e s t r a te means the rate
of interest paid without regard to
§ 230.2 Definitions.
compounding, shown as an annual
For purposes of this regulation, the
figure and expressed as a percentage.
following definitions apply:
For purposes of the account disclosures
(a) A c c o u n t means a deposit account
in | 230.4(b)(l)(i), the rate may be
held by or offered to a consumer by a
referred to as the “annual percentage
depository institution. It includes
rate” in addition to being referred to as
accounts such as time deposits and
the “simple interest rate.”
demand, savings, and negotiable order
(l) S ta te means a state, the District of
of withdrawal accounts.
Columbia, the Commonwealth of Puerto
(b) A d v e r tis e m e n t means a
Rico, and any territory or possession of
commercial message, appearing in any
the United States.
medium, that promotes directly or
(m) S te p p e d r a te a c c o u n t means an
indirectly the availability of, or a
account that has two or more simple
deposit in, an account
interest rates that take effect in
(c) A n n u a l p e r c e n ta g e y i e l d means the succeeding periods and are known when
total amount of interest paid on an
the account is opened.
account, based on the simple interest
(n) T ie re d r a te a c c o u n t means an
rate and the frequency of compounding
account that has two or more simple
for a 365-day period, expressed as a
interest rates that are determined by
percentage, calculated according to the
reference to a specified balance level.
rules in appendix A.
(o) V a ria b le r a te a c c o u n t [Alternative
(d) B o a rd means the Board of
one) means an account in which the
Governors of the Federal Reserve
simple interest rate may change after
System.
the account is opened, as long as that
(e) B onus means a premium, gift,
rate is determined by reference to an
award, or other consideration, whether
index.
in the form of cash, credit, merchandise,
(Alternative two) means an account in
or any equivalent, given or offered to a
which the simple interest rate may
consumer in exchange for opening,
change after the account is opened,
maintaining, or renewing an account of
except if the institution contracts to give
depositing funds in an existing account.
at least 30 days advance written notice
(f) B u sin ess d a y means a day on
of rate changes.
which the offices of a depository
§ 230.3 General disclosure requirements.
institution are open to the public foe
carrying on substantially all business
(a) G en eral. Depository institutions
functions.
shall make the disclosures required by
(g) C on su m er means a natural person
| 230.4 through 230.6, as applicable,
(or unincorporated non-business
clearly and conspicuously in writing and
association of persons) who holds an
in a form that the consumer may keep.
account primarily for personal, family,
Disclosures for each account offered by
household, or other non-business
an institution may be presented
purposes, or to whom such an account is separately or they may be combined
offered.
with disclosures for the institution’s
other accounts, as long as the applicable
(h) D e p o s ito r y in stitu tio n and
information is clear. The disclosures
in stitu tio n mean an institution defined
shall reflect the legal obligation between
in section 19(b)(l.)(A) (i)—
(vi) of the
the consumer and the depository
Federal Reserve Act (12 U.S.C. 461),
institution.
except credit unions defined in section
19(b)(l)(A)(iv). The term includes state
(b) M u ltip le con su m ers. If an account
and federally chartered banks, state and is held by more than one consumer,
federally chartered savings associations, disclosures may be made to any one of
and state and federally chartered
the consumers.
(c)
O ra l re s p o n s e s to in q u iries. In an
oral response to a consumer’s inquiry
about interest rates payable on its
accounts, the depository institution shall
state the "annual percentage yield,”
using that term. The “simple interest
rate,” using that term, also may be
stated. No other rate may be stated.
§ 230.4 Account disclosures.
(a) D e liv e r y o f a c c o u n t d isc lo su res.
(1) A c c o u n t opening. The depository
institution shall provide the account
disclosures to the consumer before an
account is opened or a service is
provided, whichever is earlier. An
institution is deemed to have provided a
service when a fee required to be
disclosed is assessed. If the consumer is
not present at the institution when the
account is opened or a service is
provided and has not already received
the disclosures, the institution shall mail
or deliver the disclosures no later than
ten business days after the account is
opened or the service is provided,
whichever is earlier.
(2) R e q u e sts. A depository institution
shall provide the account disclosures to
any consumer upon request. If the
request is made in writing or by .
telephone, the institution shall mail or
deliver the disclosures no later than
three business days after it receives the
request
(3) R e n e w a ls o f tim e d e p o s its —
(i) D isc lo su re s req u ired. The renewal
of a time deposit is a new account
requiring account disclosures.
(ii) T im e d e p o s its th a t r e n e w
a u to m a tic a lly . In the case of time
deposits with a maturity of more than
three months that automatically renew
at maturity without a request from the
consumer, the institution shall mail or
deliver the account disclosures at least
30 days but not more than 60 days
before maturity. For time deposits with a
maturity of three months or less, the
institution shall mail or deliver the
account disclosures no later than ten
business days after the account is
renewed.
(iii) T im e d e p o s its th a t r e n e w b y
c o n su m e r re q u e st. In the case of time
deposits that renew only if requested by
the consumer, if the consumer is not
present at the institution when the
request is made, the institution shall
mail or deliver the account disclosures
no later than ten business days after the
account is renewed.
(b) C o n te n t o f a c c o u n t d isc lo su res.
