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FEDERAL RESERVE BANK OF NEW YORK [ Circular No. 1 0 8 2 2 1 December 29, 1995 J TRUTH IN SAVINGS Proposed Changes to the Official Staff Commentary to Regulation DD C o m m e n t s I n v it e d b y F e b r u a r y 2 To All Depository Institutions in the Second Federal Reserve District, and Others Concerned: T h e follow ing statem ent has been issued by the Board o f G overnors o f the Federal R eserve System : The Federal Reserve Board has published for public comment proposed revisions to the official staff commentary to its Regulation DD, Truth in Savings. The commentary applies and interprets the requirements of the Regulation. Comment is requested by February 2, 1996. The proposed revisions would clarify regulatory provisions and provide further guidance on issues of general interest, such as when credited interest becomes part of principal and how leap years affect the calculation of the annual percentage yield (APY). Printed on the follow ing pages is the text o f the proposal to the R egulation D D Com m entary, w hich has been published in the F e d e r a l R e g is te r. C om m ents thereon should b e subm itted by February 2, 1996, and may be sent to the Board o f G overnors, as specified in the B o a rd ’s notice, or to our C om p liance Exam inations D epartm ent. W i l l ia m J. M cD o n o u g h , P re sid e n t. Federal Register / Vol. 60, No. 234 / Wednesday, December 6, 1995 / Proposed Rules 62349 12CFR Part 230 [Regulation DD; Docket No. R-0904] Truth in Savings AGENCY: B o a r d o f G o v e r n o r s o f t h e F e d e r a l R e s e r v e S y s te m . ACTION: P r o p o s e d r u l e ; o f f ic ia l s t a f f in te rp re ta tio n . SUMMARY: T h e B o a r d is p u b l i s h i n g fo r c o m m e n t p r o p o s e d r e v i s i o n s t o th e o f f ic ia l s t a f f c o m m e n t a r y t o R e g u l a ti o n D D ( T r u t h in S a v i n g s ) . T h e c o m m e n t a r y a p p lie s a n d in te rp re ts th e re q u ire m e n ts o f R e g u l a ti o n D D . T h e p r o p o s e d re v is io n s w o u ld c la rify re g u la to ry p ro v is io n s o r p ro v id e fu rth e r g u id a n c e o n is s u e s o f g e n e ra l in te re s t, s u c h as w h e n c r e d ite d in te re s t b e c o m e s p a rt o f p r i n c i p a l a n d h o w l e a p y e a r s a f f e c t th e c a lc u la tio n o f th e a n n u a l p e rc e n ta g e y ie l d . DATES: C o m m e n t s m u s t b e r e c e i v e d o n o r b e fo re F e b ru a ry 2 , 1 9 9 6 . ADDRESSES: C o m m e n t s s h o u l d r e f e r to D o ck e t N o. R - 0 9 0 4 , a n d m a y b e m a ile d to W i l l i a m W . W i l e s , S e c r e t a r y , B o a r d o f G o v e rn o rs o f th e F e d e ra l R e s e rv e S y s t e m , 2 0 t h S tr e e t a n d C o n s t i t u t i o n A v e n u e , N W „ W a s h in g to n , D C 2 0 5 5 1 . 62 3 5 0 Federal Register / Vol. 60, No. 234 / Wednesday, December 6, 1995 / Proposed Rules C o m m e n t s a l s o m a y b e d e li v e r e d to r e p e a l s e v e r a l p r o v i s i o n s o f t h e T r u t h in R o o m B - 2 2 2 2 o f t h e E c c l e s B u i ld in g b e tw e e n 8 : 4 5 a .m . a n d 5 :1 5 p .m . w e e k d a y s , o r t o t h e g u a r d s t a ti o n in t h e E c c l e s B u i ld in g c o u r t y a r d o n 2 0 t h S tr e e t, N W . ( b e t w e e n C o n s ti tu t io n S a v in g s A c t , i n c l u d i n g t h o s e c a l l i n g fo r an A P Y . T h e B o a rd h a s d e fe rre d a c tio n o n th e p r o p o s a l , p e n d in g t h e C o n g r e s s ’s r e s o l u ti o n o f th e l e g i s l a ti v e p r o p o s a l s . A v e n u e a n d C S tr e e t) a t a n y t im e . C o m m e n t s m a y b e i n s p e c t e d in R o o m M P - 5 0 0 o f t h e M a r tin B u i ld in g b e t w e e n 9 a .m . a n d 5 p .m . w e e k d a y s , e x c e p t a s p r o v id e d in 1 2 C F R 2 6 1 . 