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FEDERAL RESERVE BANK
OF NEW YORK
[
Circular No. 10693
February 25, 1994
"1
J
REGULATION DD — T R U T H IN SAVINGS
Proposed Official Staff Commentary
Comments Requested by April 1, 1994
To All Depository Institutions in the Second Federal
Reserve District, and Others Concerned:
The following statement has been issued by the Board of Governors of the Federal Reserve
System:
The Federal Reserve Board has published for comment a proposed official staff commentary to
its Regulation DD, Truth in Savings. Comment is requested by April 1, 1994.
The commentary applies and interprets the requirements of the regulation and is a substitute for
individual staff interpretations. The proposed commentary incorporates much of the guidance provided
when the regulation was adopted, and addresses additional questions that have been raised about the
application of its requirements.
Printed below and on the following pages is the text of the proposed official staff commentary
to Regulation DD, as published in the F e d e r a l R e g is te r of February 7. Comments on the proposal
should be submitted by April 1, and may be sent to the Board of Governors, as specified in the notice,
or to our Compliance Examinations Department.
W illiam J. M cD onough ,
P r e s id e n t.
FEDERAL RESERVE SYSTEM
12 CFR Part 230
[R egulation DO; D ocket No. R -0 82 4 ]
Truth in Savings
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: P rop osed o ffic ia l s ta ff
in te rp re ta tio n .
The Board is publishing for
comment a proposed official staff
commentary to Regulation DD (Truth in
Savings). The commentary applies and
interprets the requirements of
Regulation DD and is a substitute for
individual staff interpretations. The
SUMMARY:
proposed commentary incorporates
much of the guidance provided when
the regulation was adopted, and
addresses additional questions that have
been raised about the application of its
requirements.
DATES: Comments must be received on
or before April 1,1994.
ADDRESSES: Comments should refer to
Docket No. R-0824, and may be mailed
to William W. Wiles, Secretary, Board of
Governors of the Federal Reserve
System, 20th Street and Constitution
Avenue, NW., Washington, DC 20551.
Comments also may be delivered to
room B-2222 of the Eccles Building
between 8:45 a.m. and 5:15 p.m.
weekdays, or to the guard station in the
Eccles Building courtyard on 20th
Street, NW. (between Constitution
Avenue and C Street) at any time.
Comments may be inspected in Room
MP-500 of the Martin Building between
9 a.m. and 5 p.m. weekdays, except as
provided in 12 CFR 261.8 of the Board’s
rules regarding the availability of
information.
FOR FURTHER INFORMATION CONTACT: Jane
Ahrens, Kyung Cho, Kurt Schumacher
or Mary Jane Seebach, Staff Attorneys,
Division of Consumer and Community
Affairs, Board of Governors of the
Federal Reserve System, at (202) 4523667 or 452-2412; for the hearing
impaired only, Dorothea Thompson,
Telecommunications Device for the
Deaf, at (202) 452-3544.
PRINTED IN NEW YORK, FROM FEDERAL REGISTER, VOL. 59, NO. 25, pp. 5536-48
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Federal Register / V ol. 59, N o. 25 / M o n d a y , F e b ru a ry 7, 1994 / P r o p o s e d R u le s
SUPPLEMENTARY INFORMATION:
(1) Background
T he purpose o f the Truth in Savings
A ct (12 U.S.C. 4301 et seq.) is to assist
con su m ers in com paring d ep osit
accoun ts offered by d epository
in stitu tion s. T h e act requires
in stitu tio n s to d isclo se fees, the interest
rate, the annu al percentage y ield , and
other accoun t term s w hen ever a
con su m er requ ests the inform ation and
before an accoun t is op en ed . Fees and
other inform ation also m ust be provided
on any p eriod ic statem ent the
in stitu tion se n d s to the consum er. R ules
are set forth for d ep osit account
ad vertisem en ts and advance n o tices to
account h old ers o f adverse ch an ges in
terms. T he act restricts h ow in stitu tio n s
m ust determ in e the account b alance on
w h ich interest is calculated. T he act is
im p lem en ted by the Board’s R egulation
DD (12 CFR part 230), w h ich b ecam e
effective on June 2 1 ,1 9 9 3 . The
regulation au th orizes the issu a n ce o f
official staff interpretations o f the
regulation. (See A p p en d ix D to
R egulation DD.)
T he Board is p u b lish in g a proposed
com m entary to R egulation DD. The
proposal is d esig n ed to provide
gu id an ce to d ep ository in stitu tio n s in
ap plying the regulation to sp ecific
transactions and is a substitute for
in d ivid u al staff interpretations. The
Board con tem p la tes updating the
com m entary p eriod ically to address
significant q u estio n s that arise. It is
exp ected that th is com m entary w ill be
adopted in final form in June 1994 w ith
a six-m onth tim e period for option al
com p lian ce u n til the effective date,
estim ated in D ecem ber 1994.
(2) Proposed Commentary
The Federal Register d ocu m ents
con taining th e regulation that
im plem en ted the act and d ocu m en ts for
subsequent am en dm en ts set forth a large
am ount o f supplem entary m aterial
interpreting the n ew regulation. (See
final rule p u b lish ed on Septem ber 21,
1992 (57 FR 43337), correction n otice
p ub lish ed on O ctober 5, 1992 (57 FR
46480), and am en dm en ts p u b lish ed on
March 19, 1993 (58 FR 15077).) In large
m easure, the p roposed com m entary
incorporates the su pplem entary m aterial
from th o se rulem akings, and reflects the
view s exp ressed therein w ithou t
su bstantive change. A num ber o f issu es
that have arisen sin ce the p u b lication of
the regulation have also been addressed.
Proposed interpretations o f n ew issu es
are noted b elow .
On D ecem ber 6, 1993, the Board
pub lish ed a proposal to am end the
regulation’s rules for calcu lating the
annual percentage y ie ld for accoun ts
that pay interest prior to m aturity (58 FR
64190). (See also the n otice exten d in g
the com m en t p eriod p u b lish ed on
January 13, 1994, 59 FR 1921.) The
Board has deferred proposing
com m entary on p ro v isio n s of the
regulation affected by the proposal,
p en din g final action by the Board.
The sco p e o f the d iscu ssio n that
fo llo w s is lim ited so that, for in stance,
exam p les listed in the com m entary are
not repeated b elow .
Section 230.1 — Authority, Purpose,
Coverage, and Effect on State Laws
(c) Coverage
C om m ent l ( c ) - l clarifies that the
scop e o f the regulation is all d ep ository
in stitu tio n s (excep t credit u n ion s) that
offer accou n ts to resid en ts of a “ sta te,’’
su ch as a ccou n ts h eld in th e U nited
States, ev en though funds m ay be
transferred p eriod ically in to an accoun t
h eld at a location ou tsid e th e U nited
States. A n accoun t located o u tsid e the
U nited States is not covered, even if the
funds are h eld by a U.S. resident.
Section 230.2—Definitions
(a) A ccou n t
C om m ent 2(a)—1 p rovid es ex a m p les o f
accou n ts subject to the regulation,
in clu d in g the exam p le of a d ep osit
account required as a co n d itio n of
obtaining a credit card account (often
referred to as a “secu red ” credit card
account). The Board b elie v es it is
im portant for con su m ers to receive
d isclo su res about the term s, m on th ly
fees, or other charges that m ay ap ply to
su ch accou n ts, sin ce su ch inform ation
m ay not appear on d isclo su res given to
card holders und er the Truth in L ending
A ct a n d its im p le m e n tin g R e g u la tio n Z
(12 CFR part 2 2 6 ).
The proposed com m en t also in clu d es
exam p les of accoun ts not subject to the
regulation. T he Board’s proposed
com m en t narrows the sco p e of trust
accoun ts covered by the regulation, a
d ifference from gu idan ce p rovided in
supp lem entary m aterial to the
Septem ber 1 9 9 2 rulem aking. The
com m ent p rovid es that trust accoun ts
are not subject to the regulation w ith the
excep tion of in d iv id u a l retirement
accoun ts (IRAs) and sim p lified
em p lo y ee p en sio n (SEP) accounts. (See
proposed com m entary to paragraph 2(h)
o f this section.) The “tru st” for w h ich
the account is estab lish ed is not a
natural person, ev en though the trustee
and beneficiary m ight be. In addition ,
the law o f trusts im p o ses d u ties and
resp o n sib ilities upon all trustees that
the Board b elie v es d istin g u ish trust
accoun ts from other accoun ts h eld by
5537
on e in d iv id u a l for another so le ly for
p ersonal, fam ily or h o u seh old purposes.
F in ally, the Board b eliev es that
requiring an in stitu tion to id en tify both
the p urpose o f the trust and w hether the
accoun t has b een estab lish ed by
so m eo n e in a p rofessional capacity
w o u ld present an u n d ue com p lian ce
burden, w ith m inim al benefits. T he
Board requests com m ent on w hether
any accou n ts estab lish ed for trusts
(other than IRAs and SEP accounts)
sh ou ld be subject to the regulation,
particularly w h e n both the beneficiary
and the trustee are natural persons.
(b) A d vertisem ent
C om m ent 2 ( b ) -l p rovid es exam p les o f
com m ercial m essages con sid ered to be
ad vertisem en ts, su ch as m essages on
com puter screen s in bank lobbies and
accom p an yin g printouts. T he Board
b elie v es th ese m essages are sim ilar to
m essages in traditional advertising
m edia su ch as tele v isio n s and
new spap ers.
The com m en t also p rovides exam p les
o f m essages not co n sid ered to be
ad vertisem en ts, in clu d in g direct oral
d iscu ssio n s co n d u cted in person— but
not tele p h o n e con versations— regarding
the n egotiation o f a sp ecific account.
The Board b e lie v e s that the p urpose o f
advertising d isclo su r es— ensuring that
p rosp ective cu stom ers o f consum er
accoun ts k n ow b asic term s about the
accoun t— is adeq uately served by faceto-face d isc u ssio n s b etw een em p lo y ees
o f the in stitu tion and consum ers seek ing
inform ation about accounts. A lso, this
interpretation is sim ilar to the approach
taken in the O fficial Staff Com m entary
to the Board’s R egulation Z (12 CFR part
226, Supp. I, 2(a)(2)—1).
(f) Bonus
C om m ent 2(F)—1 p rovides exam p les o f
b onu ses. T he com m en t also provides an
exam p le o f an item that is not
con sid ered a b o n u s for purposes o f the
regulation— d isco u n t co u p o n s offered
by in stitu tio n s for u se at restaurants and
stores.
C om m ent 2(F)—2 clarifies the
ap p lication o f the de m inim is rule ($10
valu e or less) by d efining the calendar
year as the tim e frame for determ ining
w hether the b o n u s requirem ents are
triggered, to ease com p lian ce. The
com m en t also p rovid es that in stitu tion s
m ust aggregate per account the value o f
item s con tem p lated to be given during
the calendar year, ev en though an ite m ’s
in d ivid u al v a lu e is le ss than $10. T hus,
if an in stitu tion offers in January to give
a con su m er an item valu ed at $7.00 each
calendar quarter during the year if
account b alances in a NOW account
ex ceed $10 ,0 0 0 for each calendar
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5538
Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules
quarter, the b onu s ru les w o u ld be
triggered. On the other hand, if the
item s are given for op en in g separate
accounts— su ch as a $7 .0 0 item for
renew ing a tim e account and another for
op en ing a savin gs account— the valu e
given for each accoun t rem ains w ith in
the de m inim is ex cep tio n , and the
b onus ru les w o u ld not be triggered.
C om m ent 2(f}-3 clarifies that the
w aiver or redu ction o f a fee or
absorption o f ex p en se s is not a b onu s.
The Board so licits com m ent on th is
approach.