Account disclosures shall include the
following:
(1)
Rate information—(i) A n n u a l
p e r c e n ta g e y e i l d a n d s im p le in te r e s t
ra te . The “annual percentage yield” and
1.0533
Federal Register / Vol. 57, No, 71 / Monday, April 13, 1992 / Proposed Rules
12755
(d)
Number o f days in period. The
of loss of principal, a statement of that
the “simple interest rate,” using those
total number of days in the statement
terms, and the period of time the simple fact.
interest rate will be in effect. In the case
(c)
Notice o f existing account holders.period.
of stepped rate and tiered rate accounts, Depository institutions shall include a
§ 230.7 Payment of in terest
all annual percentage yields and simple notice on or with the first periodic
(a) Permissible methods. D epository
interest rates must be included.
statement provided to existing account
in stitu tions sh a ll calcu late interest on
(ii)
Variable rates. In the case of
holders after M a r ch ___ 1993. The
variable rate accounts:
n o tice sh all sta te that the accoun t h older the full am ount o f principal in an
accoun t for ea ch d ay by u se o f either the
(A) The fact that the simple interest
m ay request accoun t d isclosu res
d aily b a la n ce m ethod or the average
rate and annual percentage yield may
containing terms, fees, and rate
d aily b a la n ce m eth o d .1
change:
inform ation for the account.
(B) How the simple interest rate is
(b) Compounding and crediting
A ltern atively, in stitutions, m ay include
determined;
policies. T his sectio n d o es not prohibit
the ap p licab le accoun t d isclo su res (as
(C) The frequency with which the
or require in stitu tions to u se any
d escrib ed in paragraph (b) o f this
simple interest rate may change; and
particular frequency o f com pounding or
section) in stea d o f the n otice w ith the
(D) Any limitation on the amount the
crediting o f in te r e st
periodic statem ent.
simple interest rate may change.
(c) Date interest begins to accrue.
§ 230.5 Advance notice of change in term s Interest shall begin to accrue not later
(2) Time requirements. In the case of
and advance notice of maturity.
time deposits, any time requirement to
than the business day specified for
obtain the annual percentage yield
interest-bearing accounts in section 606
(a) Change in terms. A depository
disclosed.
of the Expedited Funds Availability Act
institution shall give advance notice to
(3) Compounding and crediting. The
(12 U.S.C. 4005 et seq.).
affected consumers of any change in a
frequency with which interest is
term required to be disclosed under
§ 230.8 Advertising.
compounded and credited.
§ 230.4 if the change may reduce the
(4) Balance information.
(a) M isleading or inaccurate
annual percentage yield or adversely
(i) Minimum balance requirements.
advertisements. A n ad vertisem en t shall
affect the consumer. The notice
Any minimum balance required to:
n ot b e m isleadin g or in accurate and
describing the change shall state the
(A) Open the account;
effective date of the change and shall be sh all not m isrepresen t a d epository
(B) Avoid the imposition of fees; or
in stitu tion ’s d ep osit contract. A n
mailed or delivered at least 30 days
(C) Obtain the annual percentage
ad vertisem en t sh all not refer to or
before the effective date. The notice is
yield disclosed.
d escrib e an accoun t a s "free” or “no
not required for changes in the simple
Except for the balance to open the
interest rate and corresponding changes co st” (or con tain a sim ilar term) if any
account, the disclosure shall include an
m ain ten an ce or activity fee m ay be
in the annual percentage yield for
explanation of how the balance is
im p osed on the account. In the c a se of
variable rate accounts.
determined for these purposes.
(b) Notice o f m aturity fo r certain time an accoun t that in v o lv es the risk o f lo ss
(ii) Balance computation method. An
o f principal, that fact sh all b e stated.
deposits. For time deposits with a
explanation of the method (as permitted maturity of more than three months that
(b) Permissible rates. If an
by section 230.7) used to determine the
ad vertisem en t sta te s a rate o f return, it
renew only if requested by the
balance on which interest is paid.
sh a ll sta te the rate a s an “annual
consumer, the depository institution
(5) Fees. The amount of any fee that
p ercen tage y ie ld ,” u sing that term. The
shall give advance notice to consumers
may be imposed in connection with the
ad vertisem en t sh all not sta te an y other
that the deposit is about to mature. The
account (or an explanation of how the
rate, ex cep t that a “sim ple interest rate,"
notice shall state the maturity date and
fee will be determined) and the
using that term, m ay b e stated in
describe what will happen to the funds
conditions under which the fee may be
conjunction w ith, but not more
after maturity if the consumer does not
imposed.
co n sp icu o u sly than, the annual
renew
the
time
deposit.
The
notice
shall
(6) Transaction lim itations. Any
p
ercen tage yield .
be mailed or delivered at least 30 days
limitations on the number or dollar
(c) Advertisem ent o f terms that
but
not
more
than
60
days
before
amount of withdrawal or deposits.
require additional disclosures. If the
maturity.