8 o f t h e B o a r d ’s r u l e s r e g a r d i n g t h e a v a il a b il it y o f in fo rm a tio n . FOR FURTHER INFORMATION CONTACT: J a n e A h re n s , S e n io r A tto rn e y , o r O b re a O . P o i n d e x t e r , o r M i c h a e l L . H e n t r e l , S ta f f A t t o r n e y s , D iv is io n o f C o n s u m e r a n d C o m m u n i ty A f f a ir s , B o a r d o f G o v e r n o r s o f th e F e d e r a l R e s e r v e S y s te m , a t ( 2 0 2 ) 4 5 2 - 3 6 6 7 o r 4 5 2 - 2 4 1 2 . F o r u sers o f T e l e c o m m u n i c a t i o n s D e v ic e fo r th e D e a f (T D D ) only, p l e a s e c o n t a c t D o r o th e a T h o m p so n , at (2 0 2 ) 4 5 2 - 3 5 4 4 . SUPPLEMENTARY INFORMATION: I. Background T h e p u r p o s e o f t h e T r u t h in S a v i n g s A c t ( 1 2 U .S .C . 4 3 0 1 et seq.) is to a s s i s t c o n s u m e r s in c o m p a r i n g d e p o s i t a c c o u n t s o ff e re d b y d e p o s i to r y i n s t i tu ti o n s . T h e a c t r e q u ir e s i n s t i t u t i o n s to d i s c l o s e fe e s , th e i n t e r e s t r a t e , th e a n n u a l p e r c e n ta g e y ie l d ( A P Y ) , a n d o th e r a c c o u n t t e r m s w h e n e v e r a c o n s u m e r r e q u e s ts t h e i n f o r m a t i o n a n d b e fo re a n a c c o u n t is o p e n e d . F e e s a n d o th e r i n f o r m a t i o n a ls o m u s t b e p r o v id e d o n a n y p e r i o d i c s t a te m e n t th e in s t i tu ti o n s e n d s to th e c o n s u m e r . R u le s a r e se t fo r th fo r d e p o s i t a c c o u n t a d v e r ti s e m e n t s a n d a d v a n c e n o t i c e s to a c c o u n t h o l d e r s o f a d v e r s e c h a n g e s in te r m s . T h e a c t r e s t r i c t s h o w i n s t i t u t i o n s m u s t d e te r m i n e t h e a c c o u n t b a l a n c e o n w h i c h in t e r e s t is c a l c u l a t e d . T h e a c t is i m p le m e n t e d b y th e B o a r d ’s R e g u la tio n DD ( 1 2 C F R p a r t 2 3 0 ) . T h e r e g u la t i o n a u th o r i z e s t h e i s s u a n c e o f o f f ic ia l s ta f f i n t e r p r e t a ti o n s o f t h e r e g u la tio n . T h e B o a r d is p u b lis h in g p r o p o s e d a m e n d m e n ts to th e c o m m e n t a r y to R e g u la tio n D D , w h i c h p r o v id e s g u i d a n c e to d e p o s i to r y i n s t i t u t i o n s in a p p ly in g th e r e g u la t i o n to s p e c i f i c t r a n s a c t i o n s a n d is a s u b s titu te fo r A p p e n d ix A — A n n u a l P ercen ta ge Y ield C alculation P a r t I. A n n u a l P e r c e n t a g e Y i e l d fo r A c c o u n t D is c lo s u re s a n d A d v e rtis in g P u rp o se s II. Proposed Commentary P a r t II. A n n u a l P e r c e n t a g e Y i e l d E a r n e d Section 2 3 0 .2 — D efinitions fo r P e r io d ic S ta te m e n ts C o m m e n t a p p . A .I I .A .- 2 p ro v id e s (2 )(f) B o n u s C o m m e n t 2(F )—2 p r o v i d e s a d d i t i o n a l g u id a n c e re g a rd in g b o n u s e s . T h e p r o p o s e d c o m m e n t c l a r i f i e s th e t r e a t m e n t o f c o u p o n s . It a l s o c o d i f i e s g u i d a n c e p r o v i d e d in t h e s u p p le m e n t a r y i n f o r m a t i o n a c c o m p a n y i n g t h e i n i ti a l r u l e m a k in g ( 5 7 F R 4 3 3 3 7 , p u b li s h e d S e p t e m b e r 2 1 , 1 9 9 2 ) c o n c e r n i n g i t e m s g iv e n o r o f f e r e d to th ir d p a r t ie s . 