(h) C onsum er
Com m ent 2 (h )-3 clarifies coverage
issu es for retirem ent plans. For
exam p le, the proposed com m en t states
that SEP accoun ts and IRAs are
con sid ered con su m er accounts for
purposes o f the regulation. The Board
b elie v es that although in stitu tio n s are
nam ed as tru stees, SEP accou n ts and
IRAs are eq u ivalen t to other accou n ts
op en ed for con su m er purposes. O n the
other hand, the proposed com m en t
w ou ld ex c lu d e from coverage a cco u n ts
h eld in a Keogh plan, w h ich is
estab lish ed by a self-em p loyed
in dividu al. T h e Board b elie v es Keogh
accounts are sim ilar to accoun ts h eld by
a so le proprietor, w h ich C ongress
in tended not to cover.
Com m ent 2 (h )-4 p rovid es factors to
consider in d eterm in in g w heth er an
account is h eld by an unincorporated
n on b u sin ess association o f natural
iersons. A ssociation s w ith paid staff are
ikely to be m ore sop h isticated in their
investm ent d ecisio n s and are not as
likely to n eed d isclosu res. T he Board
so licits com m ent on w heth er the u se o f
factors is appropriate for p roviding
guidance in this area. In ad dition , the
Board so licits com m en t on the p roposed
factors and on w hat ad dition al factors
m ight in dicate an account is h eld by or
offered to an unincorporated a ssociation
o f natural persons.
f
(p) Passbook Savings A ccoun t
C om m ent 2 ( p ) - l clarifies that
institu tions m ay con sid er accoun ts as
"passbook sa v in g s,” ev en if direct
d ep osits su ch as social security
paym ents are m ade to the account
w ithout the u se o f the passbook. The
proposed com m ent is con sisten t w ith
the requirem ents o f Regulation E (12
CFR 205.9). A ccou n ts that permit other
electronic fund transfers— w hether or
not called "passbook"— and thus trigger
Regulation E’s requirem ent to send
statem ents at least quarterly are not
passbook savings accoun ts, and
in stitu tions m ust com p ly w ith th e
periodic statem ent d isclosu res in
§ 2 3 0 .6 o f this part.
(t) Tiered-rate A ccou n t
C om m ent 2(t)—1 clarifies that tim e
accou n ts that pay different rates based
so le ly on th e am ount o f the in itial
d ep osit are not con sid ered tiered-rate
accounts. In th is case, ad vertisem en ts
and account d isclo su res w o u ld not
reflect tiered-rate d isclo su res for th e
account.
Section 230.3— General D isclosure
Requirements
(b) General
C om m ent 3(b)—1 p rovid es gu id an ce
on the sp ec ificity required for the
d isclo su res o f the com p o u n d in g and
crediting frequencies. T he Board
b eliev es slight variations in cy c le s are
con sisten t w ith the n otion o f "m on th ly”
cy cles, w h ich are often not based on an
actual calendar m onth.
(c) R elation to R egulation E
C om m ent 3(c)—1 p rovid es ex a m p les o f
d isclosu res u nder R egulation E that also
com p ly w ith th is regulation.
The com m en t clarifies that an
in stitu tion m ay rely on R egulation E’s
d isclosu re ru les regarding fees im p osed
at ATM s and lim itation s on the
frequency and am ount o f electron ic
fund transfers, in clu d in g securityrelated ex c ep tio n s. But any fees
a ssessed for— or any lim itation s placed
on th e num ber or am ount o f—“intrain stitu tional transfers” from other
accoun ts at the in stitu tio n m ust be
d isclo sed und er th is regulation, ev en
though th ose transactions are exem p t
from R egulation E. (See § 230.4(b) o f th is
part.)
Section 230.4—A ccount Disclosures
(a) D elivery o f A cco u n t D isclosu res
(a)(1) A ccoun t O pening
The regulation requires in stitu tio n s to
provide accoun t d isclo su res before an
account is o p en ed . C om m ent 4 ( a ) ( l) - l
p rovides ex a m p les o f ev en ts that do and
do not trigger the d elivery o f n ew
account d isclo su res. C om m ent 4(a)(1)—1
p rovides gu id an ce to in stitu tion s that
deem an accoun t to be clo sed , then
receive a d ep osit from the consum er.
The circu m stan ces under w h ich an
institution m ay d eem an accoun t c lo sed
is governed by state or other law .
H ow ever, the Board b eliev es that if an
in stitu tion accep ts a d ep osit from a
con su m er on an accoun t the in stitu tion
has d eem ed to be " c lo se d ” (such as w ith
a balance o f $0) op en in g account
d isclo su res are required.
The prop osed com m en t also p rovid es
that an accoun t acquired in a merger or
acq u isition is not a n ew account.
Com m ent is so licited on w h eth er the
rules for a cq u isitio n s in v o lv in g the
R esolu tion Trust Corporation and the
Federal D ep osit Insurance Corporation
sh o u ld be d istin g u ish ed from the rules
for other acq u isitio n s, sin c e they m ay
in v o lv e the acq u isitio n o f d ep osits, not
accounts.
(a) (2) R equests
Paragraph (a)(2)(i)
C om m ent 4(a)(2)(i)-3 clarifies that ten
b u sin ess d ays (a period con sisten t w ith
other tim in g ru les for providing
d isclo su re to con su m ers that open
accou n ts by telep h o n e, for exam ple) is
a reasonable tim e for resp ond ing to
requests for d isclo su res.
(b) Content of Account Disclosures
Paragraph (b)(1) Rate Information
Paragraph (b)(l)(i) Annual Percentage
Yield and Interest Rate
C om m ent 4 ( b ) (l)( i) -l p rovides that no
rate or y ie ld other than the interest rate
and an nual percentage y ie ld m ay be
stated in accou n t d isclo su res, w ith the
ex cep tio n o f a p erio d ic rate
corresp ond ing to the interest rate (sin ce
it is ea sily u nd erstood by consum ers).
(b)(2) C om p ou n d in g and Crediting
(b)(2)(i) Frequency
Interpretation o f th is paragraph is
deferred p en d in g th e Board’s final
action on p rop osed am en dm ents to
R egulation DD.
(b)(2)(ii) Effect of Closing an Account
P rop osed com m en t 4 (b )(2 )(ii)-l
ex p la in s that in stitu tio n s m ay in clu d e
in their contract sp e c ific con sum er
action s that w ill be con sid ered by the
in stitu tio n to be a request to clo se the
accoun t, and that m ay result in the
n on p aym en t o f accrued but u ncredited
interest. (S ee § 230.7(b) o f th is part.) T he
Board so lic its com m en t on th is
approach.
(b)(4) F ees
C om m ents 4 (b )(4 )-l through - 3
p rovide gu id a n ce for d isclo sin g the
am ount o f fees that m ay be assessed in
co n n ectio n w ith th e account and the
co n d itio n s u n d er w h ic h they m ay be
im p osed . T h e Board b eliev es that
attem pting to list in th e com m entary all
fees im p o sed by in stitu tio n s w ou ld
p rod u ce a list that w o u ld b ecom e both
len gthy and ou tdated.
(b)(5) Transaction Lim itations
C om m ent 4(b)(5)—1 clarifies that
in stitu tio n s n eed n ot d isclo se their right
to require sev en -d a y advance n otice for
w ith d raw als from an account. (See 12
CFR part 204.)
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Federal Register t Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules
(b)(6) Features o f T im e A ccou n ts
(b)(6)(i) T im e R equirem ents
C om m ent 4 (b )(6 )(i}-l p rovid es that
in stitu tio n s offering “ca lla b le” tim e
a cco u n ts m ust state th e date or the
circu m stan ces under w h ic h the accoun t
m ay b e red eem ed , in ad d ition to the
m aturity date. T he Board b elie v es th e
d isclo su re is a co m p o n en t o f the
m aturity date— in form ing th e con su m er
w h e n th e fu n d s in the accoun t m ay
b eco m e availab le for rein vestm en t.
(b)(6)(h) Early W ithdraw al P en alties
C om m ent 4(b )(6 )(ii)-2 p rovides
ex a m p les o f early w ith d raw al p en alties,
and clarifies that early w ithd raw al
p en a lties in clu d e b o n u ses that m ay be
reclaim ed if fun ds are w ithd raw n prior
to m aturity.
C om m ent 4(b)(6)(ii)—3 clarifies that
in stitu tio n s are not required to d isclo se
as early w ithdraw al p en a lties potential
in co m e taxation co n seq u en ces for
con su m ers w h o w ith d raw funds h e ld in
IRAs or sim ilar plans.
Section 230.5—Subsequent Disclosures
(a) C hange in Term s
Paragraph (aK l) A d v a n ce N o tice
Required
C om m ent 5 (a )(l)-3 p rovid es gu id an ce
o n an in stitu tio n ’s resp o n sib ilities to
p rovid e change in term s n o tices w h en
a ccou n t d isclosu res reflect that a term
m ay ch an ge u p on th e occurrence o f an
ev en t, su ch as a fee w aiver for
em p lo y e e s during their em p loym ent.
H ow ever, the Board b elie v es that a
ch an ge in term s n o tice d o es not extend
to ch an ges in th e type o f accoun t h eld .
(S ee prop osed com m entary to
§ 230.4(a)(1) o f th is part, w h ich clarifies
that transferring fun ds h e ld in an
M M DA to op en a NOW accoun t m ust be
treated as the o p en in g o f a n ew
accoun t.)
Paragraph (a)(2)(ii) C heck Printing Fees
T h e regulation ’s ex c ep tio n to
p rovid in g a ch an ge in term s n o tice for
in creases to ch eck printing charges is
based o n th e co n su m er’s control over
th e sty le and quantity o f ch eck s ordered.
T he Board so licits com m en t on other
p roducts, if any, that sh o u ld be
sim ilarly treated.
(b) N o tice Before M aturity for T im e
A cco u n ts Longer Than O ne M onth That
R en ew A utom atically
C om m ents 5(b)—1 through - 5 address
q u estio n s about n o tices that m ust be
sent for au tom atically ren ew in g tim e
accou n ts. C om m ent 5 ( b ) -l provid es
g u id a n ce regarding a tim e accoun t that
m ay, in fact, have a term longer than the
stated m aturity date b ecau se the
m aturity date falls on a w eek en d or
h o lid a y . T he Board h a s received
q u e stio n s asking w h eth er th is d elay on
a on e-year tim e d ep osit w o u ld m ake the
term longer than on e year (thus
requiring the fu ll accoun t d isclo su r es
u nd er paragraph 5(b)(1) o f th is sectio n
prior to renew al rather than th e
abbreviated d isclo su res perm itted by
paragraph 5(b)(2)). T h e sa m e issu e arises
for tim e accou n ts w ith a stated term o f
o n e m onth that m ay b e ex ten d ed
b ey o n d 31 days. T he Board b e lie v e s
th e se short ex te n sio n s d ue to the
m aturity d ate’s falling on a w eek en d or
h o lid a y do not affect the cla ssifica tio n
o f th e accoun t for p u rposes o f the type
o f d isclo su r es in stitu tio n s are required
to provid e.
C om m ent 5 (b )-2 clarifies that w h en
d isc lo sin g th e d ate w h e n the in terest
rate and an nual percentage y ie ld can b e
d eterm in ed , in stitu tio n s m ay u se
gen eral d isclo su r es o f that d ate if the
date is ea sily discern ed .
T h e Board has received m any
q u e stio n s about “club a cc o u n ts.”
C om m en t 5(b)—4 m akes clear that clu b
a cco u n ts that oth erw ise m eet the
d efin itio n o f a tim e accoun t (§ 230.2(u ))
m u st fo llo w the requirem ents o f th is
se ctio n , ev e n if th e co n su m er w ith d raw s
fu n d s at m aturity rather than “ rollin g
o v er” th e prin cip al am oun t for another
term. T h e p roposed com m en t also
cla rifies that if th e co n su m er h as
p rev io u sly agreed to m ake p aym en ts
in to th e accoun t for th e n ext clu b c y c le
(for ex a m p le, by direct d ep o sit or by
transfers from another accoun t), th e clu b
a cco u n t sh o u ld b e treated as an
a u tom atically renew able tim e account.
