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FEDERAL RESERVE BANK OF NEW YORK di. icn^i% ) D ecem ber 7, 1994 To All Depository Institutions in the Second Federal Reserve District, and Others Maintaining Sets of Board Regulations: E n c lo s e d is a c o p y th e " O ffic ia l S t a f f C o m m e n ta r y o n R e g u la tio n D D — T ru th in S a v in g s ," e f f e c t iv e A u g u s t 3 , 1 9 9 4 . Q u e s t io n s c o n c e r n in g R e g u la tio n D D m a y b e d ir e c te d to th e C o m p lia n c e E x a m in a tio n s D e p a r tm e n t o f th is B a n k . T h e r e v is e d p a m p h le t s u p e r s e d e s th e p r e v io u s p r in tin g o f th e c o m m e n ta r y . C ir c u la r s D iv is io n A T ' 1 0 1 L /7 ( q ) 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 Official Staff Commentary on Regulation DD Truth in Savings Effective August 3, 1994; compliance optional until February 6, 1995 Any inquiry relating to Regulation DD should be addressed to the Federal Reserve Bank o f the Federal Reserve District in which the inquiry arises. October 1994 pr \0'v-n(Q) r- Contents Page Introduction ....................................................... Section 230.1— Authority, purpose, coverage, and effect on state la w s ........... Section 230.2— D efinitions............................. Section 230.3— General disclosure requirements.................................................. Section 230.4— Account disclosures............. Section 230.5— Subsequent disclosures . . . . Section 230.6—Periodic-statement disclosures....................................................... 1 1 1 3 5 7 9 Page Section 230.7— Payment of interest........... Section 230.8— Advertising.......................... Section 230.9— Enforcement and record retention....................................................... Appendix A— Annual-percentage-yield calculation..................................................... Appendix B— Model clauses and sample forms............................................... 11 12 15 15 16 R T - lo a n fa Official Staff Commentary on Regulation DD E ffective A ugust 3, 1994; com pliance optional until February 6, 1995 INTRODUCTION 1. O f f i c i a l s t a t u s . This commentary is the means by which the Division o f Consumer and Community Affairs o f the Federal Re serve Board issues official staff interpretations o f Regulation DD. Good-faith compliance with this commentary affords protection from liability under section 271(f) o f the Truth in Savings Act. ii. deposit accounts opened as a condition of obtaining a credit card iii. accounts denominated in a foreign cur rency iv. individual retirement accounts (IRAs) and simplified em ployee pension (SEP) ac counts v. payable on death (POD) or Totten trust accounts 2. O t h e r a c c o u n t s . Examples o f accounts not subject to the regulation are— SECTION 230.1—Authority, Purpose, Coverage, and Effect on State Laws 1(c) Coverage 1. F o r e i g n a p p l i c a b i l i t y . Regulation DD ap plies to all depository institutions, except credit unions, that offer deposit accounts to residents (including resident aliens) of any state as defined in section 230.2(r). Accounts held in an institution located in a state are covered, even if funds are transferred periodi cally to a location outside the United States. Accounts held in an institution located outside the United States are not covered, even if held by a U.S. resident. 2. P e r s o n s w h o a d v e r t i s e a c c o u n t s . Persons who advertise accounts are subject to the ad vertising rules. For example, if a deposit bro ker places an advertisement offering consum ers an interest in an account at a depository institution, the advertising rules apply to the advertisement, whether the account is to be held by the broker or directly by the consumer. i. mortgage escrow accounts for collecting taxes and property insurance premiums ii. accounts established to make periodic dis bursements on construction loans iii. trust accounts opened by a trustee pursu ant to a formal written trust agreement (not merely declarations of trust on a sig nature card such as a Totten trust or an IRA and SEP account) iv. accounts opened by an executor in the name of a decedent’s estate 3. O t h e r i n v e s t m e n t s . The term “ account” does not apply to all products o f a depository institution. Examples o f products not covered are— i. ii. iii. iv. v. government securities mutual funds annuities securities or obligations o f a depository institution contractual arrangements such as repur chase agreements, interest-rate swaps, and banker’s acceptances 2(b) Advertisement SECTION 230.2—Definitions 2(a) Account 1. C o v e r e d a c c o u n t s . Examples o f accounts subject to the regulation are— i. interest-bearing and noninterest-bearing accounts 1. C o v e r e d m e s s a g e s . Advertisements include commercial messages in visual, oral, or print media that invite, offer, or otherwise announce generally to prospective customers the availa bility of consumer accounts, such as— i. telephone solicitations ii. m essages on automated teller machine (ATM) screens 1 Regulation DD Official Staff Commentary § 230.2 iii. messages on a computer screen in an in stitution’s lobby (including any printout) other than a screen viewed solely by the institution’s employee iv. messages in a newspaper, magazine, or promotional flyer or on radio v. messages that are provided along with in formation about the consumer’s existing account and that promote another account at the institution 2. O t h e r m e s s a g e s . Examples o f messages that are not advertisements are— i. rate sheets in a newspaper, periodical, or trade journal (unless the depository institu tion, or a deposit broker offering accounts at the institution, pays a fee for or other wise controls publication) ii. in-person discussions with consum ers about the terms for a specific account iii. information given to consumers about ex isting accounts, such as current rates re corded on a voice-response machine or notices for automatically renewable time accounts sent before renewal may be given for a specific promotion. To il lustrate, assume an institution offers in Janu ary to give consumers an item valued at $7 for each calendar quarter during the year that the average account balance in a negotiable order o f withdrawal (NOW) account exceeds $10,000. The bonus rules are triggered, since consumers are eligible under the promotion to receive up to $28 during the year. However, the bonus rules are not triggered if an item valued at $7 is offered to consumers opening a NOW account during the month o f January, even though in November the institution in troduces a new promotion that includes, for example, an offer to existing NOW account holders for an item valued at $8 for maintain ing an average balance o f $5,000 for the month. 4. W a iv e r o r r e d u c tio n o f a f e e o r a b s o r p tio n Bonuses do not include value that consumers receive through the waiver or re duction o f fees (even if the fees waived ex ceed $10) for banking-related services such as the following— o f ex p en ses. i. 2(f) Bonus 1. E x a m p l e s . 