(7) Early withdrawal penalties. In the
an nual p ercen tage y ield is stated in an
case of time deposits, a statement that a § 230.6 Periodic statem ent disclosures.
ad vertisem en t, the ad vertisem ent shall
penalty will be imposed for early
sta te the follow in g inform ation, to the
If
a
depository
institution
mails
or
withdrawal and the conditions under
ex ten t ap plicab le, clearly and
delivers
a
periodic
statement,
the
which such a penalty may be assessed.
con sp icu ously:
The annual percentage yield and simple statement shall include the following
(1) For variab le rate accounts, a
disclosures:
interest rate that will apply if the time
statem en t that the rate m ay change after
(a) Annual percentage yield earned.
requirement is not met shall also be
the accoun t is op ened.
The “annual percen tage y ie ld ,” using
stated.
(2) The period o f tim e the annual
1hat term, earned during the statem en t
(8) Renewal policies. In the case of
time deposits, a statement of whether or period, calcu lated according to the rules p ercen tage y ie ld is in effect.
in ap p en d ix A, Part II.
not the account will renew
1 Under the daily balance method, interest is
(b) Amount o f interest paid. The dollar
automatically at maturity. If the account
calculated by applying a periodic rate to the full
am ount o f in terest paid during the
will not renew automatically, an
amount of principal in the account each day. Under
statem ent period.
explanation of what will happen to the
the average daily balance method, interest is
funds after maturity if the consumer
(c) Fees imposed. Fees required to be
calculated by applying a periodic rate to the
average balance in the account for the period. The
does not renew the account shall also be disclosed under § 230.4(b)(4) imposed
average balance is determined by adding the full
stated.
during the statement period. The fees
amount of principal in the account for each day of
(9) Potential loss o f principal. In the
shall be itemized by type and disclosed
the period and dividing that figure by the number of
case of an account that involves the risk as dollar amounts.
days in the period.
12756
Federal Register
/ Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
When the “days in term” is 365 (that is,
where the stated maturity is 365 days or
where the account does not have a stated
maturity), the APY can be calculated by use
of the following simple formula:
APY= 100 (Interest/Principal)
Examples: (1) If an institution would pay
$61.68 in interest for a 385-day year on $1,000
deposited into a NOW account, the APY is
6.17%. Using the general formula above:
APY=100[(1 + 61.68/1,000)
APY=0.17%.
Or, using the simple formula above (since
the term is deemed to be 365 days):
APY=100(61.68/1,000)
APY=6.17%
(2) If an institution pays $30.37 in interest
on a $1,000 six-month certificate of deposit
(where the six-month period used by the
institution contains 182 days), the APY is
8.18%. Using the general formula above:
APY= 100[(1 -(-30.37/1,000) (3Ml 18*-1)
APY=8.18%
B. Stepped Rate Accounts (Different Rates
Apply in Succeeding Periods)
For accounts with two or more fixed simple
interest rates to be applied in succeeding
periods (where the rates are known at the
time the account is opened), an institution
shall assume each simple interest rate is in
effect for the length of time provided for in
deposit contract
Examples: (1) If an institution offers a
$1,000 6-month certificate of deposit on which
it pays a 5% simple interest rate, compounded
daily, for the first three months (which
contain 88 days), and a 5.5% simple interest
rate, compounded daily, for the next three
months (which contain 91 days), the total
interest for six months is $26.10, and the APY
is 5.39%. Using the general formula above:
APY=100 [(1 + 26.10/1,000)(34B/1791-1]
APY=5.39%
(2) If an institution offers a $1,000 2-year
certificate of deposit on which it pays a 6%
simple interest rate, compounded daily, for
the first year, and a 6J>%simple interest rate,
compounded daily, for the next year, the total
interest for two years is $133.13, and the APY
is 6.45%. Using the general formula above:
APY=100 [(1+133.13/1,000) (365/7*»_l]
APY=6.45%
C. Variable Rate Accounts
For variable rate accounts without an
introductory premium or discounted rate, an
institution must base the calculation only on
the initial simple interest rate in effect when
the account is opened (or advertised), and
assume that this rate will not change during
the year.
Variable rate accounts with an
introductory premium or discount rate must
be treated like stepped rate accounts. Thus,
an institution shall assume that: (1) The
introductory simple interest rate is in effect
for the length of time provided for in the
earnings are not to be included in the annua!
percentage yield if such amounts are determined by deposit contract; and (2) the variable simple
interest rate that would have been in effect
circumstances that may or may not occur.
2 Institutions may calculate the annual percentage when the account is opened or advertised
yield based on a 365-day or a 366-day year in a leap (but for the introductory rate) is in effect for
the remainder of the 365-day year.
year.
institution pays chi an account, expressed as
(3) The minimum balance required to
an annualized rate.1 The annual percentage
earn the advertised annual percentage
yield is based on a 365-day year.1
2 Part I of
yield. For tiered rate accounts, the
this appendix discusses the annual
minimum balance requirement shall be
percentage yield calculations for account
stated for each tier and shall be stated
disclosures and advertisements, while Part II
in close proximity and with equal
discusses annual percentage yield
prominence to the applicable annual
calculations for periodic statements.
percentage yield.
The annual percentage yield shall be
(4) The minimum deposit required to
calculated and expressed as a rate rounded
open the account, if it is greater than the to the nearest basis point (one-hundredth
minimum balance necessary to earn the percentage point) and shown to two decimal
places. The annual percentage yield shall be
advertised annual percentage yield.
considered accurate if it is not more than five
(5) The minimum time required to
obtain the advertised annual percentage basis points (l/20 of one percentage point)
above or below the annual percentage yield
yield, together with any lower annual
determined in accordance with the rules in
percentage yield that will apply if the
this appendix.
deposit is withdrawn prior to that time.