C om m ent 5(b)—5 cla rifies d isclo su re
requ irem en ts for a ch an ged term for th e
su b seq u en t renew al o f a rollover tim e
accoun t. If the n o tic e required by th is
paragraph has b een p rovid ed to th e
co n su m er about th e ren ew in g tim e
accou n t, in stitu tio n s m ay p rovid e n ew
a cco u n t d isclo su r es or a d isclo su re that
reflects th e co n su m er’s request and th e
n e w term. T h e regulation states that if
d isclo su r es have p rev io u sly b een given
and the term s rem ain th e sam e,
in stitu tio n s n eed not p rovid e the
d isclo su r es a seco n d tim e. (See
§ 230.4(a) o f th is part.) S in c e con su m ers
receiv e d isclo su res about their ren ew in g
tim e accoun t, th is approach provid es
con su m ers w ith essen tia l in form ation
an d ea ses co m p lia n ce for in stitu tion s.
T h e Board requests co m m en t on th is
approach.
5539
Paragraph (b)(1) M aturities o f Longer
T han O n e Year
C om m en t 5(b)(1)—1 clarifies that
in stitu tio n s n eed n o t h ig h ligh t th e n ew
term s reflected in th e d isclosures.
(c) N o tice for T im e A ccoun ts One
M onth or Less That R enew
A u tom atically
In stitu tion s have lim ited d isclosu re
re sp o n sib ilities for rollover tim e
a cco u n ts w ith m aturities o f o n e m onth
or less. If a term p reviou sly d isclo sed
(other than th e interest rate and annual
percen tage yield ) is chan ged at renew al,
in stitu tio n s m ust sen d a b rief n otice
d escrib in g th e ch a n g e “w ith in a
reason able tim e" after th e renew al o f the
accoun t. C om m ent 5(c)—1 p rovid es that
10 calen d ar days after the renew al is a
reason ab le tim e ex cep t For accoun ts
shorter than 10 d ays, w h ich sh ou ld
re ce iv e d isclo su r es before any
su b seq u en t renew al.
(d) N o tic e Before M aturity for T im e
A cc o u n ts Longer Than O n e Year That
Do N o t R en ew A u tom atically
C om m ent 5 ( d ) - l cla rifies that
in stitu tio n s n eed n ot provide n ew
a cco u n t d isclo su r es w h e n fu n d s are
su b seq u en tly transferred fo llo w in g the
m aturity o f a n on rollover tim e account,
u n le ss a n e w accoun t is estab lish ed . T he
Board so lic its co m m en ts on h ow
in stitu tio n s treat fun ds h eld in a
n o n ro llo v er tim e a ccou n t fo llo w in g
m aturity, and w h eth er n e w account
d isclo su r es are appropriate in ca ses
w h ere fun ds rem ain w ith in stitu tion s.
For ex a m p le, is a ch eck sent to th e
co n su m er au tom atically, or w ith in a
certain nuihber o f d a y s o f m aturity? A re
fun ds transferred to an accou n t, and if
so, h o w lon g are th e funds ty p ica lly
h eld in that account?
Section 230.6—Periodic Statement
Disclosures
(a) G eneral Rule
C om m ent 6 (a )-2 p rovid es gu id an ce to
in stitu tio n s w h e n quarterly p eriodic
sta tem en ts are norm ally sen t for the
a cco u n t but a co n su m er’s electro n ic
fun d transfer triggers th e in stitu tio n ’s
d uty u n d er R egulation E to sen d a
statem ent that m onth. In stitu tions n eed
not treat interim m on th ly statem ents as
p erio d ic statem ents subject to the
requirem ents o f th is regulation; if they
ch o o se n ot to do so , they m ust provide
th e d isclo su r es (such as the interest
earned and annual p ercentage yield
earned) on subsequ en t quarterly
statem ents.
C om m ent 6 (a )-3 cla rifies that
in stitu tio n s m ay in clu d e lim ited
a cco u n t inform ation for on e accoun t (an
y o b ? 3
5540
Federal R e g is te r / V ol. 59, N o. 25 / M o n d a y , F e b ru a ry 7, 1994 / F ro p o s e d R u le s
MMDA, for exam ple) on the p eriod ic
statem ent o f another accoun t. H ow ever,
d isclosin g interest or rate inform ation
w ould trigger the duty to state the
annual percentage y ield and other
disclosure requirem ents on that
statem ent.
Com m ent 6(a)~4 p rovid es gu id an ce
on additional inform ation that m ay
appear on periodic statem ents.
Paragraph (a)(3) F ees Im posed
Comm ent 6(a)(3)-2 p rovid es exam p les
of sim ilar types of fees that can be
grouped together if they are d isclo sed
w ith the sam e nam e or d escrip tion . It
also m akes clear that all other account
fees, in clu d ing those related to
electronic services that are not fund
transfers, m ust be d isc lo se d in
accordance w ith § 2 30.6 o f th is part.
Com m ent 6(a)(3)—4 clarifies that
in stitu tions m ay co m p ly w ith the
requirem ents of R egulation E for
d isclo sin g electron ic fun ds transfer fees
on p eriodic statem ents.
Paragraph (a)(4) Length o f Period
C om m ent 6(a)(4)-2 p rovid es that if a
consum er op en s or c lo se s an accoun t
during a period, the annual percentage
yield earned and the other d isclo su res
for the con su m er’s accoun t m ust reflect
only th ose days the accoun t w a s op en ,
such as w h en a con su m er ch an ges from
an interest-bearing accoun t to a
noninterest-bearing accoun t in the
m idd le o f a period.
(b) S pecial Rule for A verage D aily
Balance M ethod
W hen an in stitu tion u se s the average
daily balance m ethod for m o n th ly
periods and p rovid es a quarterly
statem ent, the literal language o f the
regulation suggests that in stitu tio n s
sh ou ld provide three interest figures
w ith three corresp ond ing annual
percentage yield earned figures.
Com m ent 6(b)—3 w o u ld perm it
in stitu tions to sh o w eith er separate
figures for each m onth or a figure for the
w h o le quarter. The Board b e lie v e s
consum ers m ay receive m ore u sefu l
inform ation if in stitu tio n s p ro v id e on e
interest figure and on e corresp on d in g
annual percentage y ie ld earned figure
for the period.
Section 230.7—Payment o f Interest
(a) P erm issible M ethods
C om m ent 7(a)-5 clarifies that the
regulation d oes not require in stitu tio n s
to pay interest after a tim e accoun t
m atures and provides ex a m p les to
illustrate the rule.
C om m ent 7(a)-6 ad d resses “dormant"
accounts. The Board so lic its com m en t
on w heth er an institution sh o u ld or
sh ou ld not be perm itted to w ith h o ld the
paym ent of interest for dormant
accounts. (See com m ent 7(b}-4,
regarding the forfeiture o f accrued but
uncredited interest for dorm ant
accounts.) The Board a lso so lic its
com m ent on w h eth er p rovid in g further
gu idance on the d efin itio n o f a dormant
account w o u ld be preferable to relian ce
on state or other law . A n d , if a uniform
tim e period w ere to be ad opted , what
period of tim e w o u ld be appropriate to
con sid er an accoun t dorm ant?
Paragraph (a)(2) D eterm ination of
M inim um B alance to Earn Interest
Com m ent 7(a)(2)—5 clarifies that w hen
a con su m er’s account has a n egative
balance, in stitu tio n s m ust u se zero, and
not a negative num ber, to d eterm in e the
balance on w h ich the in stitu tio n pays
interest and w h eth er any m inim u m
balance requirem ent h as b een met. The
Board b elie v es that the regulation
prohibits in stitu tion s from u sin g
n egative balance am oun ts for th ese
p urposes, regardless o f w h eth er a daily
balance or an average d aily b alance
requirem ent m ethod is u sed . (See
com m entary to A p p en d ix A , Part II,
w h ich prohibits the u se o f negative
b alances for calcu latin g the interest
figure for the annual p ercentage yield
earned.)
Com m ent 7(a)(2)-6 clarifies that for
club accounts, such as “ h o lid a y ” and
"vacation” club s, in stitu tio n s can n ot
im p ose a m inim u m b alance that co u ld
result in the n on p aym en t o f interest for
the entire club period. T he Board
b eliev es a m in im u m b alance that
requires con su m ers to m ake th e total
num ber o f paym ents or d ollar am oun ts
required under the club plan at the
m aturity o f the accou n t is tantam ount to
the en d in g balance m ethod o f
calcu lating interest— a balance
calcu lation m ethod not perm itted under
the regulation.
(b) C om pounding and C rediting P o lic ies
C om m ent 7(b )-3 cla rifies that
in stitu tion s m ay, by agreem ent w ith the
consum er, sp ecify circu m stan ces in
w h ich the in stitu tion d eem s an account
to be clo sed by the con su m er. If an
account is clo sed by th e con su m er,
R egulation DD d oes not require an
in stitu tion to pay accrued but
uncredited interest, as lon g as th is fact
is d isclo sed . (See § 230.4(b)(2)(ii).) For
exam p le, in stitu tion s m ay p rovid e in a
ch ecking account agreem ent that by
w riting a check w h ich redu ces the
account balance to $0, a co n su m er is
deem ed to have clo sed an a ccou n t, or
that the account w ill be d eem ed clo sed
if no activity occurs w ith in 60 d ays o f
that transaction. (See proposed
com m en t 230.4(a)(1)—1, w h ich requires
in stitu tio n s to treat the accep tance of a
d ep osit su b seq u en tly m ade by the
con su m er to that account as the op en ing
o f a n ew account.)
S e c ti o n 2 3 0 .8 — A d v e r t i s i n g
(a) M islead in g or Inaccurate
A dvertisem ents
In resp onse to con cern s exp ressed
about the p otential for m islead in g or
inaccurate ad vertising on in d oor signs,
com m en t 8 (a )-2 p rovid es gu id an ce
regarding tim e accou n ts and tiered-rate
accounts. The Board so lic its com m ent
on the approach taken.
The regulation prohibits in stitu tion s
from u sin g the term s “ free” or "no cost"
(or te n n s o f sim ilar m eaning) to
advertise accou n ts or account se n d ee s if
“ m ainten an ce and activity fe e s” can be
im posed . T he Board has received m any
q uestion s about w h ich fees trigger the
p rohibition. The Board b e lie v es that it is
not p o ssib le to id en tify by n am e all fees
that trigger th is lim itation. (See
d iscu ssio n for prop osed com m ent
4(b)(4)—1.) Instead, co m m en ts 8(a )-3
through - 7 provid e general p rin cip les
in stitu tio n s m ay u se, regardless o f what
a fee m ay be nam ed. T he Board so licits
com m en t on th e p roposed approach to
p rovide gu id an ce in this area.
In d efin in g the sco p e o f “m ainten an ce
and a ctiv ity ” fees, com m en t 8(a)—3
addresses ad vertisem en ts for "free”
accou n ts w ith op tion al electron ic
serv ices su ch as h om e banking. T he
Board b elie v es m any con su m ers
co n sid er electron ic se n d e e s su ch as
ATM access to be an integral part of
their accoun ts. Therefore, in its
Septem ber 1992 rulem aking, the Board
stated that in stitu tio n s co u ld not
advertise an accoun t as “ free” if a fee is
im p o sed for transactions at A TM s
o w n ed by the in stitu tion . S om e
in stitu tio n s have q u estio n ed th is
approach arguing that ATM a ccess is
provid ed o n ly upon a co n su m er’s
request and that con su m ers w ill receive
inform ation— in clu d in g the cost o f ATM
a ccess— before obtaining the service.
The Board so licits com m ent on th is
approach.