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. Items that are not a bonus include discount coupons for goods or services at restaurants or stores. 2. D e m i n i m i s r u le . Items with a de minimis value of $10 or less are not bonuses. Institu tions may rely on the valuation standard used by the Internal Revenue Service to determine if the value of the item is de minimis. Exam ples of items of de minimis value are— i. disability insurance premiums valued at an amount of $10 or less per year ii. coffee mugs, T-shirts, or other merchandise with a market value o f $10 or less 3. A g g r e g a t i o n . In determining if an item val ued at $10 or less is a bonus, institutions must aggregate per account per calendar year items that may be given to consumers. In making this determination, institutions aggregate per account only the market value o f items that 2 a safe deposit box rental fee for consum ers who open a new account ii. fees for traveler’s checks for account holders iii. discounts on interest rates charged for loans at the institution 2(h) Consumer 1. P r o f e s s i o n a l c a p a c i t y . Examples o f ac counts held by a natural person in a profes sional capacity for another are attorney-client trust accounts and landlord-tenant security accounts. 2. O t h e r a c c o u n t s . Accounts not held in a professional capacity include accounts held by an individual for a child under the Uniform Gifts to Minors Act. 3. S o l e p r o p r i e t o r s . Accounts held by individ uals as sole proprietors are not covered. 4. R e t i r e m e n t p l a n s . IRAs and SEP accounts are consumer accounts to the extent that funds are invested in covered accounts. But Keogh accounts are not subject to the regulation. 5. U n in c o r p o r a te d a s s o c ia tio n s . An institution Regulation DD Official Staff Commentary may rely on the declaration o f the person rep resenting an unincorporated association as to whether the account is held for a business or nonbusiness purpose. 2(j) Depository Institution and Institution 1. F o r e i g n i n s t i t u t i o n s . Branches o f foreign institutions located in the United States are subject to the regulation if they offer deposit accounts to consumers. Edge Act and agree ment corporations, and agencies of foreign in stitutions, are not depository institutions for purposes of this regulation. 2(k) Deposit Broker 1. G e n e r a l . A deposit broker is a person who is in the business of placing or facilitating the placement of deposits in an institution, as de fined by the Federal Deposit Insurance Act (12 USC 29(g)). 2(n) Interest 1. R e l a t i o n t o R e g u l a t i o n Q . While bonuses are not interest for purposes o f this regulation, other regulations may treat them as the equivalent of interest. For example, Regula tion Q identifies payments of cash or mer chandise that violate the prohibition against paying interest on demand accounts. (See 12 CFR 217.2(d).) 2(p) Passbook Savings Account 1. R e l a t i o n t o R e g u l a t i o n E . Passbook savings accounts include accounts a ccessed by preauthorized electronic fund transfers to the account (as defined in 12 CFR 205.2(j)), such as an account that receives direct deposit of Social Security payments. Accounts permitting access by other electronic means are not pass book saving accounts and must comply with the requirements of section 230.6 if statements are sent four or more times a year. 2(q) Periodic Statement 1. E x a m p l e s . include— i. Periodic statements do not additional statements provided solely upon request § 230.3 ii. information provided by computer through home banking services iii. general service information such as a quarterly newsletter or other correspon dence describing available services and products 2(t) Tiered-Rate Account 1. T i m e a c c o u n t s . Time accounts paying dif ferent rates based solely on the amount o f the initial deposit are not tiered-rate accounts. 2. M i n i m u m - b a l a n c e r e q u i r e m e n t s . A require ment to maintain a minimum balance to earn interest does not make an account a tiered-rate account. 2(u) Time Account 1. C l u b a c c o u n t s . Although club accounts typically have a maturity date, they are not time accounts unless they also require a pen alty of at least seven days’ interest for with drawals during the first six days after the ac count is opened. 2. R e l a t i o n t o R e g u l a t i o n D . Regulation D permits in limited circumstances the with drawal o f funds without penalty during the first six days after a time deposit is opened. (See 12 CFR 204.2(c)(l)(i).) But the fact that a consumer makes a withdrawal as permitted by Regulation D does not disqualify the ac count from being a time account for purposes of this regulation. 2(v) Variable-Rate Account 1. G e n e r a l . A certificate o f deposit permitting one or more rate adjustments prior to maturity at the consumer’s option is a variable-rate account. SECTION 230.3—General Disclosure Requirements 3(a) Form 1. D e s i g n r e q u i r e m e n t s . Disclosures must be presented in a format that allows consumers to readily understand the terms of their account. Institutions are not required to use a particular type size or typeface, nor are institutions re3 Regulation DD Official Staff Commentary § 230.3 quired to state any term more conspicuously than any other term. Disclosures may be made— 1. in any order ii. in combination with other disclosures or account terms iii. in combination with disclosures for other types of accounts, as long as it is clear to consumers which disclosures apply to their account iv. on more than one page and on the front and reverse sides v. by using inserts to a document or filling in blanks vi. on more than one document, as long as the documents are provided at the same time 2. C o n s i s t e n t t e r m i n o l o g y . Institutions must use consistent terminology to describe terms or features required to be disclosed. For ex ample, if an institution describes a monthly fee (regardless o f account activity) as a “monthly service fee” in account-opening dis closures, the periodic statement and change-in term notices must use the same terminology s o tha t c o n s u m e r s c a n r e a d ily id e n tify th e f e e . 3(b) General 1. S p e c i f i c i t y o f l e g a l o b l i g a t i o n . Institutions may refer to the calendar month or to roughly equivalent intervals during a calendar year as a “month.” iii. an institution complying with the timing rules o f Regulation E discloses at the same time fees for electronic services (such as for balance inquiry fees at ATMs) required to be disclosed by this regulation but not by Regulation E iv. an institution relies on Regulation E’s rules regarding disclosure o f limitations on the frequency and amount o f electronic fund transfers, including security-related exceptions. But any limitations on intrainstitutional transfers to or from the con sumer’s other accounts during a given time period must be d isclosed , even though intra-institutional transfers are ex empt from Regulation E. 3(e) Oral Response to Inquiries 1. A p p l i c a t i o n o f r u le . Institutions are not re quired to provide rate information orally. 