(6) A statement that fees or other
Part J. Annual Percentage Yield for Account
conditions could reduce the earnings on Disclosures and Advertising Purposes
the account.
In general, the annual percentage yield for
(7) In the case of time deposits with a account disclosures under §§ 230.4 and 230.5
stated maturity of less than one year, a
and for advertising under § 230.8 is an
annualized rate that reflects the relationship
statement that the annual percentage
yield assumes that the funds will remain between the amount of interest that would be
earned for a 365-day year and the amount of
on deposit for a full year at the rate
principal used to calculate that interest.
provided for in the deposit contract.
Special rules apply to accounts with tiered
(8) In the case of time deposits, a
interest rates.
statement that a penalty may be
A.
General Rules
imposed for early withdrawal.
(d)
Bonuses. If a bonus is stated in an The annual percentage yield shall be
calculated by the formula shown below,
advertisement, the advertisement shall
which reflects, on an annualized basis, the
state:
relationship between the amount of interest
{1} The “annual p ercen tage y ie ld ,”
earned by the consumer for the term of the
using that term;
(2) T he inform ation in paragraph (c) of account and the amount of principal assumed
to have been deposited to earn that amount
this section;
interest. Institutions shall calculate the
(3) The conditions that must be met in of
annual percentage yield based on the actual
order to qualify for the bonus; and
number of days for the term of the account
(4) When the bonus will be paid.
For accounts without a stated maturity date
§ 230.9 Enforcement and record retention. (such as a typical savings or transaction
account), the calculation shall be based on an
(a) Adm inistrative enforcement. A
assumed term of 365 days. In determining the
violation of the act or this regulation is
total interest figure to be used in the formula,
subject to administrative sanctions as
institutions shall assume that all principal
provided in section 270 of the ac t
and interest remain on deposit for the entire
Compliance is enforced by the agencies term, and that no other transactions (deposits
or withdrawals) occur during the period.
listed in that section.
The annual percentage yield is to be
(b) Civil liability. Section 271 of the
calculated by use of the following general
act contains the provisions relating to
formula:
civil liability for failure to comply with
APY=100[(H-Interest/Principal)
the requirements of the act and this
(3 6 5 / D « y « tm t e r m )__ -j j
regulation.
“Principal" is the amount of funds assumed
(c) Record retention. A depository
to have been deposited at the beginning of
institution shall retain evidence of
the account.
compliance with this regulation for a
“Interest” is the total dollar amount of
minimum of two years after the date
interest earned on the Principal for the term
disclosures are required to be made. The of the account.
administrative agencies responsible for
“Days in term” is the actual number of
days in the term of the account
enforcing the regulation may require
depository institutions under their
jurisdiction to retain records for a longer
1The annual percentage yield reflects only
interest and does not include the value of any cash
period if necessary to carry out their
bonus, merchandise, or other items that may be
enforcement responsibilities under
provided to the consumer to open, maintain,
section 270 of the act.
increase or renew an account Interest or other
Appendix A—Annual Percentage Yield
Calculation
The annual percentage yield (APY) is a
measurement of the amount of interest an
Federal Register /
10533
Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules________ 12757
For example, if an institution offers an
account on which it pays a 7% simple interest
rate, compounded daily, for the first three
months (which contain 68 days), while the
variable simple interest rate that would have
been in effect when the account was opened
was 5%, the total interest for a 365-day year
for a $1,000 deposit is $56.35, and the APY is
5.64%. Using the simple formula:
APY=100 (56.35/1,000)
APY=5.64%
D. Accounts With Tiered Rates (Different
Rates Apply Depending on Balance Level)
For accounts in which the simple interest
rate paid on the account is determined by
specified balance levels, the institution must
calculate the annual percentage yield in
accordance with the method described below
that it uses to calculate interest In all cases,
an annual percentage yield (or a range of
annual percentage yields, if appropriate)
must be disclosed for each balance tier.
For purposes of the examples discussed
below, assume the following:
annualpercentage yield for the second tier is
5.65%. Using the simple formula:
APY=100 (452.29/8,000)
APY=5.65%
Third Tier. Hie institution will pay
$1,183.61 in interest on a $20,000 deposit.
Thus, the annual percentage yield for the
third tier is 5.92%. Using the simple formula:
APY=100 (1,183.61/20,000)
APY=5.92%
Tiering Method B
Under this method, an institution pays the
stated simple interest rate only on that
portion of the balance within the specified
tier. For example, if a consumer deposits
$8,000, the institution pays 5.25% on only
$2,499.99 and 5.50% on $5,500.01 (the amount
that exceeds the cutoff level between the first
and second tiers).
The institution that computes interest in
this manner must provide a range that shows
the lowest and the highest annual percentage
yields for each tier (other than for the first
tier, which, like the tiers in Method A, has the
same annual percentage yield throughout).