T he Board b elie v es co n su m ers are not
m islead by ad vertisem en ts for “ free”
accoun ts, if certain electron ic services,
su ch as h om e banking services, are
available for a fee. The Board b eliev es
that (un lik e ATM access) con su m ers do
not have a reasonable exp ectation that
services such as hom e banking w ou ld be
in clu d ed as part o f an account
advertised as free. Of cou rse, if optional
features that im p o se fees are advertised
w ith a free account, the advertisem ent
m ust m ake clear that charges are
Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules
a ssessed for th e op tio n a l feature. T h e
Board so licits com m en t on th is
approach, and requ ests com m en t on
w h eth er ATM se rv ic es sh o u ld be
d istin g u ish ed from other op tion al
electron ic services, and w heth er
con su m ers w o u ld b e m islead by an
advertisem ent for an accoun t that is
d escribed as “ free” e v e n though th e
in stitu tion m ay charge for ATM activity
at A T M s o w n ed by th e in stitu tion.
C om m ent 8 fa )-4 sp e c ifie s that the
term “ fees w a iv e d ” is sim ilar to th e
term s “ free" cm- “n o c o s t” for the
purposes o f this sectio n .
(b) P erm issib le Rates
T h e Board h a s receiv ed m any
q u estio n s about a d vertisin g accou n ts for
w h ich in stitu tio n s offer a num ber o f
v ersio n s (certificates o f d ep o sits, for
exam pleI. C om m ent 8(b>-3 clarifies that
in stitu tion s m ay state an annual
percentage y ie ld for each version o f an
account. A lternatively, the p roposed
com m en t w o u ld perm it in stitu tio n s to
state a representative ex a m p le as lo n g as
the advertisem ent m akes clear that, for
in stance, the advertised y ie ld is for a
tim e account w ith a 30-day maturity
and d oes not ap p ly to a ll tim e accou n ts.
Sim ilarly, the com m en t illustrates that
in stitu tio n s c o u ld a d v ertise selected
v ersio n s o f tim e a cco u n ts. T h e Board
so lic its com m en t on th is approach,
w h ich the Board b e lie v e s w o u ld
effectively m in im iz e co m p lia n ce
burdens for in stitu tio n s w h ile still
p rovid in g m ean ingfu l inform ation to
consum ers.
(c) W hen A d d itio n a l D isclo su res are
Required
T he regulation requires in stitu tion s to
d isc lo se addition al inform ation w h en
the annual percentage y ie ld is
advertised. C om m ent 8 ( c ) - l p rovid es
ex a m p les o f inform ation that d o es and
d o es not trigger th e ad dition al
d isclosu res. In re sp o n se to q u estion s
about the effect o f advertising a “b o n u s”
rate, the proposed com m en t illustrates
that stating “b o n u s rates are availab le”
d oes not trigger a d d itio n a l d isclosu res.
H ow ever, stating a “b o n u s rate o f 1% ”
over an in stitu tio n ’s current interest rate
for one-year certificates o f d ep osit is
eq u ivalen t to stating an interest rate.
Paragraph (c)(2) T im e A nnual
Percentage Y ield Is O ffered
C om m ent 8(c)(2)—1 clarifies th e
regulation ’s d isclo su r e requirem ents for
advertisem ents that state an annual
percentage y ie ld as o f a sp ecified
“recen t” date. T h e p rop osed com m en t
p ro v id es that w h en an advertisem en t is
p u b lish ed , th e sp e c ifie d “recent d a te”
m u st b e recent in relation to th e
p u b lication frequency o f th e m edia u sed
for th e advertisem ent (taking in to
accou n t estab lish ed prod uction
d ea d lin es for the m ed ia in v o lv ed ). For
ex a m p le, annual percentage y ie ld s a s o f
th e printing date o f a b rochure printed
o n ce for a d ep osit accoun t prom otion
that w ill run for six m o n th s w o u ld be
co n sid ered “recen t,” ev en though rates
m ay be ex p ected to ch an ge during the
six-m on th period. A n n u al percentage
y ie ld s p u b lish ed in a d a ily n ew sp ap er
or broadcast on te le v isio n m ust be
“ recen t” a s of the d aily p u b lish in g or
broadcasting d ea d lin e date, ev e n though
th e ad vertisem en ts m ay appear le ss
frequently (such as o n ce a m onth). T h e
Board so licits co m m en t on th is
approach.
Paragraph (c)(6) Features of T im e
A cco u n ts
Paragraph (c)(6)(i) T im e Requirem ents
C om m ent 8 (c )(6 )(i)-l addresses
q u estio n s regarding “c lu b ” accou n ts in
w h ic h there is a fixed m aturity d ate but
th e term o f th e accoun t m ay vary,
d ep en d in g o n w h en th e accoun t is
o p en ed . T h e p roposed com m ent
p rovid es that in stitu tio n s adequately
d isclo se the term o f the account'by
stating the estab lish ed maturity date and
th e fact that the actual term m ay vary.
Appendix A—Annual Percentage Yield
Calculation
Part I. A nn ual Percentage Y ield for
A cco u n t D isclosu res and A d vertisin g
P urposes
W ith on e ex cep tio n , the interpretation
o f A p p en d ix A , Part 1 is deferred
p en d in g the Board’s final action on
p rop osed am en d m en ts to R egulation
DD. P roposed com m en t app. A .I .- l
cla rifies rou n din g ru les w h ich m ay b e
u sed in calcu latin g interest and th e
an nu al percentage y ield . T h e Board
b elie v es that rou nding to five d ecim als
resu lts in a more p recise figure and is
in accordance w ith industry practices.
T h e Board requests com m en t on
w h eth er further gu id an ce on rou nding
p rin cip les w o u ld be appropriate.
Part II. A nnual Percentage Y ield Earned
for P eriod ic S tatem ents
Com m ent app. A .1L A -1 clarifies w h en
in stitu tio n s sh o u ld or sh o u ld not
in clu d e accrued but u ncred ited interest
in the balances u sed to calcu late the
an nual percentage y ie ld earned. The
Board b eliev es that it w o u ld be
m isle a d in g to in c lu d e accrued interest
in the b alance figure w h e n statem ents
are sent le ss frequently than in terest is
cred ited .
W hen p erio d ic statem en ts are issu e d
m ore frequently than interest is
cred ited , accrued interest w o u ld be
5541
in clu d ed in the b alance figure in
su cc ee d in g statem ents. T his is n ecessary
so that the b eg in n in g balance can
properly reflect th e p rincipal on w h ich
in terest w ill accrue for th e su cceed in g
statem ent period. T h e Board so licits
com m en t on th ese calcu lation
p rin cip les.
C om m ent app. A .H .A .-2 clarifies
rou n d in g rules for calcu lating interest
earned and th e an n u al percentage y ie ld
earned. T he Board b e lie v es flexib ility in
ro u n d in g is appropriate w h en
statem ents are sent m ore frequently than
interest is co m p o u n d ed and credited,
sin c e th e interest earned figure d oes not
reflect th e am ount w h ich w ill actually
be paid by an in stitu tion .
B. Special Formula for Use Where
Periodic Statements Are Sent More
Often Than the Period for Which
Interest Is Compounded
C om m ent app. A .II.B .-l provides
g u id a n ce to in stitu tio n s that issu e
quarterly p eriod ic statem ents but are
required by R egulation E to send a
m o n th ly statem ent during the quarter.
(See p roposed com m en t 230.6(a)-2,
w h ic h d iscu sse s an in stitu tio n ’s op tion
to co m p ly w ith th e d isclosu re
requirem ents for su ch m onthly
statem ents.) T h e co m m en t clarifies that
in stitu tio n s co m p ly in g w ith § 230.6 for
m o n th ly statem ents triggered by
R egulation E m ust u se th e sp ecial
form ula in part n.B. o f th is appendix.
In stitu tions cou ld u se th is form ula for a
quarterly statem ent w hether or not a
m on th ly statem ent is triggered by
R egulation E during th e quarter. T he
Board b elie v es su ch a rule w ould
sign ifican tly red u ce co m p lian ce
b urd en s for in stitu tion s. H ow ever, in
so m e cases, th e u se o f the special
form ula m ay result in an understated
an nu al percentage y ie ld earned. T h e
Board so lic its com m en t on w hether the
p u rp oses o f the act are best served by
th is approach.
C om m ent app. A .n .B .- 2 clarifies that
th e sp ecial form ula requires in stitu tion s
to u se the actual num ber o f days in the
co m p o u n d in g period in calcu lating the
an nu al percentage y ie ld earned. In the
supp lem entary m aterial that
accom p an ied th e M arch 1 9 ,1 9 9 3
am en d m en ts to th e regulation (58 FR
15077), the calcu lation u sed average
num bers o f d ays in th e com p ou n d in g
period to calcu late th e annual
percentage y ield earned for a statem ent
p eriod. T he Board b e lie v e s that u sing
actual days in a co m p o u n d in g period is
m ore appropriate and corresponds to
th e annual percentage y ie ld earned for
a sp ec ific co n su m er’s account. T he
Board so licits com m en t on the proposed
com m en t.
/O ( o 9 ^ j>
5542
Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules
(3) Form of Comment Letters
Comment letters should refer to
Docket No. R-0824, and, when possible,
should use 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. Comments may
also be submitted on 3V2 inch or 5V«
inch computer diskettes in any IBMcompatible DOS-based format, if
accompanied by an original document
in paper form.
List of Subjects in 12 CFR Part 230
Advertising, Banks, Banking,
Consumer protection, Deposit accounts,
Interest, Interest rates, Truth in savings.
For the reasons set forth in the
preamble, the Board proposes to amend
12 CFR part 230 as follows:
PART 230—TRUTH IN SAVINGS
(REGULATION DD)
• Accounts opened as a condition of
obtaining a credit card
Examples of accounts not subject to the
regulation are:
• Mortgage escrow accounts for collecting
taxes and property insurance premiums
• Accounts established to make periodic
disbursements on construction loans
• Trust accounts other than individual
retirement accounts (IRAs) and sim plified
em ployee pension (SEP) accounts
• Accounts opened by an executor in the
name of a decedent’s estate
• Accounts of individuals operating
businesses as sole proprietors
2.
O ther investm ents. The term "account”
does not apply to all products o f a depository
institution. Examples of products not covered
are:
• Government securities
• Mutual funds
• Annuities
• Securities or obligations o f a depository
institution
• Contractual arrangements such as
repurchase agreements, interest rate swaps,
and bankers acceptances
(b) A d vertisem en t
1.
Coverage. Advertisements include
commercial messages in visual, oral, or print
media that invite, offer, or otherwise
announce generally to prospective customers
Authority: 12 U.S.C 4301 et seq.
the availability of consumer accounts such
2. Part 230 would be amended by
as:
adding a new Supplement I at the end
• Telephone solicitations
of the appendixes to the Part to read as
• Messages on automated teller machine
(ATM) screens
follows:
• Messages on a computer screen in an
Supplement I to Part 230—Official Staff institution’s lobby (including any printout)
Interpretations
• Messages in a newspaper, magazine, or
promotional flyer or on radio
INTRODUCTION
• Messages promoting an account that are
1.
O fficial status. This commentary is the provided along with information about the
vehicle by which the staff of the Division of
consum er’s existing account at an institution
Consumer and Community Affairs of the
Examples of messages that are not
Federal Reserve Board issues official staff
advertisements are:
interpretations of Regulation DD. Good faith
• Rate sheets published in newspapers,
compliance with this commentary affords
periodicals, or trade journals provided the
protection from liability under section 271 (f)
depository institution (or deposit broker that
of the Truth in Savings Act.
offers accounts at the institution) does not
pay a fee to have the information included
Section 230.1—Authority, Purpose,
• An in-person discussion with a
Coverage, and Effect on State Laws
consumer about the terms for a specific
(c) Coverage
account
1. Foreign applicability. Regulation DD
• Information provided to consumers
applies to all depository institutions, except
about their existing accounts, such as on IRA
credit unions, that offer deposit accounts to
disbursements or notices for automatically
residents (including resident aliens) of any
renewable time accounts sent before renewal
1. The authority citation for part 230
would continue to read as follows:
state as defined in § 230.2(r).