2. R e l a t i o n t o a d v e r t i s i n g . The advertising rules do not cover an oral response to a ques tion about rates. 3. E x i s t i n g a c c o u n t s . This paragraph does not apply to oral responses about rate information for existing accounts. For example, if a con sumer holding a one-year certificate o f deposit (CD) requests interest rate information about the CD during the term, the institution need not disclose the annual percentage yield. 3(f) Rounding and Accuracy Rules for Rates and Yields (f ) ( 1 ) R o u n d in g 3(c) Relation to Regulation E 1. G e n e r a l r u le . Compliance with Regulation E (12 CFR 205) is deemed to satisfy the dis closure requirements of this regulation, such as when— i. an institution changes a term that triggers a notice under Regulation E, and uses the timing and disclosure rules of Regulation E for sending change-in-term notices ii. consumers add an ATM access feature to an account, and the institution provides disclosures pursuant to Regulation E, in cluding disclosure of fees (see 12 CFR 205.7) 4 1. P e r m i s s i b l e r o u n d in g . Examples o f permis sible rounding are an annual percentage yield calculated to be 5.644%, rounded down and disclosed as 5.64%; 5.645% rounded up and disclosed as 5.65%. 3(f)(2) Accuracy 1. A n n u a l p e r c e n ta g e y ie ld and annual p e r The tolerance for annual-percentage-yield and annual-percentageyield-earned calculations is designed to ac commodate inadvertent errors. Institutions may not purposely incorporate the tolerance into their calculation o f yields. c e n ta g e y ie ld ea rn ed . § 230.4 Regulation DD Official Staff Commentary SECTION 230.4— Account Disclosures ) 4(a) Delivery of Account Disclosures reasonable time for responding to requests for account information that consumers do not make in person. 4 ( a ) ( 1 ) A c c o u n t O p e n in g 4 (a )(2 )(ii)(A ) 1. N e w a c c o u n t s . New account disclosures must be provided when— 1. R e c e n t r a t e s . Institutions comply with this paragraph if they disclose an interest rate and annual percentage yield accurate within the seven calendar days preceding the date they send the disclosures. 1. a time account that does not automatically roll over is renewed by a consumer ii. a consumer changes a term for a renewa ble time account (see section 230.5(b)-5 regarding disclosure alternatives) iii. an institution transfers funds from an ac count to open a new account not at the consumer’s request, unless the institution previously gave account disclosures and any change-in-term notices for the new account iv. an institution accepts a deposit from a consumer to an account that the institution had deemed closed for the purpose of treating accrued but uncredited interest as forfeited interest (see section 230.7(b)-3) 2. A c q u i r e d a c c o u n t s . New account disclo sures need not be given when an institution acquires an account through an acquisition of or merger with another institution (but see section 230.5(a) regarding advance-notice re quirements if terms are changed). 4 ( a ) ( 2 ) R e q u e s ts 4 (a )(2 )(i) 4 (a )(2 )(ii)(B ) 1. T e r m . Describing the maturity o f a time ac count as “ 1 year” or “6 months,” for exam ple, illustrates a statement of the maturity o f a time account as a term rather than a date ( “January 10, 1995” ). 4(b) Content of Account Disclosures 4 ( b ) ( 1 ) R a te I n fo r m a tio n 4 ( b ) ( l) ( i) A n n u a l P e r c e n ta g e Y ie ld a n d I n te r e s t R a te 1. R a t e d i s c l o s u r e s . In addition to the interest rate and annual percentage yield, institutions may disclose a periodic rate corresponding to the interest rate. No other rate or yield (such as “tax-effective yield” ) is permitted. If the annual percentage yield is the same as the in terest rate, institutions may disclose a single figure but must use both terms. 1. I n q u i r i e s v e r s u s r e q u e s t s . 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. But when consumers ask for written information about an account (whether by telephone, in person, or by other means), the institution must pro vide disclosures unless the account is no longer offered to the public. 2. F i x e d - r a t e a c c o u n t s . For fixed-rate time ac counts paying the opening rate until maturity, institutions may disclose the period o f time the interest rate will be in effect by stating the maturity date. (See appendix B, B-7— Sample Form.) For other fixed-rate accounts, institu tions may use a date ( “This rate will be in effect through May 4, 1995” ) or a period ( “This rate will be in effect for at least 30 days” ). 2. G e n e r a l r e q u e s t s . When responding to a consumer’s general request for disclosures about a type of account (a NOW account, for example), an institution that offers several var iations may provide disclosures for any one of them. 3. T i e r e d - r a t e a c c o u n t s . Each interest rate, along with the corresponding annual percent age yield for each specified balance level (or range o f annual percentage yields, if appropri ate), must be disclosed for tiered-rate ac counts. (See appendix A, part I, paragraph D.) 3. 4. T i m in g f o r r e s p o n s e . Ten business days is a S te p p e d - r a te a c c o u n ts . A single composite 5 Regulation DD Official Staff Commentary § 230.4 annual percentage yield must be disclosed for stepped-rate accounts. (See appendix A, part I, paragraph B.) The interest rates and the period o f time each will be in effect also must be provided. When the initial rate offered for a specified time on a variable-rate account is higher or lower than the rate that would other wise 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.) 4 ( b ) ( 3 ) B a la n c e I n fo r m a tio n 4 (b )(3 )(H ) B a la n c e -C o m p u ta tio n M e th o d 1. M e t h o d s a n d p e r i o d s . Instititutions may use different methods or periods to calculate mini mum balances for purposes of imposing a fee (the daily balance for a calendar month, for example) and accruing interest (the average daily balance for a statement period, for ex ample). Each method and corresponding pe riod must be disclosed. 4 ( b ) ( 1 ) ( H ) V a r ia b le R a te s 4 (b )(3 )(iii) 4 ( b ) ( 1 )( ii)(B ) 1. D e t e r m i n i n g i n t e r e s t r a t e s . To disclose how the interest rate is determined, institutions must— i. identify the index and specific margin, if the interest rate is tied to an index ii. state that rate changes are within the insti tution’s discretion, if the institution does not tie changes to an index W h en I n te r e s t B e g in s to A c c r u e 1. A d d i t i o n a l i n f o r m a t i o n . Institutions may disclose additional information such as the time of day after which deposits are treated as having been received the following business day, and may use additional descriptive terms such as “ ledger” or “collected” balances to disclose when interest begins to accrue. 