The low annual percentage yield is
S im ple interest
D epo sit b a la n c e required to ea rn
rate (p ercent)
rate
calculated based on the total amount of
interest earned for a 365-day year assuming
the minimum principal required to earn the
5 .2 5 ....... .......... ......... $.01 up to but not exceeding
simple interest rate for that tier. The high
$2,500.
5 .5 0 _______________ 2 ,5 00 u p to but no t exceeding
annual percentage yield is based on the
$15,000.
amount of interest the institution would pay
5 .7 5 ...... ..................... 15 ,000 a n d higher.
on the highest principal that could be
deposited to earn that same simple interest
rate. If the account does not have a limit on
the amount that can be deposited, the highest
Tiering Method A
principal for the top tier shall be deemed to
Under this method, an institution pays on
be $100,000.
the full balance in the account the stated
For the amounts assumed above, the
simple interest rate that corresponds to the
institution would state a total of five annual
applicable deposit tier. For example, if a
percentage yields—one figure for the first tier
consumer deposits $8,000, the institution pays and two figures stated as a range for the
the 5.50% simple interest rate on the entire
other two tiers.
$8,000.
First tier. Assuming daily compounding, the
When this method is used to determine
institution would pay $53.90 in interest on a
interest, only one annual percentage yield
$1,000 deposit. For this first tier, the annual
will apply to each tier. Within each tier, the
percentage yield is 5.39%. Using the simple
annual percentage yield will not vary with
formula:
'
the amount of principal assume to have been APY=100 (53.90/1,000)
deposited.
APY=5.39%
For the simple interest rates and deposit
Second tier. For the second tier the
balances assumed above, the institution will
institution would pay between $134.75 and
state three annual percentage yields—one
$841.45 in interest, based on assumed
corresponding to each balance tier.
balances of $2,500 and $14,999.99,
Calculation of each annual percentage yield
respectively. For $2,500, interest would be
is similar for this type of account as for
figured on $2,499.99 at 5.25% simple interest
accounts with a single fixed interest rate.
rate plus interest on $01 at 5.50%. For the low
Thus, the calculation is based on the total
amount of interest that would be received by end of the second tier, therefore, the annual
percentage yield is 5.39%. Using the simple
the consumer for each tier of the account for
formula:
a 365-day year and the principal assumed to
APY=100 (134.75/2,500)
have been deposited to earn that amount of
interest.
APY=5.39%
First tier. Assuming daily compounding, the
For $14,999.99, interest is figured on
institution will pay $53.90 in interest on a
$2,499.99 at 5.25% simple interest rate plus
$1,000 deposit. For the first tier, the APY is
interest on $12,500 at 5.50% simple interest
5.39%. Using the general formula:
rate. For the high end of the second tier, the
APY=100 [(1+53.90/1,000)
annual percentage yield is 5.61%. Using the
APY=5.39%
simple formula:
Using the simple formula:
APY=100 (841.45/14,999.99)
APY=5.61%
APY=100 (53.90/1,000)
APY=5.39%
Thus, the annual percentage yield range that
Second tier. The institution will pay $452.29 would be stated for the second tier is 5.39% to
in interest on a $8,000 deposit Thus, the
5.61%.
Third tier. For the third tier, the institution
would pay between $841.45 and $5,871.78 in
interest, based on assumed balances of
$15,000 and $100,000, respectively. For
$15,000, interest would be figured on $2,499.99
at 5.25%simple interest rate, plus interest on
$12,500 at 5.50% simple interest rate, plus
interest on $.01 at 5.75% simple interest rate.
For the low end of the third tier, therefore, the
annual percentage yield is 5.61%. Using the
simple formula:
APY=100 (841.45/15,000)
APY=5.61%
For $100,000, the assumed high end of the
third tier, interest would be figured on
$2,499.99 at 5.25% simple interest rate, plus
interest on $12,500 at 5.50% simple interest
rate, plus interest on $85,000.01 at 5.75%
simple interest rate. For the high end of the
third tier, therefore, the annual percentage
yield is 5.87%. Using the simple formula:
APY=100 (5371.78/100,000)
APY=5.87%
Thus, the annual percentage yield that would
be stated for the third tier is 5.61% to 5.87%.
Part n. Annual Percentage Yield for Periodic
Statements
The annual percentage yield for periodic
statements under 5 230.6 is an annualized
rate that reflects the relationship between the
amount of interest actually paid and credited
to the consumer’s account during the period
and the average daily balance in the account
for the period.
The annual percentage yield shall be
calculated by using the following formula:
APY=100 [(1+Interest eamed/Balance)(365/
D ari In period) __
"Balance” is the average daily balance in
the account during the period covered by the
statement
"Interest earned” is the actual amount of
interest accrued and credited to the account
for the period covered by the statement
"Days in period” is the actual number of
days for the period covered by the statement
For example, if an institution pays $5.25 in
interest for a period containing 30 days, and
the average daily balance for the period is
$1,000, the APY is 8.58%. Using the formula
above:
APY=100 [(1+535/1,000) "*'** -1]
Appendix B—Model Clauses and Sample
Forms
B-l—Model Clauses for Account Disclosures
(Section 230.4(b))
B-2—Model Clause for Change in Terms
(Section 230.5(a))
B-3—Sample Form (Multiple Accounts)
B-4—Sample Form (NOW account)
B-5—Sample Form (Certificate of Deposit)
B-6—Sample Form (Certificate of Deposit
Advertisement)
B-7—Sample Form (Money Market Account
Advertisement)
B-l—Model Clauses for Account Disclosures
(a) Rate Information
(i) Fixed rate: The simple interest rate for
your account is _____ _% with an annual
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Federal Register
/ Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
percentage yield of ______ %. You will be
paid this rate [for______ ] [until______ ].