2. Persons w ho advertise accounts. Persons
who advertise accounts are subject to the
advertising rules. For example, if a deposit
broker places an advertisement that offers
consumers an interest in an account at a
depository institution, the advertising rules
apply to the advertisement, whether the
account is held by the broker or directly by
the consumer.
(f)
B onus
1. E xam ples. Bonuses include items of
value, other than interest, offered as
incentives to consumers, such as an offer to
pay the final installment deposit for a
holiday club account.
The follow ing is an example of an item that
is not a bonus:
• Discount coupons distributed by
institutions for use at restaurants or stores
Section 230.2—D efinitions
2. De m in im is rule. Items with a de
(a) A cco u n t
m in im is value of S10 or less are not bonuses.
1.
Covered accounts. Examples o f accountsInstitutions may rely on the valuation
standard used by the Internal Revenue
subject to the regulation are:
Service (IRS) to determine if the value of the
• Interest-bearing and noninterest-bearing
item is de m in im u s. (See 26 CFR § 1 .6049accounts
5(a)(2), w hich discusses the fair market value
of property received.) Items required to be
reported by the institution under IRS rules
are bonuses under this regulation. Examples
of items that are not bonuses are:
• Disability insurance premiums paid by
the institution in an amount less than $10 per
year
• Coffee mugs, T-shirts or other
merchandise with a market value of less than
$10 per year
Institutions must aggregate per account per
calendar year any items given to a consumer
that are individually valued at less than $10
and must consider them to be a bonus if their
aggregate value exceeds $10.
3.
W oiver or reduction o f a fe e or
absorption o f expenses. Bonuses do not
include value received by consumers through
the waiver or reduction of fees for bankingrelated services (even if the fees waived
exceed $10), such as the following:
• W aiving a safe deposit box rental fee for
one year for consumers w ho open a new
account
• W aiving fees for travelers checks for
account holders
• Discounts on interest rates charged for
loans at the institution
(h) C onsum er
1. P rofessional capacity. Examples of
accounts held by a natural person in a
professional capacity for another are:
• Attorney-client trust accounts
• Landlord-tenant security accounts
2. N onprofessional capacity. Examples of
accounts not held in a professional capacity
are:
• Accounts held by parents for a child
under the Uniform Gifts to Minors Act
• A ccounts established by a tenant for
apartment lease payments pending resolution
of a landlord-tenant dispute
3. F etirem ent plans. Individual retirement
accounts (IRAs) and sim plified em ployee
pension (SEP) accounts are consumer
accounts to the extent that funds are invested
in accounts subject to the regulation. Keogh
accounts, like sole proprietor accounts, are
not subject to the regulation.
4. U nincorporated associations. An
account held by or offered to an
unincorporated association o f natural
persons is a consumer account if the account
is primarily for a nonbusiness purpose.
The follow ing factors may be considered.
• The institution may rely on the
declaration of the person representing the
association as to whether the account is held
for a business or nonbusiness purpose.
• Whether the association has paid
em ployees, w hich would indicate a business
purpose for the account. For example, an
account held by a religious organization that
has payroll obligations is not covered by the
regulation.
(j)
D epository Institution a n d Institution
1.
Foreign institutions. Branches of foreign
institutions located in the United States are
subject to the regulation if they offer
consumer accounts. Edge Act and Agreement
corporations, and agencies of foreign
institutions, are not depository institutions.
/0C ?3
Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules
(k) D eposit Broker
• In any order
• In combination with other disclosures or
1.
General. A deposit broker is any person
account terms
in the business of placing or facilitating the
• On more than one page and on the front
placem ent of deposits in an institution, as
defined by the Federal Deposit Insurance Act and reverse sides
• By using inserts to a document or filling
(12 U.S.C. 29(g)).
in blanks
(n) Interest
• On more than one document, as long as
1.
Delation to R egulation Q. While bonusesthe documents are provided at the same time
are not interest for purposes of this
2. M ultiple account disclosures.
regulation, other regulations may require that Institutions may prepare combined
bonuses be treated as the equivalent of
disclosures for all accounts offered, or
interest. For example, Regulation Q identifies prepare different docum ents for different
payments o f cash or merchandise that violate
types of accounts. If an institution provides
the prohibition against paying interest on
one document for several types of accounts,
demand accounts. (See 12 CFR § 217.2(d).)
consumers must be able to understand
clearly which disclosures apply to their
(p) Passbook Savings A cc o u n t
account.
1.
Relation to R egulation E. Passbook
3. C onsistent terminology. An institution
savings accounts include accounts accessed
must use the same terminology to describe
by preauthorized electronic fund transfers to
terms or features that are required to be
the account (as defined in 12 CFR 205.2(j)),
disclosed. For example, if an institution
such as an account credited by direct deposit
describes a monthly fee (regardless of
of social security payments. Accounts that
account activity) as a “m onthly service fee”
permit access by other electronic means are
in account-opening disclosures, the same
not “passbook saving accounts,” and any
terminology must be used in its periodic
statements that are sent four or more times
a year must com ply with the requirements of
statements and change-in-term notices.
§230.6.
(b) General
(q) Periodic Sta tem en t
1.
Specificity o f legal obligation. An
1.
Exam ples. Periodic statements do not institution may use the term “m onthly” to
include:
describe its com pounding or crediting policy
• Additional statements provided solely
when interest is com pounded or paid at the
upon request
end of each calendar month or for tw elve
• Information provided by computer
periods during the year even if the actual
through home banking services
days in each period vary between 28 and 33
• General service information such as a
days.
quarterly newsletter or other correspondence
(c)
Relation to Regulation E
that describes available services and products
1.
General rule. Compliance with
Regulation E (12 CFR part 205) is deem ed to
1.
General. Territories and possessions
satisfy the disclosure requirements of this
include Guam, the Mariana Islands, and the
regulation, such as when:
Marshall Islands.
• An institution changes a term that
(tl Tiered-rate A cco u n t
triggers a notice under Regulation E, and the
1.
Tim e accounts. Time accounts that pay timing and disclosure rules of Regulation E
are used for sending change-in-term notices.
different rates based solely on the amount of
• A consumer adds an ATM access feature
the initial deposit are not tiered-rate
to an account, and the institution provides
accounts.
disclosures pursuant to Regulation E,
(u) Tim e A cco u n t
including disclosure of fees before the
1.
Relation to Regulation D. Regulation D consumer receives ATM access. (See 12 CFR
permits in limited circumstances the
§ 205.7.) If the institution com plies with the
withdrawal of funds without penalty during
timing rules of Regulation E, fees related to
the first six days after a “time deposit" is
electronic services (such as balance inquiry
opened. (See 12 CFR § 204.2(c)(l)(i).)
fees imposed if the inquiry is made at an
Withdrawals without penalty from a time
ATM) that are required to be disclosed by
account made in accordance with Regulation
this regulation but not by Regulation E may
D do not disqualify the account from being
also be provided at that time.
a time account for purposes of this
• An institution relies on Regulation E’s
regulation.
disclosure rules regarding limitations on the
frequency and amount of electronic fund
(v) Variable-rate A cc o u n t
transfers, including security-related
1.
General. A certificate of deposit that
exceptions. But any limitation on the number
permits one or more rate adjustments prior to of “ intra-institutional transfers” from other
maturity at the consum er’s option is a
accounts at the institution during a given
variable-rate account.
time period must be disclosed, even though
those transfers are exempt from Regulation E.
Section 230.3—General Disclosure
(r) State
Requirements
(a) Form
(e) Oral R esponse to Inquiries
1. A pplication o f rule. Institutions need not
1.
Design requirem ents. Disclosures must provide rate information orally.
2. R elation to advertising. An oral response
be presented in a format that allow s
consumers to readily understand the terms of to a question about rates is not covered by
the advertising rules.
their account. Disclosures may be made:
5543
(fj R ounding a n d A ccu ra cy R ules fo r R ates
a n d Yields (f)(2) A ccuracy
1. A n n u a l percentage yie ld a n d an n u a l
percentage yie ld earned. The tolerance for
annual percentage yield and annual
percentage yield earned calculations is
designed to accommodate inadvertent errors.
Institutions may not purposely incorporate
the tolerance into their calculation o f yields.
2. Interest rate. There is no tolerance for an
inaccuracy in the interest rate.
Section 230.4—Account Disclosures
(a) D elivery o f A c c o u n t D isclosures
(a)(1) A cco u n t O pening
1. N ew accounts. New account disclosures
must be provided when:
• A time account that does not
automatically rollover is renewed by a
consumer
• A consumer changes the term for a
renewable time account (from a one-year
time account to a six-month time account, for
instance)
• Funds in an MMDA account are
transferred by an institution to open a new
account for the consumer, such as a NOW
account, because the consum er exceeded
transaction lim itations on the MMDA
account
• An institution accepts a deposit from a
consumer to an account the institution
previously deemed to be “clo sed ” by the
consumer
New account disclosures are not required
when an institution acquires an account
through an acquisition o f or merger with
another institution (but see § 230.5(a)
regarding advance notice requirements if
terms are changed).
(a)(2) R equests
(a)(2)(i)
1. Inquiries versus requests. A response to
an oral inquiry (by telephone or in person)
about rates and yields or fees does not trigger
the duty to provide account disclosures.
However, when a consumer asks for written
information about an account (whether by
telephone, in person, or by other means), the
institution must provide disclosures.
2. General requests. When a consumer
generally asks for information about a type of
account (a NOW account, for example), an
institution that offers several variations may
provide disclosures for any one o f them.
3. Tim ing fo r response. Ten business days
is a reasonable time for responding to a
request for account information that a
consumer does not make in person.
(a) (2)(ii)(B)
1. Term. Describing the maturity of a time
account as “1 year” or “6 m onths,” for
exam ple, illustrates a response stating the
maturity of a time account as a term rather
than a date ("January 1 0 ,1 9 9 5 ”).
(b) C ontent o f A cco u n t D isclosures
(b)( 1) Rate inform ation
(b)( 1)(i) A n n u a l Percentage Y ield a n d Interest
Rate
1. Rate disclosures. In addition to the
interest rate and annual percentage yield, a
5544
Federal Register / Vol. 59, No. 25 t Monday, February 7, 1994 / Proposed Rules
periodic rate corresponding to the interest
rate may be disclosed. No other rate or yield
(such as ‘‘tax effective yield”) is permitted.
If the annual percentage yield is the same as
the interest rate, institutions may disclose a
single figure but must use both terms.
2. F ix ed -ra te a c co u n ts. To disclose the
period of tim e the interest rate w ill be in
effect, institutions may state the maturity
date for fixed-rate time accounts that pay the
opening rate until maturity. (See Appendix
B, B -7 —Sample Form.) For other fixed-rate
accounts, institutions may disclose a date
(such as ‘‘This rate w ill be in effect through
June 3 0 ,1 9 9 4 ”) or a period (such as "This
rate w ill be in effect for at least 30 days”).
3. T iered -ra te a cco u n ts. Each interest rate,
along with the corresponding annual
percentage yield for each specified balance
level (or range of annual percentage yields,
if appropriate), must be disclosed for tieredrate accounts. (See A ppendix A, Part I,
Paragraph D.)
4. S te p p e d -r a te a cco u n ts. A single annual
percentage yield must be disclosed for
stepped-rate accounts. (See Appendix A, Part
I, Paragraph B.) However, the interest rates
and the period of time each w ill be in effect
also must be provided. When the initial rate
offered on a variable-rate account is higher or
lower than the rate that w ould otherwise be
paid on the account, the calculation of the
annual percentage yield must be made as if
for a stepped-rate account. (See Appendix A,
Part I, Paragraph C.)
(b )(l )(ii) V ariable B a tes
(b )(l)(ii)(B )
1. D eterm in in g in terest rates. To disclose
how the interest rate is determined,
institutions must:
• Identify the index and specific margin, if
the interest rate is tied to an index
• State that rate changes are solely within
the institution’s discretion, if the institution
does not tie changes to an index
(b)(iKHKCi
1. F req u en cy o f ra te ch an ges. Institutions
that reserve the right to change rates at any
time must state that fact.