4 (b )(4 ) F ees 1. C o v e r e d f e e s . The following are types of fees that must be disclosed— 4 (b )(l)(ii)(C ) 1. 1. F r e q u e n c y o f r a t e c h a n g e s . An institution reserving the right to change rates at its dis cretion must state the fact that rates may change at any time. 4 (b )(l)(ii)(D ) 1. L i m i t a t i o n s . A floor or ceiling on rates or on the amount the rate may decrease or in crease during any time period must be dis closed. Institutions need not disclose the ab sence of limitations on rate changes. 4 ( b ) ( 2 ) C o m p o u n d in g a n d C r e d itin g 4 (b ) (2 )(H ) E ffe c t o f C lo s in g a n A c c o u n t 1. D e e m i n g a n a c c o u n t c l o s e d . An institution may, subject to state or other law, provide in its deposit contracts the actions by consumers that will be treated as closing the account and that will result in the forfeiture o f accrued but uncredited interest. An example is the with drawal of all funds from the account prior to the date that interest is credited. 6 maintenance fees, such as monthly service fees ii. fees to open or to close an account iii. fees related to deposits or withdrawals, such as fees for use of the institution’s ATMs iv. fees for special services, such as stop-pay ment fees, fees for balance inquiries or verification o f deposits, fees associated with checks returned unpaid, and fees for regularly sending to consumers checks that otherwise would be held by the institution 2. O t h e r f e e s . Institutions need not disclose fees such as the following— i. fees for services offered to account and non-account holders alike, such as travel er’s checks and wire transfers (even if dif ferent amounts are charged to account and non-account holders) ii. incidental fees, such as fees associated with state escheat laws, garnishment or at torney’s fees, and fees for photocopying 3. A m o u n t o f f e e s . Institutions must state the amount and conditions under which a fee may Regulation DD Official Staff Commentary be imposed. Naming and describing the fee (such as “$4.00 monthly service fee” ) will typically satisfy these requirements. 4. T i e d a c c o u n t s . 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 a savings account, the NOW account disclosures must state that fact and explain how the fee is determined. 4 ( b ) ( 5 ) T r a n s a c tio n L im ita tio n s 1. G e n e r a l r u le . Examples o f limitations on the number or dollar amount of deposits or withdrawals that institutions must disclose are— i. limits on the number o f checks that may be written on an account within a given time period ii. limits on withdrawals or deposits during the term of a time account iii. limitations required by Regulation D on the number o f withdrawals permitted from money market deposit accounts by check to third parties each month. Institutions need not disclose reservations of right to require notices for withdrawals from ac counts required by federal or state law. 4 ( b ) ( 6 ) F e a t u r e s o f T im e A c c o u n t s 4 ( b ) ( 6 ) ( i ) T im e R e q u ir e m e n ts 1. “ C a l l a b l e ” t i m e a c c o u n t s . In addition to the maturity date, an institution must state the date or the circumstances under which it may redeem a time account at the institution’s op tion (a callable time account). 4 (b ) (6 )(H ) E a r ly W ith d r a w a l P e n a ltie s 1. G e n e r a l . The term “penalty” may but need not be used to describe the loss of interest that consumers may incur for early withdrawal o f funds from time accounts. 2. E x a m p l e s . Examples o f early withdrawal penalties are— § 230.5 i. monetary penalties, such as “$10.00” or “seven days’ interest plus accrued but un credited interest” ii. adverse changes to terms such as a lower ing of the interest rate, annual percentage yield, or compounding frequency for funds remaining on deposit iii. reclamation o f bonuses 3. R e l a t i o n t o r u l e s f o r I R A s o r s i m i l a r p l a n s . Penalties imposed by the Internal Revenue Code for certain withdrawals from IRAs or similar pension or savings plans are not early withdrawal penalties for purposes o f this regulation. 4. D i s c l o s i n g p e n a l t i e s . Penalties may be stated in months, whether institutions assess the penalty using the actual number o f days during the period or using another method such as a number of days that occurs in any actual sequence o f the total calendar months involved. For example, stating “one month’s interest” is permissible, whether the institution assesses 30 days’ interest during the month of April, or selects a time period between 28 and 31 days for calculating the interest for all early withdrawals regardless o f when the pen alty is assessed. 4 (b ) (6 )(iv ) R e n e w a l P o lic ie s 1. R o l l o v e r t i m e a c c o u n t s . Institutions offering a grace period on time accounts that automati cally renew need not state whether interest will be paid if the funds are withdrawn during the grace period. 2. N o n r o l l o v e r t i m e a c c o u n t s . Institutions pay ing interest on funds following the maturity o f time accounts that do not renew automatically need not state the rate (or annual percentage yield) that may be paid. (See appendix B, model clause B-l(h)(iv)(2).) SECTION 230.5—Subsequent Disclosures 5(a) Change in Terms 5 ( a ) ( 1 ) A d v a n c e N o tic e R e q u ir e d 1. F o rm o f n o tic e . Institutions may provide a 7 § 230.5 change-in-term notice on or with a periodic statement or in another mailing. If an institu tion provides notice through revised account disclosures, the changed term must be high lighted in some manner. For example, institu tions may note that a particular fee has been changed (also specifying the new amount) or use an accompanying letter that refers to the changed term. 2. E f f e c t i v e d a t e . An example o f language for disclosing the effective date o f a change is “As o f November 21, 1994.” 3. T e rm s th a t c h a n g e u p o n th e o c c u r r e n c e o f e v e n t . An institution offering terms that will automatically change upon the occurrence of a stated event need not send an advance notice o f the change provided the institution fully describes the conditions o f the change in the account opening disclosures (and sends any change-in-term notices regardless o f whether the changed term affects that con sumer’s account at that time). an 4. E x a m p l e s . Examples of changes not requir ing an advance change-in-terms notice are— i. the termination of employment for consum ers for whom account maintenance or ac tivity fees were w aived during their employment by the depository institution ii. the expiration o f one year in a promotion described in the account opening disclo sures to “ waive $4.00 monthly service charges for one year” 5 ( a ) ( 2 ) N o N o tic e R e q u ir e d 5 (a )(2 )(H ) C h e c k - P r in tin g F e e s 1. I n c r e a s e in f e e s . A notice is not required for an increase in fees for printing checks (or deposit and withdrawal) even if the institution adds some amount to the price charged by the vendor. 