(ii) Variable rate: The simple interest rate
for your account is______%with an annual
percentage yield of_____ %. You will be
paid this rate [for______ ] [until
Your simple interest rate and annual
percentage yield may change.
Determination of Rate
The simple interest rate for your account is
based on [index] [plus] [minus] a margin of
We may change the simple interest rate for
your account based on market or other
factors.
Frequency of Rate Change
We may change the simple interest rate for
your account [every______ ] [at any time we
choose].
-\
Limitations on Rate Changes
The simple interest rate for your account
will never change by more than______ %
each______ .
The simple interest rate will never be [less]
[more] than______ %.
(iii) Stepped rate accounts: The simple
interst rate for your account is _
You will be paid this rate [until______ ] [for
--------- ]. After that time, the simple interest
rate, for your account will be______ %, and
you will be paid this rate [until______ ] [for
----------]. The annual percentage yield for
your account is ______ %.
(iv)
Tiered rate accounts: If your [daily
balance] [average' daily balance] is below
$----------, the simple interest rate for your
account will b e______%with an annual
percentage yield of______ %.
If your [daily balance] [average daily
balance] is $______ or more, the simple
interest rate paid on the entire balance in
your account will be
%with an
annual percentage yield of______ %.
The simple interest rate that will be paid
for only that portion of your [daily balance]
[average daily balance] that exceeds
$----------is_______%. The annual
percentage yield for the excess balance will
range from _____ %to______ %,
depending on the balance in the account.
You will be paid these rates [for______ .]
[until______].
(b) Time Requirements
To earn the annual percentage yield listed
above, your entire deposit must remain on
deposit [until______ ].
(c) Compounding and Crediting
Interest will be compounded [on a ______
basis] [every______ ].
Interest will be credited to your account
[on a --------- basis] [every_______ ].
(d) Minimum Balance Requirements
(i) To open the account. You must deposit
$----------to open this account.
(ii) To avoid imposition of fees. A minimum
balance fee [of $______ ] wUl be imposed
every---------if your account does not have
a [daily balance] [average daily balance] of
at least $______ for_______ .
(iii) To obtain the annual percentage yield
disclosed. You must maintain a minimum
[daily balance] [average daily balance] of
$__ ___ .to earn the annual percentage yield
listed above, you will earn interest for every day during the period that your account
equals or exceeds the minimum balance
requirement.
(e) Balance Computation Method
(i) Daily balance method. The balance on
which interest is computed for your account
is determined by the daily balance method,
which applies a periodic rate to the full
amount of principal in the account each day.
(ii) Average daily balance method. The
balance on which interest is calculated for
your account is determined by the average
daily balance method, which applies a
periodic rate to the average balance in the
account of the period. The average daily
balance is calcidated by adding the full
amount of principal in the account for each
day of the period and dividing that figure by
the number of days in the period.
(f) Fees *
The following fees may be assessed against
your account:
_______ _____ _
_______ _______
_______ _______
______
_______
$____
$____
$____
:
af $_____
______ )
______
your deposit will be placed in a [--------—
account for which interest will be paid based
on the simple interest rate in effect at that
time] [noninterest-bearing account].
(j) Potential Loss of Principal
Changes in the [description of feature] may
result in a loss of principal.
B-2—Model Clauses for Changer in Terms
On______ , the cost of [description and
fee] will increase to $______
On_____ * the annual percentage yield
for your account wiU decrease to______ %.
On_____ , the minimum balance
required to avoid imposition of a fee will
increase to $______ .
B-3—Sample Form (Multiple Accounts)
Bank ABC—Disclosure of Interst and
Charges
This disclosure contains information about
your:
—Now Account
—Passbook Savings Account
X Money Market Account
—1 Year Certificate of Deposit (CD)
—2 Year Certificate of Deposit (CD)
Fees
The foUowing fees and penalties may be
assessed against your account:
%_____ of____
(g) Transaction Limitations
You may only make______ withdrawals
from your account each statement cycle—
______ by check and______ otherwise.
The minimum withdrawal is $______ .
You may only make______ deposits into
your account each statement cycle.
You may only make______ ATM
[withdrawals from] [deposits into] your
account each statement cycle.
You may only make______
preauthorized transfers [from] [into] your
account each statement cycle.
You may not make deposits into or
withdrawals from this account until the
maturity date.
(hjEarly Withdrawal Penalty
We will impose a penalty if you withdraw
[any] [all] of the depositied funds before the
maturity date. The fee imposed will equal
______ months of interest.
A penalty of $______ will be charge if
you withdraw [any] [all] of the deposited
funds before the maturity date.
If [any] [all] of the deposit is withdrawn
before [the end of] that time, the simple
interest rate paid on the remaining funds in
your account will b e______ %with an
annual percentage yield of______ %.