(b x w m )
1. L im ita tio n s. A floor or ceiling on rates
or on the amount the rate may decrease or
increase during any time period must be
disclosed. Institutions need not disclose the
absence of limitations on rate changes.
(b)(2) C o m p o u n d in g a n d C red itin g
(b)(2)(H) E ffect o f C losin g an A c c o u n t
1. D eem in g an a c c o u n t c lo s e d . Institutions
may provide in their deposit contract the
actions by consumers that the institution w ill
treat as closing the account and that w ill
result in the forfeiture o f accrued but
uncredited interest, such as w hen a
consum er withdraws all funds from the
account prior to the date interest is credited.
(b)(3) B a la n ce In fo rm ation
(b)(3)(H) B a la n ce C o m p u ta tio n M e th o d
1. M e th o d s a n d p e rio d s. Institutions may
use different m ethods or periods to calculate
m inim um balances for purposes of imposing
a fee (daily balance for a calendar month, for
example) and accruing interest (average daily
balance for a statement period, for example).
Each method and period must be disclosed.
(b)(3)(iii) W hen In terest B egin s to A c cru e
1. A d d itio n a l in fo rm a tio n . Institutions may
disclose additional information such as the
time o f day after w hich deposits are treated
as having been received the follow ing
business day, and may use additional
descriptive terms such as "ledger” or
"collected” balances to disclose when
interest begins to accrue.
(b)(4) F ees
1. T ypes o f fees. The follow ing are types of
fees that must be disclosed in connection
with an account:
• Maintenance fees, such as m onthly
service fees
• Fees related to deposits or withdrawals,
such as fees for use of the institution’s ATMs
• Fees for special services, such as stop
paym ent fees, fees for balance inquiries or
verification of deposits, and fees associated
with checks returned unpaid
• Fees to open or to close accounts
Institutions need not disclose fees such as the
following:
• Fees assessed for services offered to
account and nonaccount holders alike, such
as fees for travelers checks and wire transfers
(even if different for nonaccount holders)
• Incidental fees, such as fees associated
w ith state escheat laws, garnishment or
attorneys fees, and fees for photocopying
forms
2. A m o u n t o f fe e s. Institutions must state
the amount and conditions under which a fee
may be imposed. Naming and describing the
fee typically satisfies this requirement. Some
exam ples are:
• ‘‘$4.00 monthly service fee”
• “$7.00 and up” or “fee depend on style -
of checks ordered” for check printing fees
3. Tied-accounts. Institutions must state if
fees that may be assessed against an account
are tied to other accounts at the institution.
For example, if an institution ties the fees
payable on a NOW account to balances held
in the NOW account and in a savings
account, the NOW account disclosures must
state that fact and explain how the fee is
determined.
(b)(5) T ran saction L im ita tio n s
1. General rule. Examples of limitations on
the number or dollar amount o f deposits or
withdrawals that institutions must disclose
are:
• Limits on the number of checks that may
be written on an account for a given time
period
• Limits on withdrawals or deposits
during the term of a time account
• Limitations required by Regulation D,
such as the number of withdrawals permitted
from money market deposit accounts by
check to third parties each month (but they
need not disclose that the institution reserves
the right to require a seven-day notice for a
withdrawal from an account).
(b)(6) F eatu res o f T im e A c c o u n ts
(b)(6)(i) T im e R e q u ire m e n ts
1. “C a lla b le ” tim e a c co u n ts. In addition to
the maturity date, institutions m ust state the
date or the circumstances under w hich the
institution may redeem a time account at the
institution’s option (a “callable” time
account).
(b)(6)(H) E arly W ith d ra w a l P en a lties
1. G eneral. The term “penalty” need not be
used to describe the loss that may be
incurred by consumers for early withdrawal
of funds from time accounts.
2. E x a m p les. Examples of early withdrawal
penalties are:
• Monetary penalties, such as “$10.00" or
"seven days’ interest plus accrued but
uncredited interest”
• Adverse changes to terms such as the
interest rate, annual percentage yield, or
com pounding frequency for funds remaining
on deposit
• Reclamation o f bonuses
3. R e la tio n to ru le s fo r IR A s o r sim ila r
p la n s. Penalties im posed by the Internal
Revenue Code for certain withdrawals from
IRAs or similar pension or savings plans are
not early withdrawal penalties.
(b)(6)(iv) R e n e w a l P o lic ie s
1. R o llo v e r tim e a c c o u n ts. Institutions
offering a grace period on rollover time
accounts that autom atically renew need not
state whether interest w ill be paid if the
funds are withdrawn during the grace period.
2. N o n ro llo v e r tim e a c co u n ts. Institutions
that pay interest on funds follow ing the
maturity of time accounts that do not renew
automatically need not state the rate (or
annual percentage yield) that may be paid.
Section 230.5—Subsequent Disclosures
(a) C h an ge in T erm s
(a)(1) A d v a n c e N o tic e R eq u ired
1. F orm o f n o tice. Institutions may provide
a change-in-term notice on or w ith a regular
periodic statement or in another mailing. If
an institution provides notice through
revised account disclosures, the changed
term m ust be highlighted in som e manner.
For exam ple, institutions may state that a
particular fee has been changed (also
specifying the new amount) or use an
accom panying letter that refers to the
changed term.
2. E ffective d a te . An exam ple o f a
disclosure that com p lies is:
• ‘‘As of May 11, 1994”
3. T erm s th a t c h a n g e u p o n th e o ccu rren ce
o f an e ve n t. Institutions that offer terms such
as a fee waiver for em ployee account holders
during their em ploym ent or far students
enrolled at a local university need not send
advance notice o f a change resulting from
termination of em ploym ent or enrollment if:
• The account-opening disclosures given
(to the em ployee, for example) describe the
term and the event that w ould cause the term
to change (such as the consumer's leaving the
institution’s em ploym ent), and
• N otices are sent w hen the term is
changed for other account holders, even
though the term remains unchanged for the
Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules
consum er w h ile em ployment or enrollment
continues.
(a)(2) N o N o tice R equ ired
(a)
(2)(H) C heck P rintin g Fees
(b)
( 1) M atu rities o f Longer T han O n e Y ear
1. H igh ligh tin g c h a n g e d term s. Institutions
need not highlight terms that have changed
since the last account disclosures were
provided.
1. In crea se in fe es. A notice is not required
even if an increase in check printing fees
includes an amount added by the institution
to the price charged by a vendor.
(c) N o tic e f o r T im e A c c o u n ts O n e M on th or
L ess T h at R en ew A u to m a tic a lly
(b) N o tice B efore M a tu rity fo r T im e A c co u n ts
L o n ger Than O n e M on th T h at R en ew
A u to m a tic a lly
after an account renews is a reasonable time
for providing disclosures. For tim e accounts
shorter than 10 days, disclosures should be
given prior to the next-scheduled renewal
date.
1. P rovidin g d isc lo su re s w ith in a
re a so n a b le tim e. Generally, 10 calendar days
1. M a tu rity d a te s on n o n b u sin e ss days. For
determining the term, institutions may ignore
the fact that the disclosed maturity falls on
(d) Notice Before Maturity for Time
a nonbusiness day and the term is extended
Accounts Longer Than One Year That
beyond the disclosed number of days. For
Do Not Renew Automatically
exam ple, a holiday or w eekend may cause a
1. S u b se q u e n t a ccou n t. When funds are
“one-year” time account to extend beyond
transferred follow ing maturity of a
365 days (or 366, in a leap year), or a “onenonrollover time account, institutions need
m onth” time account to extend beyond 31
not provide account disclosures unless a new
days.
account is established.
2. D isclo sin g w hen ra tes w ill be
d e te rm in e d . Disclosures that illustrate when
Section 230.6—Periodic Statement
the annual percentage yield w ill be available
Disclosures
include:
(a) G eneral R ule
• A specific date, such as “October 28”
1. G eneral. Institutions are not required to
• A date that is easily discernable, such as
provide periodic statements. If they provide
“the Tuesday prior to the maturity date
periodic statements, disclosures need only be
stated on the notice” or “as o f the maturity
furnished to the extent applicable. For
date stated on this notice”
example, if no interest is earned for a
Institutions must indicate w hen the rate
statement period, institutions need not
w ill be available if the date falls on a
disclose “$0” interest earned and “0% ”
nonbusiness day.
annual percentage yield earned.
3. A lte rn a tiv e tim in g rule. To illustrate the
2. R egu lation E in terim sta te m e n ts. When
alternative timing rule: An institution that
an institution provides regular quarterly
offers a 10-day grace period must provide the
statements, and in addition provides a
disclosures at least 10 days prior to the
m onthly interim statement to com ply with
scheduled maturity date.
Regulation E, the interim statement need not
4. C lub a cco u n ts. Club accounts that are
com ply with this section unless it states
time accounts are covered by this paragraph,
interest or rate information. (See 12 CFR
even though funds may be withdrawn at the
205.9.)
end of the current club period. For example,
3. C o m b in ed sta tem e n ts. Institutions may
if the consumer has agreed to the transfer of
provide certain information about an account
payments from another account to the time
(such as an MMDA) on the periodic
account for the next club period, the
statement for another account (such as a
institution must com ply w ith the
NOW account) without triggering the
requirements for automatically renewable
disclosures required by this section, as long
time accounts.
as:
5. R en ew a l o f a tim e a cco u n t. The
• The information is lim ited to the account
follow ing applies to a change in a term that
number, the type of account, or balance
becom es effective if a rollover time account
information, and
is subsequently renewed:
• The institution also provides consumers
• If the change is initiated by the
a periodic statement that com plies with this
institution, the disclosure requirements of
section for the account (the MMDA, in the
this paragraph. (Paragraph 5(a) applies if the
example).
change becomes effective prior to the
4. O th er in form ation . Institutions may
maturity of the existing time account.)
include additional information on or with a
• If initiated by the consumer, the account periodic statement, such as:
opening disclosure requirements of
• Interest rates and periodic rates
§ 230.4(b). (If the notice required by this
corresponding to the interest rate applied to
paragraph has been provided, institutions
balances during the statement period
may give new account disclosures or
• The dollar amount of interest earned
disclosures that reflect the new term.)
year-to-date
For example, if a consumer who receives
• Bonuses paid (or any d e m in im is
a prematurity notice on a one-year time
consideration of $10 or less)
account requests a rollover to a six-month
• Fees for other products, such as safe
account, the institution must provide either
deposit boxes
account-opening disclosures that reflect the
( a ) ( t) A n n u a l P ercen tage Y ie ld E arn ed
new maturity date or, if all other terms
1. L edger a n d c o lle c te d b a la n ces.
previously disclosed in the prematurity
Institutions that accrue interest using the
notice remain the same, only the new
collected balance method may use either the
maturity date.
5545
ledger or the collected balance in
determining the annual percentage yield
earned.
(a)(2) A m o u n t o f In terest
1. A c c r u e d in terest. Institutions m ust state
the amount of interest that accrued during
the statement period, even if it was not
credited. For interest not credited,
institutions may disclose w hen funds w ill
becom e available for the consum er’s use.
2. T erm in ology. In disclosing interest
earned for the period, institutions m ust use
the term "interest” or terminology such as:
• "Interest paid,” to describe interest that
has been credited
• "Interest accrued” or “interest earned,”
to indicate that interest is not yet credited
3. C lo se d a cco u n ts. If a consum er closes an
account between crediting periods and
forfeits accrued interest, the institution may
not show any figures for "interest earned” or
annual percentage yield earned for the
period.
(a)(3) F ees Im p o se d
1. G eneral. Periodic statements must state
fees debited to the account during the
statement period even if assessed for an
earlier period.