5(b) Notice Before Maturity for Time Accounts Longer Than One Month That Renew Automatically 1. M a t u r i t y d a t e s o n n o n b u s i n e s s d a y s . In de termining the term o f a time account, institu tions may disregard the fact that the term will be extended beyond the disclosed number of Regulation DD Official Staff Commentary days because the disclosed maturity falls on a nonbusiness day. For example, a holiday or weekend may cause a “one-year” time ac count to extend beyond 365 days (or 366, in a leap year) or a “one-month” time account to extend beyond 31 days. 2. D i s c l o s i n g w h e n r a t e s w i l l b e d e t e r m i n e d . Ways to disclose when the annual percentage yield will be available include the use o f— i. a specific date, such as “October 28 ” ii. a date that is easily determinable, such as “the Tuesday before the maturity date stat ed on this notice” or “as o f the maturity date stated on this notice” 3. A l t e r n a t i v e t i m i n g r u le . Under the alterna tive timing rule, an institution offering a 10day grace period would have to provide the disclosures at least 10 days prior to the sched uled maturity date. 4. C l u b a c c o u n t s . If consumers have agreed to the transfer of payments from another ac count to a club time account for the next club period, the institution must comply with the requirements for automatically renewable time accounts— even though consumers may with draw funds from the club account at the end o f the current club period. 5. R e n e w a l o f a t i m e a c c o u n t . In the case o f a change in terms that becomes effective if a rollover tim e account is subsequently renewed— i. If the change is initiated by the institution, the disclosure requirements o f this para graph apply. (Paragraph 230.5(a) applies if the change becomes effective prior to the maturity of the existing time account.) ii. If the change is initiated by the consumer, the account-opening disclosure require ments o f section 230.4(b) apply. (If the no tice required by this paragraph has been provided, institutions may give new ac count disclosures or disclosures highlight ing only the new term.) 6. E x a m p l e . If a consumer receives a prema turity notice on a one-year time account and requests a rollover to a six-month account, the institution must provide either account opening disclosures including the new matur Regulation DD Official Staff Commentary ity date or, if all other terms previously dis closed in the prematurity notice remain the same, only the new maturity date. 5 (b ) (1 ) M a tu r itie s o f L o n g e r T h an O n e Y ear 1. H i g h l i g h t i n g c h a n g e d t e r m s . Institutions need not highlight terms that changed since the last account disclosures were provided. 5(c) Notice for Time Accounts One Month or Less That Renew Automatically 1. P r o v id in g d is c lo s u r e s w ith in a r e a s o n a b le Generally, 10 calendar days after an ac count renews is a reasonable time for provid ing disclosures. For time accounts shorter than 10 days, disclosures should be given prior to the next renewal date. For example, if a time account automatically renews every 7 days, disclosures about an account that renews on Wednesday, December 7, 1994, should be given prior to Wednesday, December 14. tim e . 5(d) Notice Before Maturity for Time Accounts Longer Than One Year ThatDo Not Renew Automatically 1. S u b s e q u e n t a c c o u n t . When funds are trans ferred follow ing maturity o f a nonrollover time account, institutions need not provide ac count disclosures unless a new account is established. SECTION 230.6—Periodic-Statement Disclosures § 230.6 the interim statement need not comply with this section unless it states interest or rate in formation. (See 12 CFR 205.9(b).) 3. C o m b i n e d s t a t e m e n t s . Institutions may pro vide information about an account (such as an MMDA) on the periodic statement for another account (such as a NOW account) without triggering the disclosures required by this sec tion, as long as— i. the information is limited to the account number, the type o f account, or balance in formation, and ii. the institution also provides a periodic statement complying with this section for each account. 4. O t h e r in f o r m a t i o n . Additional information that may be given on or with a periodic state ment includes— i. interest rates and corresponding periodic rates applied to balances during the state ment period ii. the dollar amount o f interest earned yearto-date iii. bonuses paid (or any de minimis consider ation of $10 or less) iv. fees for products such as safe deposit boxes 6 (a )(1 ) A n n u a l P e r c e n ta g e Y ie ld E a r n e d 1. L e d g e r a n d c o l l e c t e d b a l a n c e s . Institutions that accrue interest using the collected-balance method may use either the ledger or the col lected balance in determining the annual per centage yield earned. 6(a) General Rule 1. G e n e r a l . Institutions are not required to provide periodic statements. If they do pro vide statements, disclosures need only be fur nished to the extent applicable. For example, if no interest is earned for a statement period, institutions need not state that fact. Or, institu tions may disclose “$0” interest earned and “0%” annual percentage yield earned. 2. R e g u l a t i o n E i n t e r i m s t a t e m e n t s . When an institution provides regular quarterly state ments, and in addition provides a monthly in terim statement to comply with Regulation E, 6 ( a ) ( 2 ) A m o u n t o f I n te r e s t 1. A c c r u e d in t e r e s t . Institutions must state the amount o f interest that accrued during the statement period, even if was not not credited. 2. T e r m i n o l o g y . In disclosing interest earned for the period, institutions must use the term “interest” or terminology such as— i. “interest paid,” to describe interest that has been credited ii. “interest accrued” or “interest earned,” to indicate that interest is not yet credited. 9 Regulation DD Official Staff Commentary § 230.6 3. C l o s e d a c c o u n t s . If consumers close an ac count between crediting periods and forfeit ac crued interest, the institution may not show any figures for interest earned or annual per centage yield earned for the period (other than zero, at the institution’s option). 6 (a )(3 ) F ees Im p o sed 1. G e n e r a l . Periodic statements must state fees disclosed under section 230.4(b) that were debited to the account during the state ment period, even if assessed for an earlier period. 