(i) Renewal Policy
(i) Automatically renewable. This account
wUl automatically renew at maturity.
(ii) Renewal upon notice from consumers.
The account will not renew automaticaUy at
maturity. If you do not renew the acount,
X Fee per month for not maintain
ing a $500 minimum balance
every day...................................
$6.00
—Fee for every check you write
on the account........................... - .25
X Fee for each ATM withdrawal
.25
X Fee for each ATM deposit..........
1.00
X Fee for a stop payment order.....
12.50
X Fee for checks presented
against insufficient funds........ „..
15.00
X Fee for each wire transfer (in
coming or outgoing)................
10.00
X Fee for writing more than 3
checks per month..........................
6.00
X Fee for making more, than 6
(total) withdrawals per month....
8.00
—Fee for set up to gain access to
computerized home banking........
6.00
X Fee for check printing (200
checks) (depending on style se
lected)............. .......................... 12.00 to
18.00
X Fee per month for access to
telephone bill payment plan........
3.00
X Fee for assistance with recon
ciling bank statements (hourly
\ rate)....... ................................ .
17.00
X Fee for a photocopy of monthly
statement or Form 1099........
4.00
—Fee for making a transaction
1.75
without an account passbook.....
—Penalty for early withdrawal (1
year CD)....................
50.00
—Penalty for early withdrawal (2
year CD).....................................
100.00
Rate Information (Current Rates are Listed
Below)
—Your simple interest rate and annual
percentage yield are fixed.
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Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules________
X Your simple interest rate and annual
percentage yield are fixed.
X Your simple interest rate and annual
percentage yield may change. The simple
interest rate for your account is based on
the 6 Month Treasury bill plus a margin of
.25%. This rate may change daily. The
simple interest rate will never be less than
3%.
Minimum Balance To Avoid a Fee
X A fee will be imposed every month if your
account does not have a minimum daily
balance of $500 for each day of the month
12759
Early Withdrawal Penalty
—A penalty will be charged if you withdraw
any of the deposit before the maturity date
Renewal Policy
—The account will not renew automatically
at maturity. If you do not renew the
account, your deposit will be placed in a
noninterest-bearing account
Transaction Limitations
Time Requirements
X You may only make 0 withdrawals from
your account each month—3 by check and —To earn the annual percentage yield listed
above, your entire deposit must remain on
3 otherwise. The minimum withdrawal is
deposit until [______ ]
$100
—-You may not make deposits or withdrawals
Additional disclosures for your account are
included in the attached chart.
from this account until the maturity date
Compounding and Crediting Policies
X Interest will be compounded on a daily
basis
X Interest will be credited to your account on
the last day of each month
—Interest will be credited to your account on
the last day of each month and at maturity
Additional Disclosures About Your Account
Annual
percentage
yield
(percent)
Simple
interest rate
(percent)
Period of time the simple
interest rate is in effect
NOW Account....................
Passbook Savings Account-
4.08
3.56
4.00
3.50
Money Market Account.......
1 year Certificate of Deposit
2 year Certificate of Deposit
4.60
5.34
5.97
4.50
5.20
5.80
Rate may change daily....
30 days from account
opening.
Rate may change daily....
Until maturity...................
Until maturity...................
Minimum
balance
to open
the
account
Minimum
daily
balance
to earn
interest1
$100
$100
$100
$100
Daily balance method.
Daily balance method.
$100
$1,000
$1,000
$100
$1,000
1,000
Daily balance method.
Daily balance method.
Daily balance method.
Method to determine
balance on which
interest is paid 1
1The balance on which interest is paid is determined by the daily balance method, which applies a periodic rate to the full amount of principal in the account
each day.
B-4—Sample Form (NOW Account)
Bank XYZ—Disclosure of Interest and
Charges NOW Account
Fees
The following fees and penalties may be
assessed against your account:
Fee per month for keeping a $500
minimum balance.................
$6.00
Fee for every check you write on
your account...............................
.25
Fee for an ATM card (annual fee)...
10.00
Fee for each ATM withdrawal.......
.25
1.00
Fee for each ATM depsoit.............
Fee for a stop payment order.........
12.50
Fee for checks presented against
insufficient funds (NSF)..............
15.00
Fee for printing checks (per 200).... 12.00 to
18.00
Fee to establish a preauthorized
3.00
transfer..... .................................
Fee for not providing taxpayer ID
number.......................................
7.00
Fee for bank-by-mail kit.................
5.00
Fee to hold a periodic statement
at branch....................................
15.00
Rate Information
The simple interest rate for your account is
5.00% with an annual percentage yield of
5.13%. You will be paid this rate until 9-1-92.
Your simple interest rate and annual
percentage yield may change.
We may change the simple interest rate for
your account based on market or other
factors at any time.
The simple interest rate will never be less
than 3%.
Minimum Balance Requirement
You must deposit $100 to open this account.
A minimum balance fee will be imposed for
every month your account does not have a
average daily balance of $500.
You must maintain an average daily
balance of $100 to earn the annual percentage
yield listed above.
Balance Computation Method
The balance on which interest is paid for
your account is determined by the average
daily balance method, which applies a
periodic rate to the average balance in the
account for the period. The average daily
balance is calculated by adding the full
amount of principal in the account for each
day of the period and dividing that figure by
the number of days in the period.