2 (u ) T i m e A c c o u n t P ro p o se d c o m m e n t 2 ( u ) - 3 c la rifie s t h a t a n i n t e r e s t - b e a r in g a c c o u n t m e e t s t h e d e f i n i ti o n o f a t i m e a c c o u n t i f th e a m o u n t o f th e e a rly w ith d ra w a l p e n a lty is e q u a l to a t le a s t s e v e n d a y s ’ i n t e r e s t fo r w it h d r a w a l s d u r in g th e fir s t s i x d a y s th e a c c o u n t is o p e n e d a n d t h e a c c o u n t h a s a m a t u r i ty o f a t le a s t s e v e n d a y s . T h u s , th e B o a r d b e li e v e s th a t w h e r e a d e p o s i to r y i n s t i t u t i o n i m p o s e s a d o l l a r a m o u n t a s its e a r l y w i t h d r a w a l p e n a l ty ( a s s e s s e d d u r in g th e firs t s i x d a y s a n a c c o u n t is o p e n e d ) o n a n i n t e r e s t - a d d i t i o n a l g u i d a n c e o n r o u n d i n g th e i n t e r e s t e a r n e d f ig u r e o f t h e a n n u a l p e rc e n ta g e y ie ld e a rn e d . P ro p o s e d c o m m e n t a p p . A . I I . - 3 p r o v id e s a d d itio n a l g u id a n c e o n c a lc u la tin g i n t e r e s t a n d t h e a n n u a l p e r c e n ta g e y i e l d e a r n e d in a l e a p y e a r . III. Form of Comment Letters C o m m e n t l e t t e r s s h o u l d r e f e r to D o c k e t N o . R —0 9 0 4 , a n d , w h e n p o s s ib le , s h o u ld u se a s ta n d a rd c o u rie r ty p e fa c e w ith a ty p e s iz e o f 1 0 o r 1 2 c h a ra c te rs p e r i n c h . T h i s w i l l e n a b l e th e B o a r d to c o n v e r t th e te x t in to m a c h in e -re a d a b le fo r m t h r o u g h e l e c t r o n i c s c a n n i n g , a n d w il l f a c il it a t e a u t o m a t e d r e t r ie v a l o f c o m m e n t s fo r r e v i e w . C o m m e n t s m a y a l s o b e s u b m it t e d o n 3V2 i n c h o r 5V4 i n c h c o m p u t e r d is k e tt e s in a n y IB M c o m p a t i b l e D O S -b a s e d f o r m a t, if a c c o m p a n i e d b y a n o r i g in a l d o c u m e n t in p a p e r fo r m . List of Subjects in 12 CFR Part 230 in d iv i d u a l s t a f f i n t e r p r e t a ti o n s . T h e A d v e r t i s i n g , B a n k s , b a n k in g , b e a r in g a c c o u n t , r a t h e r t h a n a p p l y i n g a C o n s u m e r p ro te c tio n , F e d e ra l R e se rv e p e r i o d i c r a te to a b a l a n c e (“ i n t e r e s t ,” ), S y s te m , R e p o r ti n g a n d r e c o r d k e e p in g t h e f i x e d -d o ll a r p e n a l t y is t h e f u n c t i o n a l ' r e q u i r e m e n t s , T r u t h in s a v in g s . e q u iv a le n t o f in te re s t. C e r ta in c o n v e n t i o n s h a v e b e e n u s e d to h ig h lig h t t h e p r o p o s e d r e v i s i o n s to Section 2 3 0 .7 — P aym ent o f Interest t h e r e g u la t i o n . N e w la n g u a g e is s h o w n 7 (b ) C r e d itin g a n d C o m p o u n d i n g i n s i d e b o l d - f a c e d a r r o w s , w h i le P o l i c ie s l a n g u a g e t h a t w o u l d b e d e le t e d is s e t o f f C o m m e n t 7 (b )—4 a d d r e s s e s c r e d i t i n g w it h b o l d - f a c e d b r a c k e t s . C o m m e n t s a r e a n d co m p o u n d in g p o lic ie s . T h e B o a rd n u m b e r e d t o c o m p l y w it h n e w Federal b e li e v e s i n s t i t u t i o n s m a y c h o o s e a n y Register p u b l i c a t i o n r u l e s . c r e d i ti n g f r e q u e n c y . H o w e v e r , o n c e F o r t h e r e a s o n s s e t f o r th in th e in t e r e s t is c r e d i t e d b y p o s tin g i n t e r e s t to p r e a m b l e , th e B o a r d p r o p o s e s to a m e n d a n a c c o u n t it b e c o m e s p a r t o f th e 1 2 C F R p a rt 2 3 0 a s fo llo w s: p r i n c i p a l , a n d i f i n t e r e s t r e m a i n s in th e PART 230—TRUTH IN SAVINGS a c c o u n t, in te re st m u st a c c r u e o n th o s e (REGULATION DD) fu n d s . T h e B o a r d b e li e v e s t h e a c t r e q u ir e s th a t o n c e i n t e r e s t is c r e d i t e d to 1 . T h e a u t h o r i t y c i t a t i o n fo r p a r t 2 3 0 an a c c o u n t, in s titu tio n s m u st c a lc u la te w o u l d c o n t i n u e to r e a d a s f o llo w s : in t e r e s t o n th e fu ll p r i n c i p a l in th e Authority: 12 U.S.C. 4301 et seq. a cco u n t. F o r e x a m p le , a ssu m e a c o m m e n t a r y is u p d a te d p e r i o d i c a l l y to c o n s u m e r e a r n s $ 5 in i n te r e s t o n a a d d r e s s s i g n if ic a n t q u e s t io n s t h a t a r i s e . T h e B o a r d e x p e c t s to a d o p t th e $ 1 , 0 0 0 b a la n c e fo r th e m o n th o f J a n u a r y . S e c t i o n 2 3 0 . 