2. I t e m i z i n g f e e s b y ty p e . In itemizing fees imposed more than once in the period, institu tions may group fees if they are the same type. But the description must make clear that the dollar figure represents more than a single fee, for example, “total fees for checks writ ten this period.” Examples o f fees that may not be grouped together are— i. monthly maintenance and excess-activity fees ii. “transfer” fees, if different dollar amounts are imposed— such as $.50 for deposits and $1.00 for withdrawals iii. fees for electronic fund transfers and fees for other services, such as balance-inquiry or maintenance fees 3. I d e n t i f y i n g f e e s . Statement details must en able consumers to identify the specific fee. For example— i. Institutions may use a code to identify a particular fee if the code is explained on the periodic statement or in documents ac companying the statement. ii. Institutions using debit slips may disclose the date the fee was debited on the period ic statement and show the amount and type of fee on the dated debit slip. 4. R e l a t i o n t o R e g u l a t i o n E . Disclosure of fees in compliance with Regulation E com plies with this section for fees related to elec tronic fund transfers (for example, totaling all electronic funds transfer fees in a single figure). 10 6 ( a ) (4 ) L e n g th o f P e r io d 1. G e n e r a l . Institutions providing the begin ning and ending dates o f the period must make clear whether both dates are included in the period. 2. O p e n i n g o r c l o s i n g a n a c c o u n t m i d c y c l e . If an account is opened or closed during the pe riod for which a statement is sent, institutions must calculate the annual percentage yield earned based on account balances for each day the account was open. 6(b) Special Rule for Average-DailyBalance Method 1. M o n th ly s ta te m e n ts and q u a r te r ly com This rule applies, for example, when an institution calculates interest on a quarterly average daily balance and sends monthly statements. In this case, the first two monthly statements would omit annual-per cen tage-yield -earn ed and interest-earned figures; the third monthly statement would re flect the interest earned and the annual per centage yield earned for the entire quarter. p o u n d in g . 2. L e n g t h o f t h e p e r i o d . Institutions must dis close the length o f both the interest-calcula tion period and the statement period. For ex ample, a statement could disclose a statement period of April 16 through May 15 and fur ther state that “the interest earned and the an nual percentage yield earned are based on your average daily balance for the period April 1 through April 30.” 3. Q u a r te r ly s ta te m e n ts and m o n th ly com Institutions that use the averagedaily-balance method to calculate interest on a monthly basis and that send statements on a quarterly basis may disclose a single interest (and annual-percentage-yield-earned) figure. Alternatively, an institution may disclose three interest and three annual-percentage-yieldeamed figures, one for each month in the quarter, as long as the institution states the number o f days (or beginning and ending dates) in the interest period if different from the statement period. p o u n d in g . Regulation DD Official Staff Commentary § 230.7 SECTION 230.7—Payment of Interest ii. following the maturity o f nonrollover time accounts iii. when the maturity date falls on a holiday, and consumers must wait until the next business day to obtain the funds 7 (a ) (1 ) P e r m is s ib le M e th o d s 1. P r o h i b i t e d c a l c u l a t i o n m e t h o d s . Calculation methods that do not comply with the require ment to pay interest on the full amount of principal in the account each day include— 1. paying interest on the balance in the ac count at the end of the period (the “end ing-balance” method) ii. paying interest for the period based on the lowest balance in the account for any day in that period (the “low-balance” method) iii. paying interest on a percentage o f the bal ance, excluding the amount set aside for reserve requirements (the “investable-balance” method) 2. U s e o f 3 6 5 - d a y b a s i s . Institutions may ap ply a daily periodic rate greater than 1/365 of the interest rate— such as 1/360 of the interest rate— as long as it is applied 365 days a year. 3. P e r i o d i c i n t e r e s t p a y m e n t s . An institution can pay interest each day on the account and still make uniform interest payments. For ex ample, for a one-year certificate o f deposit an institution could make monthly interest pay ments equal to 1/12 of the amount o f interest that will be earned for a 365-day period (or 11 uniform monthly payments— each equal to roughly 1/12 o f the total amount o f inter est— and one payment that accounts for the remainder o f the total amount o f interest earned for the period). 4. L e a p y e a r . Institutions rate o f 1/366 or 1/365 of 366 days in a leap year, earn interest for February may apply a daily the interest rate for if the account will 29. 5. M a t u r i t y o f t i m e a c c o u n t s . Institutions are not required to pay interest after time accounts mature. (See 12 CFR 217, the Board’s Regu lation Q, for limitations on duration o f interest payments.) Examples include— i. during a grace period offered for an auto matically renewable time account, if con sumers decide during that period not to renew the account 6. D o r m a n t a c c o u n t s . Institutions must pay interest on funds in an account, even if inac tivity or the infrequency o f transactions would permit the institution to consider the account to be “inactive” or “dormant” (or similar sta tus) as defined by state or other law or the account contract. 7 ( a ) ( 2 ) D e te r m in a tio n o f M in im u m B a la n c e to E a rn I n te r e s t 1. D a i l y - b a l a n c e a c c o u n t s . Institutions that re quire a minimum balance may choose not to pay interest for days when the balance drops below the required minimum, if they use the daily-balance method to calculate interest. 2. A v e r a g e - d a i l y - b a l a n c e a c c o u n t s . Institu tions that require a minimum balance may choose not to pay interest for the period in which the balance drops below the required minimum, if they use the average-daily-bal ance method to calculate interest. 3. B e n e f i c i a l m e t h o d . Institutions may not re quire that consumers maintain both a mini mum daily balance and a minimum average daily balance to earn interest, such as by re quiring consumers to maintain a $500 daily balance and a prescribed average daily bal ance (whether higher or lower). But an institu tion could offer a minimum balance to earn interest that includes an additional method that is “unequivocally beneficial” to consumers such as the following: An institution using the daily-balance method to calculate interest and requiring a $500 minimum daily balance could offer to pay interest on the account for those days the minimum balance is not met as long as the consumer maintains an average daily balance throughout the month o f $400. 4. P a y i n g o n f u l l b a l a n c e . Institutions must pay interest on the full balance in the account that meets the required minimum balance. For example, if $300 is the minimum daily bal ance required to earn interest, and a consumer deposits $500, the institution must pay the 11 § 230.7 stated interest rate on the full $500 and not just on $200. 