Compounding and Crediting
Interest for your acount will be
compounded daily and credited to your
account balance on the last day of each
month.
B-5—Sample Form (Certificate of Deposit)
XYZ Savings Bank—Disclosure of Interest
and Charges; 1 Year Certificate of Deposit
Rate Information
The simple interest rate for your account is
6.00% with an annual percentage yield of
0.18%. You will be paid this rate until the
maturity date of the certificate.
Time Requirement
To earn the annual percentage yield listed
above, your entire deposit must remain on
deposit until June 28,1993.
Minimum Balance Requirements
You must deposit $1,000 to open this
account.
You must maintain a minimum daily
balance of $1,000 to earn the annual
percentage yield listed above.
Balance Computation Method
The balance on which interest is paid for
your account is determined by the daily
balance method, which applies a periodic
rate to the full amount of principal in the
account each day.
Transaction Limitations
You may not make deposits or withdrawals
from this account until the maturity date.
Early Withdrawal Penalty
If you withdraw any funds before the
maturity date, a penalty of $50 will be
charged to your account.
Renewal Policy
This account will be automatically
renewed at maturity. Even after it is renewed,
you may withdraw the funds within 10 days
without being charged a penalty.
Compounding and Crediting
Interest for your account will be
compounded daily and credited to your
account balance on the last day of each
month and at maturity.
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Federal Register /
Vol. 57, No. 71 / Monday, April 13, 1992 / Proposed Rules
B-6—Sample Form (Certificate of Deposit
Advertisement)
Bank XYZ—Always Offers You Competitive
CD Rates
Account
Annual Percentage Yield
5 Year Certificate............
4 Year Certificate............
3 Year Certificate............
2 Year Certificate............
1 Year Certificate............
6 Month Certificate * .......
90 Day Certificate * .........
The annual percentage
yields are effective 3/
9/92 through 3/16/9L.
6.31
6.07
5.72
5.52
4.54
4.34
4.21
Funds must remain on
deposit until maturity
to earn the advertised
yield.
*The annual percentage yield assumes funds wiH
remain on deoosit tor a full year at the advertised
rate. A penalty may be imposed for early withdrawal.
The minimum daily balance to open the account and
to earn interest is $1,000.
For more information call: 202-123-1234,
Bank XYZ. Deposits insured to $100,000 by
FDIC.
B-7—Sample Form (Money Market Account
Advertisement)
The Prime Dollars In The Market Are In
Money Market Accounts With Bank XYZ
Annual percentage yield
Accounts with a balance
of $5,000 or less.
Accounts with a balance
over $5,000.
The annual percentage
yields are available
April 15 through April
20.
5.07%*
5.57%*
Fees or other conditions
could reduce the
earnings on the
account.
*The rates may change after the account is
opened.
For more information call: 202-123-1234,
Bank XYZ; founded 1899. Deposits insured to
$100,000 by FDIC.
Appendix C—Effect on State Laws
(a) Inconsistent Disclosure Requirements
State law requirements that are
inconsistent with the disclosure requirements
of the act and this regulation are preempted
to the extent of the inconsistency. A state law
is inconsistent if it requires a depository
institution to make disclosures that
contradict the requirements of the federal
law. A state law is also contradictory if it
requires the use of the same term to represent
a different amount or a different meaning
than the federal law, or if it reguires the use
of a term different from that required in the
federal law to describe the same item.
(b) Preemption Determinations
A depository institution, state, or other
interested party may request the Board to
determine whether a state law requirement is
inconsistent with the federal requirements. A
request for a determination shall be in
writing and addressed to the Secretary,
Board of Governors of the Federal Reserve
System, Washington, DC 20551. Notice that
the Board intends to make a determination
(either on request or on its own motion) will
be published in the Federal Register, with an
opportunity for public comment unless the
Board finds that notice and opportunity for
comment would be impracticable,
unnecessary, or contrary to the public
interest and publishes its reasons for such
decision. Notice of a final determination will
be published in the Federal Register and
furnished to the party who made the request
and to the appropriate state official.
(c) Effect of Preemption Determinations
After the Board determines that a state law
is inconsistent, a depository institution may
not make disclosures using the inconsistent
term.
(d) Reversal of Determination
The Board reserves the right to reverse a
determination for any reason bearing on the
coverage or effect of state or federal law.
Notice of reversal of a determination will be
published in the Federal Register and a copy
furnished to the appropriate state official
Appendix D—Issuance of Staff
Interpretations
Officials in the Board’s Division of
Consumer and Community Affairs are
authorized to issue official staff
interpretations of this regulation. These
interpretations provide the protections
afforded under section 271(f) of the act.
Except in unusual circumstances,
interpretations will not be issued separately
but will be incorporated in an official
commentary to the regulation, which will be
amended periodically. No staff
interpretations will be issued approving
depository institutions’ forms, statements, or
calculation tools or methods.
By order of the Board of Governors of the
Federal Reserve System, April 2,1992.
Jennifer J. Johnson,
Associate Secretary of the Board.
[FR Doc. 92-8013 Filed 4-10-92; 8:45 am]
BILL)NO CODE 6 210-01-M
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