2 D e f in i ti o n s ., th e f o l l o w i n g If th e i n s t i tu ti o n c r e d i t s i n te r e s t c o m m e n t a r y in fin a l fo rm b y A p r il 1 9 9 6 m o n th l y (in th e e x a m p l e , a t th e e n d o f a m e n d m e n ts w o u ld b e m a d e : a. U n d e r (f) B o n u s, p a r a g r a p h 1. w ith a s i x -m o n t h t im e p e r io d fo r J a n u a r y ) a n d d o e s n o t p a y th e i n t e r e s t w o u ld be re v is e d , p a ra g ra p h s 2 . th ro u g h o p tio n a l c o m p lia n c e an d a m a n d a to ry b y c h e c k o r t r a n s f e r to a n o t h e r a c c o u n t , c o m p l i a n c e d a te o f O c to b e r 1 9 9 6 . O n J a n u a r y 2 6 , 1 9 9 5 , th e B o a r d th e in s t i tu ti o n m u s t a c c r u e i n t e r e s t o n 4. 3. $ 1 , 0 0 5 fo r th e m o n th o f F e b r u a r y . p u b lis h e d a p r o p o s a l to a m e n d th e C o m m e n t 7 ( b ) -4 w o u ld c la rify th a t r e g u la t i o n ’s r u l e s fo r c a l c u l a t i n g th e A P Y ( 6 0 F R 5 1 4 2 ) . T h e C o n g r e s s is c o n s id e r i n g l e g is la tio n th a t w o u ld a c o n s u m e r ’s a c c o u n t w it h o u t b e c o m i n g p a rt o f th e p r i n c i p a l . in te r e s t c a n n o t b e c r e d i t e d b y p o s ti n g to 2 . In S u p p l e m e n t I to p a rt 2 3 0 , u n d e r w o u ld b e r e d e s i g n a t e d a s p a r a g r a p h s t h r o u g h 5 ., r e s p e c t i v e l y , a n d a n e w p a ra g ra p h 2. w o u ld b e a d d e d ; a n d b. U n d e r (u ) T im e a cco u n t, a n e w p a ra g ra p h 3. w o u ld b e a d d e d . T h e re v is io n s a n d a d d itio n s w o u ld r e a d a s f o llo w s : Federal Register / Vol. 60, No. 234 / Wednesday, December 6, 1995 / Proposed Rules Supplement I to Part 230—Official Staff Interpretations * * * Section 230.2 * * * * Definitions * * Y ield fo r A c co u n t D isclosures a n d A d vertising P urpo ses, a n e w p a r a g r a p h 1. ► G eneral R u le * ^ [E x a m p le s ] B onuses in clu d e item s of v a lu e , o th er than interest, offered as in ce n tiv e s to co n su m e rs, such as an offer to p ay the final in stallm en t deposit for a h oliday clu b a cco u n t. [Ite m s that are not a b on us in clu d e d isco u n t cou p on s for goods or se rv ice s at re sta u ra n ts o r sto re s.) ► 2 . E xam ples o f E x clu d ed Items. Item s that are n ot b on u ses in clu d e : i. D iscou nt c o u p o n s d istributed by in stitu tion s for goods or services at restau ran ts or stores w here the con su m er m u st pay a su m to th e restau ran t or store to re ce iv e the benefit o f the co u p o n ii. Item s o f v alu e given to a third party by an institu tion w h en a co n su m e r opens, m ain tain s, o r ren ew s an a cc o u n t— such as d on atio n s m ad e to a ch aritab le o rg a n iz a tio n .-^ * * * * (u) T im e a cco u n t * * * * * ► 3 . Fee for early withdrawal. Time accounts include interest-bearing accounts with a maturity of at least seven days that impose a dollar amount for withdrawals during the first six days after the account is opened that is equal to at least seven days’ interest.