5. N e g a t i v e b a l a n c e s p r o h i b i t e d . Institutions must treat a negative account balance as zero to determine— i. the daily or average daily balance on which interest will be paid ii. whether any minimum balance to earn in terest is met 6. C l u b a c c o u n t s . Institutions offering club accounts (such as a “holiday” or “vacation” club) cannot impose a minimum-balance re quirement for interest based on the total num ber or dollar amount of payments required under the club plan. For example, if a plan calls for $10 weekly payments for 50 weeks, the institution cannot set a $500 “minimum balance” and then pay interest only if the consumer has made all 50 payments. 7. M i n i m u m b a l a n c e s n o t a f f e c t i n g i n t e r e s t . Institutions may use the daily-balance, aver age-daily-balance, or any other computation method to calculate minimum-balance require ments not involving the payment o f inter est— such as to compute minimum balances for assessing fees. 7(b) Compounding and Crediting Policies 1. G e n e r a l . Institutions choosing to compound interest may compound or credit interest annu ally, semi-annually, quarterly, monthly, daily, continuously, or on any other basis. 2. W i t h d r a w a l s p r i o r t o c r e d i t i n g d a t e . If con sumers withdraw funds (without closing the account) prior to a scheduled crediting date, institutions may delay paying the accrued in terest on the withdrawn amount until the scheduled credited date, but may not avoid paying interest. 3. C l o s e d a c c o u n t s . Subject to state or other law, an institution may choose not to pay ac crued interest if consumers close an account prior to the date accrued interest is credited, as long as the institution has disclosed that fact. 12 Regulation DD Official Staff Commentary 7(c) Date Interest Begins to Accrue 1. R e l a t i o n t o R e g u l a t i o n C C . Institutions may rely on the Expedited Funds Availability Act (EFAA) and Regulation CC (12 CFR 229) to determine, for example, when a deposit is considered made for purposes o f interest ac crual, or when interest need not be paid on funds because deposited check is later re turned unpaid. 2. L e d g e r a n d c o l l e c t e d b a l a n c e s . Institutions may calculate interest by using a ledger- or collected-balance method, as long as the cred iting requirements o f the EFAA are met (12 CFR 229.14). 3. W i t h d r a w a l o f p r i n c i p 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 must accrue interest on those funds through Monday. SECTION 230.8—Advertising 8(a) Misleading or Inaccurate Advertisements 1. G e n e r a l . All advertisements are subject to the rule against misleading or inaccurate ad vertisements, even though the disclosures ap plicable to various media differ. 2. I n d o o r s i g n s . An indoor sign advertising an annual percentage yield is not misleading or inaccurate when— i. for a tiered-rate account, it also provides the lower dollar amount o f the tier corre sponding to the advertised annual percent age yield ii. for a time account, it also provides the term required to obtain the advertised an nual percentage yield 3. F e e s a f f e c t i n g “f r e e ” a c c o u n t s . For pur poses of determining whether an account can be advertised as “free” or “no cost,” mainte nance and activity fees include— i. any fee imposed when a minimum-balance requirement is not met, or when consum ers exceed a specified number o f transac tions Regulation DD Official Staff Commentary ii. transaction and service fees that consum ers reasonably expect to be imposed on a regular basis iii. a flat fee, such as a monthly service fee iv. fees imposed to deposit, withdraw, or transfer funds, including per-check or pertransaction charges (for example, $.25 for each withdrawal, whether by check or in person) Examples o f fees that are not maintenance or activity fees include— 4 . O th e r fe e s . i. ii. iii. iv. v. vi. fees not required to be disclosed under section 230.4(b)(4) check-printing fees balance-inquiry fees stop-payment fees and fees associated with checks returned unpaid fees assessed against a dormant account fees for ATM or electronic transfer ser vices (such as preauthorized transfers or home banking services) not required to obtain an account 5. S i m i l a r t e r m s . An advertisement may not use the term “fees waived” if a maintenance or activity fee may be imposed because it is similar to the terms “free” or “no cost.” 6. S p e c i f i c a c c o u n t s e r v i c e s . Institutions may advertise a specific account service or feature as free if no fee is imposed for that service or feature. For example, institutions offering an account that is free of deposit or withdrawal fees could advertise that fact, as long as the advertisement does not mislead consumers by implying that the account is free and that no other fee (a monthly service fee, for example) may be charged. 7. F r e e f o r l i m i t e d tim e . If an account (or a specific account service) is free only for a limited period of time— for example, for one year following the account opening— the ac count (or service) may be advertised as free if the time period is also stated. 8. C o n d i t i o n s n o t r e l a t e d t o d e p o s i t a c c o u n t s . Institutions may advertise accounts as “free” for consumers meeting conditions not related to deposit accounts, such as the consumer’s age. For example, institutions may advertise a NOW account as “free for persons over 65 years old,” even though a maintenance or ac § 230.8 tivity fee is assessed on accounts held by con sumers 65 or younger. 8(b) Permissible Rates 1. T i e r e d - r a t e a c c o u n t s . An advertisement for a tiered-rate account that states an annual per centage yield must also state the annual per centage yield for each tier, along with corre sponding minimum-balance requirements. Any interest rates stated must appear in conjunc tion with the applicable annual percentage yields for each tier. 2. S t e p p e d - r a t e a c c o u n t s . An advertisement that states an interest rate for a stepped-rate account must state all the interest rates and the time period that each rate is in effect. 3. R e p r e s e n t a t i v e e x a m p l e s . An advertisement that states an annual percentage yield for a given type of account (such as a time account for a specified term) need not state the annual percentage yield applicable to other time ac counts offered by the institution or indicate that other maturity terms are available. In an advertisement stating that rates for an account may vary depending on the amount o f the ini tial deposit or the term o f a time account, in stitutions need not list each balance level and term offered. Instead, the advertisem ent may— i. Provide a representative example o f the an nual percentage yields offered, clearly de scribed as such. For exam ple, if an institution offers a $25 bonus on all time accounts and the annual percentage yield will vary depending on the term selected, the institution may provide a disclosure of the annual percentage yield as follows: “For example, our six-month certificate of deposit currently pays a 3.15% annual per centage yield.” ii. Indicate that various rates are available, such as by stating short-term and longerterm maturities along with the applicable annual percentage yields: “We offer certifi cates o f 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.” 