2. Ite m izin g fe e s b y typ e. In item izing fees
by type, institutions may group together fees
of the same type that are im posed more than
once in the period. If fees are grouped, the
description must make clear that the dollar
figure represents more than a single fee, for
example, “total fees for checks written this
period.” Examples of fees that may not be
grouped together are:
• M onthly maintenance and excess
activity fees
• “Transfer” fees, if different dollar
amounts are im posed—such as $.50 for
deposits and $1.00 for withdrawals
• Fees for electronic fund transfers and
fees for other services, such as balance
inquiry or maintenance fees
3. Id en tifyin g fe es. Statement details must
enable the consumer to identify the specific
fee. For example:
• Institutions may use a code to identify a
particular fee if the code is explained on the
periodic statement or in docum ents
accompanying the statement.
• Institutions using debit slips may
disclose the date the fee was debited on the
periodic statement and show the amount and
type of fee on the dated debit slip.
4. R elation to R egu lation E. Compliance
with Regulation E com plies with this section
for the disclosure of fees related to electronic
fund transfers on periodic statements (for
example, totaling all electronic funds transfer
fees in a single figure).
(a)(4) Length o f P erio d
1. G eneral. Institutions that provide the
beginning and ending dates of the period
must make clear whether both dates are
included in the period.
2. O pen in g or closin g an a c c o u n t m id
cycle. If an account is opened or closed
during the period for w hich a statement is
sent, institutions must calculate the annual
percentage yield earned based on account
balances for each day the account was open.
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(b) S p e c ia l R u le f o r A v era g e D a ily B a lan ce
M e th o d
1. G eneral. To illustrate, this rule applies
when an institution calculates interest on a
quarterly average daily balance and sends
m onthly statements. The first two monthly
statements may not state annual percentage
yield earned and interest earned figures; the
third “m onthly” statement w ill reflect the
interest earned and the annual percentage
yield earned for the entire quarter.
2. Length o f th e p e rio d . Institutions m ust
disclose the length o f both the interest
calculation period and the statement period.
For exam ple, a statement could disclose a
statement period of April 16 through May 15
and further state that "the interest earned and
the annual percentage yield earned are based
on your average daily balance for the period
April 1 through April 30.”
3. Q u a rterly sta te m e n ts a n d m o n th ly
c o m p o u n d in g . Institutions that use the
average daily balance method to calculate
interest on a monthly basis, but send
statements on a quarterly basis, may disclose
a single interest (and annual percentage yield
earned) figure. Alternatively, an institution
may disclose three interest earned and three
annual percentage earned figures, one for
each month in the quarter, as long as the
institution states the number of days (or
beginning and ending date) in the interest
period if it is different from the statement
period.
Section 230.7—Payment of Interest
(a) P erm issib le M e th o d s
1. P ro h ib ite d c a lc u la tio n m e th o d s .
Calculation m ethods that do not com ply w ith
the requirement to pay interest on the full
amount o f principal in the account each day
include:
• The "ending balance” method, where
institutions pay interest on the balance in the
account at the end of the period
• The “investable balance” method, where
institutions pay interest on a percentage of
the balance, excluding an amount
institutions set aside for reserve requirements
2. Use of 365-day basis. Institutions may
apply a daily periodic rate that is greater than
1/36s of the interest rate— such as Vj ^o o f the
interest rate— as long as it is applied 365 days
a year.
3. P erio d ic in terest p a y m e n ts. An
institution can pay interest each day on the
account and still make uniform interest
payments. For example, for a one-year
certificate of deposit an institution could
make m onthly interest payments that are
equal to Via o f the amount of interest that
w ill be earned for a 365-day period, or 11
uniform monthly payments and a final
payment that accounts for the total interest
earned for the period.
4. L eap yea r. Institutions may apply a daily
rate of V3«s or 1/365 of the interest rate for 366
days in a leap year, if the account w ill earn
interest for February 29.
5. M a tu rity o f tim e acco u n ts. Institutions
are not required to pay interest after time
accounts mature, such as:
• During any grace period offered by an
institution for an automatically renewable
time account, if the consumer decides during
that period not to renew the account
• F ollow ing the maturity o f nonrollover
time accounts
• When the maturity date falls on a
holiday, and the consumer m ust wait until
the next business day to obtain the funds
(See 12 CFR part 217, the Board’s Regulation
Q, for lim itations on duration o f interest
payments.)
6.
D o rm a n t acco u n ts. Institutions may
contract with a consumer not to pay interest
if the account becom es "dormant,” as
defined by applicable state or other law.
(a)(2) D e term in a tio n o f M in im u m
Earn In terest
Balance To
1. D a ily b a la n c e acco u n ts. Institutions that
use the daily balance method to calculate
interest and require a minimum balance to
earn interest may choose not to pay interest
for days w hen the balance drops below the
required daily m inimum balance.
2. A vera g e d a ily b a la n c e a c co u n ts.
Institutions that use the average daily balance
method to calculate interest and require a
minimum balance to earn interest may
choose not to pay interest for the period in
w hich the average daily balance does not
meet the required minimum.
3. B en eficia l m e th o d . Institutions may not
require consumers to maintain both a
minimum daily balance and a m inim um
average daily balance to earn interest, such
as by requiring the consumer to maintain a
$500 daily balance and an average daily
balance that is higher or lower. But an
institution could determine the m inimum
balance to earn interest by using a method
that is "unequivocally beneficial” to the
consumer such as the following: An
institution using the daily balance m ethod to
calculate interest and requiring a $500
minimum daily balance could choose to pay
interest on the account (for those days the
minimum balance is not met) as long as the
consumer maintained an average daily
balance throughout the month of $400.
4. P ayin g on fu ll b a la n c e. Institutions must
pay interest on the full balance in the
account once a consumer has met the
required m inim um balance. For exam ple, if
an institution sets $300 as its m inim um daily
balance requirement to earn interest, and a
consumer deposits $500, the institution must
pay the stated interest rate on the full $500
and not just on $200.
5. N eg a tiv e b a la n c es p ro h ib ited .
Institutions m ust treat a negative account
balance as zero to determine:
• The daily or average daily balance on
w hich interest w ill be paid
• Whether any m inim um balance to earn
interest is met (See commentary to Appendix
A, Part II, vvhich prohibits institutions from
using negative balances in calculating the
interest figure for the annual percentage yield
earned.)
6. C lu b a cco u n ts. Institutions offering club
accounts (such as a "holiday” or “vacation”
club) cannot im pose a m inimum balance that
is based on the total number or dollar amount
of payments required under the club plan.
For example, if a plan calls for $10 w eekly
payments for 50 weeks, the institution cannot
set a $500 m inim um balance and then pay
only if the consum er makes all 50 payments.
7. M in im u m b a la n c es n o t a ffectin g in terest.
Institutions may use the daily balance,
average daily balance, or other computation
method to calculate m inimum balance
requirements not involving the payment of
interest—such as to compute minimum
balances for assessing fees.
(b) C o m p o u n d in g a n d C red itin g P o licies
1. G eneral. Institutions that choose to
com pound interest may com pound or credit
interest annually, semi-annually, quarterly,
monthly, daily, continuously, or on any other
basis.
2. W ith d ra w a ls p rio r to c red itin g d a te. If
consumers withdraw funds, without closing
the account, prior to a scheduled crediting
date, institutions may delay paying the
accrued interest on the withdrawn amount
until the scheduled crediting date, but may
not avoid paying interest.
3. C lo se d a c co u n ts. If consum ers close
accounts prior to the date accrued interest is
credited, institutions may choose not to pay
accrued interest as long as they have
disclosed that fact to the consumer. Whether
(and the conditions under which) institutions
are permitted to deem an account closed by
a consum er is determined by state or other
law, if any.
4. D o rm a n t a c co u n ts. Subject to state or
other law defining when an account becom es
dormant, an institution may contract w ith a
consumer not to pay accrued but uncredited
interest if the account becom es dormant prior
to the regular interest crediting date.
(c) D ate In te re st B egin s To A ccru e
1. R ela tio n to R egu lation CC. Institutions
may rely on the Expedited Funds Availability
Act (EFAA) and Regulation CC (12 CFR part
229) to determine, for example, w hen a
deposit is considered made for purposes of
interest accrual, or when interest need not be
paid on funds because a deposited check is
later returned unpaid.
2. L edger a n d c o lle c te d balan ces.
Institutions may calculate interest by using a
"ledger” balance or "collected” balance
method, as long as the crediting requirements
of the EFAA are met.
3. W ith d ra w a l o f p rin c ip a l. Institutions
must accrue interest on funds until the funds
are withdrawn from the account. For
example, if a check is debited to an account
on a Tuesday, the institution m ust accrue
interest on those funds through Monday.
Section 230.8— Advertising
(a) M isle a d in g o r In accu rate A d v e r tis e m e n ts
1. G eneral. All advertisements must
com ply w ith the rule against m isleading or
inaccurate advertisements, even though the
disclosures applicable to various media
differ.
2. In d o o r sign s. An indoor sign advertising
an annual percentage yield is not m isleading
or inaccurate if:
• For a tiered-rate account, it also provides
the upper and lower dollar amounts of the
advertised tier corresponding to the annual
percentage yield
• For a tim e account, it also provides the
term required to obtain the advertised yield
3. "Free" o r "no c o s t ” a cco u n ts. For
purposes o f determ ining whether an account
can be advertised as “free” or "no cost,”
m aintenance and activity fees include:
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Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules
• A ny fee im posed if a m inim um balance
requirement is not met, or if the consumer
exceeds a specified number of transactions
• Transaction and service fees that
consumers reasonably expect to be regularly
im posed on an account
Examples o f maintenance and activity fees
include:
• A flat fee, such as a monthly service fee
• F ees im posed to deposit, withdraw or
transfer funds, including per-check or pertransaction charges (for example, $.25 for
each withdrawal, whether by check, in
person or at an ATM ow ned by the
institution)
Examples o f fees that are not maintenance
or activity fees include:
• Fees that are not required to be disclosed
under § 230.4(b)(4)
• Check printing fees of any type
• Fees for obtaining copies of checks,
whether the original checks have been
truncated or returned to the consumer
periodically
• Balance inquiry fees
• Fees assessed against a dormant account
• Fees for using an ATM not owned by the
account-issuing institution
• Fees for electronic transfer services that
are not required to obtain an account, such
as preauthorized transfers or home banking
services
4. S im ila r term s. An advertisement may
not use a term such as “fees w aived” if a
maintenance or activity fee may be imposed
because it is sim ilar to the terms “free” or
"no cost.”
5. S p e c ific a c c o u n t se rvices. Institutions
may advertise a specific account service or
feature as free as long as no fee is im posed
for that service or feature. For example,
institutions that provide free access to their
ATMs could advertise that fact.
6. Free f o r lim ite d tim e. If an account or a
specific account service is free only for a
limited period o f time^-for example, for one
year follow ing the account opening—the
account or service may be advertised as free
as long cis the time period is stated.
7. C o n d itio n s n o t re la te d to d e p o s it
a cco u n ts. Institutions may advertise accounts
as “free” for consumers that meet conditions
not related to deposit accounts such as age.
For example, institutions may advertise a
NOW account as "free for persons over 65
years old,” even though a maintenance or
activity fee may be assessed on accounts held
by consumers that are 65 or younger.
as a time account) need not state the annual
percentage yield applicable to every variation
offered by the institution. For exam ple, if
rates vary depending on the amount of the
initial deposit and term o f a time account,
institutions need not list each balance level
and term offered. Instead, the advertisement
may:
• Provide a representative exam ple o f the
annual percentage yields offered, clearly
described as such. For example, if an
institution offers a $25 bonus on all time
accounts and the annual percentage yield
w ill vary depending on the term selected, the
institution may provide a disclosure of the
annual percentage yield as follows: “For
example, our 6-month certificate of deposit
currently pays a 3.15% annual percentage
y ield .”
• Indicate that various rates are available,
such as by stating short-term and longer-term
maturities along w ith the applicable annual
percentage yields: “We offer certificates of
deposit with annual percentage yields that
depend on the maturity you choose. For
example, our one-month CD earns a 2.75%
APY. Or, earn a 5.25% APY for a three-year
CD.”