-^ * * * * * a. Under (a)(1) P erm issible m ethods, paragraph 4. would be revised; and 4. w o u ld b e ad d e d . T h e r e v i s i o n s a n d a d d i t i o n s w o u ld r e a d a s f o llo w s : * * * * * * Section 230.7 Payment of Interest * * * * (a) * * (1) P erm issible m ethods. * * * 4. L eap year. Institutions may apply a daily rate of 1/366 or 1/365 of the interest rate for 366 days in a leap year, if the account will earn interest for February 29. ► “Leap year'' is a calendar year in which February 29 occurs. For example, if the term of a time account includes days in a nonleap year but extends through February 29 of a leap year, the institution must use a daily rate of 1/365 (or a greater daily rate such as 1/360) each day the account is open in the nonleap year. * * * * * * (b) Com pounding a n d crediting policies. * * * * ► 4 . C r e d it in g a n d a c c r u a l o f in te re s t. Once interest is credited to an account it becom es part of the principal on which an institution must accrue in te r e s t.^ * * * * * 2 . w o u ld b e a d d e d ; a n d b . U n d e r Part II. A n n u a l P ercen ta ge Y ield E a rn ed f o r P erio d ic Statem ents, u n d e r A. G en eral F o rm u la , p a r a g r a p h 2 . w o u ld b e re v is e d , a n d a n e w p a ra g ra p h 3 . w o u ld be a d d e d . T h e a d d itio n s a n d re v is io n s w o u ld r e a d a s f o llo w s : * * * * * Appendix A to Part 230—Annual Percentage Yield Calculation Part I. Annual Percentage Yield for Account Disclosures and Advertising Purposes * * * * * ►2. Leap year. Institutions that use a daily rate of 1/366 to pay interest on an account during a leap year may calculate the annual percentage yield using 365 or 366 days in a leap year, as follows: 1. Institutions may use 365 days in all cases. ii. For time accounts, institutions must use 365 if the account term includes days in a nonleap year.-^ Part II. Annual Percentage Yield Earned for Periodic Statements * * * * * A. General Formula 3 . In S u p p l e m e n t I to p a r t 2 3 0 , u n d e r Section 230.7 Paym ent o f interest, th e f o llo w in g a m e n d m e n t s w o u l d b e m a d e : b . U n d e r (b) Com pounding and crediting policies, a n e w p a r a g r a p h In S u p p l e m e n t I to p a r t 2 3 0 , u n d e r w o u ld be m a d e : a . U n d e r Part 1. A n n u a l P ercen ta ge * (f) Bonus. * 4. A p p e n d ix A , th e fo llo w in g a m e n d m e n ts * * * * * 2 . H ounding. T h e i n t e r e s t e a r n e d fig u r e u s e d to c a l c u l a t e t h e a n n u a l p e r c e n t a g e y ie l d e a r n e d m u s t b e r o u n d e d to t w o d e c i m a l s a n d r e f l e c t th e a m o u n t a c t u a l l y p a id , if a t t h e e n d o f t h e s t a te m e n t p e r i o d t h e i n s t i tu ti o n o n l y a c c r u e s in te re s t on tw o d e c im a ls . F o r e x a m p l e ^ : ^ [ . if] ►i. Ifi^ the interest earned for a statement period is S20.074 and the institution pays the consumer $20.07, the institution must use $20.07 (not $20,074) to calculate the annual percentage yield earned ►if the institution does not accrue interest on the $20,074 if interest is credited to the account, or on the $.004 if interest is paid by check or transfer to another account for the next statement^ period-^. ►ii. If an institution accrues interest on the .004 for the next statement period. $20,074 may be used to calculate the annual percentage yield earned for the statement period iii For accounts paying interest based on the daily balance method that 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). ►3. Leap year. Institutions that use a daily rate of 1/366 to pay interest on an account 6,131- I 62351 during a leap year may calculate the annual percentage yield earned using 365 or 366 days during the leap year.-^ * * * * * B y o rd e r o f th e B o a r d o f G o v e rn o rs of t h e F e d e r a l R e s e r v e S y s t e m , a c t in g th r o u g h t h e S e c r e t a r y o f t h e B o a r d u n d e r d e le g a t e d a u t h o r i t y , D e c e m b e r 1, 1995. Jennifer J. Johnson, Deputy Secretary of the Board. [FR Doc. 95-29712 Filed 12-5-95: 8:45 am] BILUNG CODE 6210-01-P
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