(b) P erm issib le R a tes
1. S cope. This requirement applies only to
maintenance or activity fees as described in
paragraph 8(a).
1. T iered -ra te acco u n ts. An advertisement
for a tiered-rate account that states an annual
percentage yield must also state the annual
percentage yield for each tier, along with
corresponding m inim um balance
requirements. Any interest rates stated must
appear in conjunction with the annual
percentage yields for the applicable tier.
2. S te p p e d -r a te a cco u n ts. An
advertisement .that states an interest rate for
a stepped-rate account must state each
interest rate and the time period each rate is
in effect.
3. R e p re se n ta tiv e ex a m p le s. An
advertisement that states an annual
percentage yield for a type of account (such
(c) W hen A d d itio n a l D isclo su res A re
R e q u ire d
1. T rigger term s. Disclosures are triggered
by statements such as “We w ill pay a bonus
of 1 % over our current rate for one-year
certificates of deposit opened before April 15,
1995.” The follow ing are exam ples of
information stated in advertisements that are
not “trigger” terms:
• "One, three, and five year CDs available”
• “Bonus rates available”
(c)(2) T im e A n n u a l P ercen tage Y ie ld Is
O ffered
1. S p e c ifie d re c e n t da te. If an
advertisement discloses an annual percentage
yield as of a specified date, that date must
be recent in relation to the publication or
broadcast frequency of the media used. For
example, the printing date of a brochure
printed once for a deposit account promotion
that w ill be in effect for six m onths w ould
be considered “recent,” even though rates
change during the six-month period. Rates
published in a daily newspaper or on
television m ust be a rate offered shortly
before (or on) the date the rates are published
or broadcast.
(c)(5) E ffect o f F ees
(c)(6) F eatu res o f T im e A c co u n ts
(c)(6)(i) T im e R e q u ire m e n ts
1. C lub a c co u n ts. If the maturity date o f a
club account is set but the term may vary
depending on w hen the account is opened,
institutions may use a phrase such as: “The
term of the account varies depending on
w hen the account is opened. However, the
maturity date is November 15.”
(c)(6)(H) E arly W ith d ra w a l P en a lties
1. D isc re tio n a ry p e n a ltie s. Institutions that
impose early withdrawal penalties on a case-
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5547
by-case basis may disclose that they “m ay”
(rather than “w ill”) im pose a penalty if that
accurately describes the account terms.
(d ) R o n u ses
1. G en eral re feren ce to ‘‘b o n u s . "General
statements such as “bonus checking” or “get
a bonus w hen you open a checking account”
do not trigger the bonus disclosures.
(e) E x em p tio n fo r C ertain A d v e r tis e m e n ts
(e)(1) C ertain M edia
(e )(l)(iii)
1. T iered-rate a c co u n ts. Solicitations for
tiered-rate accounts made through telephone
response m achines must provide all annual
percentage yields and the balance
requirements applicable to each tier.
(e)(2) In d o o r Sign s
(e)(2)(i)
1. G eneral. Indoor signs include
advertisements displayed on computer
screens, banners, preprinted posters, and
chalk or peg boards. Any advertisement
inside the premises that can be retained by
a consumer (such as a brochure or a printout
from a computer) is not an indoor sign.
2. C o n su m ers o u ts id e th e p re m ises.
Advertisements may be “indoor signs” even
though they may be view ed by consumers
from outside. An example is a banner in an
institution’s glass-enclosed branch office,
that is located behind a teller facing
customers but also may be seen by passersby.
Section 230.9—Enforcement and Record
Retention
(c) R eco rd R eten tio n
1. E vid e n c e o f re q u ire d a ctio n s. Institutions
com ply w ith the regulation by demonstrating
they have done the following:
• Established and maintained procedures
for paying interest and providing tim ely
disclosures as required by the regulation, and
• Retained sam ple disclosures for each
type account offered to consumers, such as
account-opening disclosures, copies of
advertisements, and change-in-term notices;
and information regarding the interest rates
and annual percentage yields offered.
2. M e th o d s o f re ta in in g evid en ce .
Institutions must retain information needed
to reconstruct the required disclosures or
other actions. They need not keep disclosures
or other business records in hard copy.
Records evidencing com pliance may be
retained on m icrofilm, microfiche, or by
other methods that reproduce records
accurately (including computer files).
3. P a ym en t o f in terest. Sufficient rate and
balance information must be retained to
permit the verification of interest paid on an
account, including the payment o f interest on
the full principal balance.
Appendix A to Part 230—Annual Percentage
Yield Calculation
P art I. A n n u a l P ercen ta g e Y ie ld fo r A c c o u n t
D isclo su res a n d A d v e r tisin g P u rp o ses
1. R o u n din g f o r c a lc u la tio n s. The
follow ing are exam ples o f permissible
rounding rules for calculating interest and
the annual percentage yield:
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Federal Register / Vol. 59, No. 25 / Monday, February 7, 1994 / Proposed Rules
• The daily rate applied to a balance
rounded to five or more decimals
• The daily interest earned rounded to five
or more decimals
Part II. Annual Percentage Yield Earned
for Periodic Statements
1. B a la n c e m eth o d . The interest figure used
in the calculation of the annual percentage
yield earned may be derived from the daily
balance method or the average daily balance
method. The balance used in the annual
percentage yield earned formula is the sum
of the balances for each day in the period
divided by the number of days in the period.
2. N e g a tiv e b a la n c es p ro h ib ited .
Institutions must treat a negative account
balance as zero to determine the balance on
w hich the annual percentage yield earned is
calculated. (See commentary to § 230.7(a)(2).)
A . G en era l F orm u la
1. A c c r u e d b u t u n c r e d ite d in terest. To
calculate the annual percentage yield earned,
accrued but uncredited interest:
• Shall not be included in the balance for
statements that are issued at the same time
or less frequently than the account’s
compounding and crediting frequency. For
example, if monthly statements are sent for
an account that compounds interest daily
and credits interest monthly, the balance may
not be increased each day to reflect the effect
of daily compounding.
• Shall be included in the balance for
succeeding statements if a statement is issued
more frequently than compounded interest is
credited on an account. For example, if
monthly statements are sent for an account
that compounds interest daily and credits
interest quarterly, the balance for the second
monthly statement would include interest
that had accrued for the prior month.
2. B ou n d in g . The interest earned figure
used to calculate the annual percentage yield
earned must be rounded to two decimals to
reflect the amount actually paid. For
example, if the interest earned for a statement
period is $20,074 and the institution pays the
consumer $20.07, the institution must use
$20.07 (not $20,074) to calculate the annual
percentage yield earned. For accounts that
pay interest based on the daily balance
method, compound and credit interest
quarterly, and send monthly statements, the
institution may, but need not, round accrued
interest to two decimals for calculating the
annual percentage yield earned on the first
two monthly statements issued during the
quarter. However, on the quarterly statement
the interest earned figure must reflect the
amount actually paid.
B. S p e c ia l F orm u la fo r U se W h ere P erio d ic
S ta te m e n t Is S e n t M ore O ften T han th e
P erio d f o r W hich In terest Is C o m p o u n d e d
1. S ta te m e n ts triggered b y R eg u la tio n E.
Institutions may, but need not, use this
formula to calculate the annual percentage
yield earned for accounts that receive
quarterly statements and that are subject to
Regulation E’s rule calling for monthly
statements when an electronic fund transfer
has occurred. They may do so even though
no monthly statement was issued during a
specific quarter. This formula must be used
for accounts that com pound and credit
interest quarterly and that receive m onthly
statements, triggered by Regulation E, w hich
com ply w ith the provisions of § 230.6.
2. D a ys in c o m p o u n d in g p e rio d .
Institutions using the special annual
percentage yield earned formula must use the
actual number of days in the com pounding
period.
Appendix B to Part 230—Model Clauses and
Sample Forms
1. M o d ifica tio n s. Institutions that m odify
the model clauses w ill be deem ed in
com pliance as long as they do not delete
information required by the act or regulation
or rearrange the format so as to affect the
substance or clarity o f the disclosures.
2. F orm at. Institutions may use inserts to
a docum ent (see Sample Form B—4) or fill-in
blanks (see Sample Forms B -5, B -6 and B 7, w hich use double underlining to indicate
terms that have been filled in) to show
current rates, fees or other terms.
3. D isclo su res f o r o p e n in g a c co u n ts. The
sample forms illustrate the information that
m ust be provided to a consum er w hen an
account is opened, as required by
§ 230.4(a)(1). (See § 230.4(a)(2), w hich states
the requirements for disclosing the annual
percentage yield, the interest rate, and the
maturity of a time account in responding to
a consum er’s request.)
4. C o m p lia n c e w ith R egu lation E.
Institutions may satisfy certain requirements
under Regulation DD w ith disclosures that
m eet the requirements o f Regulation E. (See
§ 230.3(c).) The m odel clauses and sample
forms do not give exam ples o f disclosures
that w ould be covered by both this regulation
and Regulation E (such as disclosing the
amount of a fee for ATM usage). Institutions
should consult appendix A to Regulation E
for appropriate m odel clauses.
5. D u p lic a te d isclo su res. If a requirement
such as a m inim um balance applies to more
than one account term (to obtain a bonus and
determine the annual percentage yield, for
example), institutions need not repeat the
requirement for each term, as long as it is
clear w hich terms the requirement applies to.
6. G u id e to m o d e l cla u ses. In the model
clauses, italicized words indicate the type of
disclosure an institution should insert in the
space provided (for example, an institution
might insert “March 2 5 ,1 9 9 3 ” in the blank
for “(date)” disclosure). Brackets and
diagonals (“/ ”) indicate an institution must
choose the alternative that describes its
practice (for exam ple, (daily balance/average
daily balance]).
7. S a m p le fo rm s. The sample forms (B-4
through B -8) serve a purpose different from
the m odel clauses. They illustrate various
ways of adapting the m odel clauses to
specific accounts. The clauses show n relate
only to the specific transactions described.
B -I M o d e l C lau ses f o r A c c o u n t D isclosu res
B - l( h ) D isclo su res R elatin g to T im e A c c o u n ts
1. M atu rity. The disclosure in Clause (h)(i)
stating a specific date may be used in all
cases. The statement describing a time period
is appropriate only when providing
disclosures in response to a consum er’s
request.
B -2 M o d e l C lau ses fo r C h an ge in T erm s
1. G eneral. The second clause, describing
a future decrease in the interest rate and
annual percentage yield, applies to fixed-rate
accounts only.
B -4 S a m p le Form (M u ltip le A c c o u n ts)
1. F orm at. The sample form has been
marked w ith an “X” to indicate it is for a
NOW account and provides for both a fee
schedule insert and a Tate sheet insert.
2. R a te s h e e t in s e r t In the rate sheet insert,
the calculations of the annual percentage
yield for the three-month and six-month
certificates are based on 92 days and 181
days respectively.
B -6 S a m p le F orm (T iered -R a te M o n e y M arket
A c c o u n t)
1. G eneral. Sample Form B -6 uses Tiering
Method A (discussed in Appendix A and
Clause (a)(iv)) to calculate interest. It gives a
narrative description of a tiered-rate account;
institutions may use a different format (for
exam ple, a chart similar to the one in Sample
Form B—4), as long aS all required
information for each tier is clearly presented.
The form does not contain a separate
disclosure of the m inimum balance required
to obtain the annual percentage yield; the
tiered-rate disclosure provides that
information.
B -9 S a m p le Form (M o n ey M a rk et A c c o u n t
A d v e r tis e m e n t)
1. G eneral. The advertisement is for a
tiered-rate m oney market account that uses
Tiering M ethod A.
By order o f the Board o f Governors o f the
Federal Reserve System , January 28,1994.
William W. Wiles,
S e c re ta r y o f th e B oard.
[FR Doc. 94-2505 Filed 2^1-94, 8:45 am]
BILUNG CODE S21O-01-P
@FedFRASER