13 § 230.8 Regulation DD Official Staff Commentary 8(c) When Additional Disclosures Are Required 1. T r i g g e r t e r m s . The following are examples o f information stated in advertisements that are not “trigger” terms: may use a phrase such as, “The maturity date of this club account is November 15; its term varies depending on when the account is opened.” 8 (c )(6 )(H ) E a r ly W ith d r a w a l P e n a ltie s i. “One-, three-, and five-year CDs avail able” ii. “Bonus rates available” iii. “ 1% over our current rates,” so long as the rates are not determinable from the ad vertisement 8 ( c ) ( 2 ) T im e A n n u a l P e r c e n t a g e 1. D i s c r e t i o n a r y p e n a l t i e s . Institutions impos ing early withdrawal penalties on a case-bycase basis may disclose that they “ may” (rather than “w ill” ) impose a penalty if such a disclosure accurately describes the account terms. Y i e ld I s O ffe re d 8(d) Bonuses 1. S p e c i f i e d d a t e . If an advertisement dis closes an annual percentage yield as of a specified date, that date must be recent in re lation to the publication or broadcast fre quency of the media used, taking into account the particular circumstances or production deadlines involved. For example, the printing date of a brochure printed once for a deposit account promotion that will be in effect for six months would be considered “ recent,” even though rates change during the sixmonth period. Rates published in a daily newspaper or on television must reflect rates offered shortly before (or on) the date the rates are published or broadcast. 1. G e n e r a l r e f e r e n c e t o “ b o n u s . ” General statements such as “bonus checking” or “get a bonus when you open a checking account” do not trigger the bonus disclosures. 2. R e f e r e n c e t o d a t e o f p u b l i c a t i o n . An adver tisement may refer to the annual percentage yield as being accurate as of the date of publi cation, if the date is on the publication itself. For instance, an advertisement in a periodical may state that a rate is “current through the date of this issue,” if the periodical shows the date. 8 (c )(5 ) E ffe c t o f F e e s 1. S c o p e . This requirement applies only to maintenance or activity fees described in para graph 8(a). 8 ( c ) ( 6 ) F e a t u r e s o f T im e A c c o u n t s 8 ( c ) ( 6 ) ( i ) T im e R e q u i r e m e n t s 1. C l u b a c c o u n t s . If a club account has a ma turity date but the term may vary depending on when the account is opened, institutions 14 8(e) Exemption for Certain Advertisements 8 ( e ) ( 1 ) C e r ta in M e d ia 8 (e )( 1 ) ( iii) 1. T i e r e d - r a t e a c c o u n t s . Solicitations for a tiered-rate account made through telephone re sponse machines must provide the annual per centage yields and the balance requirements applicable to each tier. 8 ( e ) ( 2 ) I n d o o r S ig n s 8 (e )(2 )(i) 1. G e n e r a l . Indoor signs include advertise ments 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 bro chure or a printout from a computer) is not an indoor sign. 2. C o n s u m e r s o u t s i d e t h e p r e m i s e s . Advertise ments may be “ indoor signs” even though they may be view ed by consumers from outside. An example is a banner, in an institu tion’s glass-enclosed branch office, that is lo cated behind a teller facing customers but is readable by passersby. Regulation DD Official Staff Commentary SECTION 230.9—Enforcement and Record Retention 9(c) Record Retention 1. E v i d e n c e o f r e q u i r e d a c t i o n s . Institutions comply with the regulation by demonstrating that they have done the following: 1. established and maintained procedures for paying interest and providing timely disclo sures as required by the regulation, and ii. retained sample disclosures for each type of account offered to consumers, such as account-opening disclosures, copies o f ad vertisements, and change-in-term notices; and information regarding the interest rates and annual percentage yields offered. Appendix A Part II. Annual Percentage Yield Earned for Periodic Statements 1. B a l a n c e m e t h o d . The interest figure used in the calculation o f the annual percentage yield earned may be derived from the daily-balance method or the average-daily-balance method. The balance used in the formula for the an nual percentage yield earned is the sum of the balances for each day in the period divided by the number o f days in the period. 2. N e g a t i v e b a l a n c e s p r o h i b i t e d . Institutions must treat a negative account balance as zero to determine the balance on which the annual percentage yield earned is calculated. (See commentary to section 230.7(a)(2).) A . G e n e r a l F o r m u la 2. M e t h o d s o f r e t a i n i n g e v i d e n c e . Institutions must be able to reconstruct the required dis closures or other actions. They need not keep disclosures or other business records in hard copy. Records evidencing compliance may be retained on microfilm, microfiche, or by other methods that reproduce records accurately (in cluding computer files). 3. P a y m e n t o f i n t e r e s t . Institutions must retain sufficient rate and balance information to per mit the verification of interest paid on an ac count, including the payment of interest on the full principal balance. APPENDIX A—Annual-Percentage-Yield Calculation Part I. Annual Percentage Yield for Account Disclosures and Advertising Purposes 1. R o u n d i n g f o r c a l c u l a t i o n s . The following are examples o f permissible rounding for cal culating interest and the annual percentage yield: i. the daily rate applied to a balance carried to five or more decimal places ii. the daily interest earned carried to five or more decimal places 1. A c c r u e d b u t u n c r e d i t e d in t e r e s t . To calcu late the annual percentage yield earned, ac crued but uncredited interest— 1. may not be included in the balance for statements 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. ii. must be included in the balance for suc ceeding 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 sec ond monthly statement would include inter est that had accrued for the prior month. 2. R o u n d i n g . The interest-earned figure used to calculate the annual percentage yield earned must be rounded to two decimals and 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 paying interest based on the daily-balance method that com pound and credit interest quarterly, and send 15 Appendix A Regulation DD Official Staff Commentary 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 state ments issued during the quarter. However, on the quarterly statement the interest-earned fig ure must reflect the amount actually paid. B . S p e c ia l F o r m u la f o r U se S t a t e m e n t I s S e n t M o r e O f te n W h ere P e r io d ic T h a n th e P e r i o d f o r W h ic h I n t e r e s t I s C o m p o u n d e d 1. S t a t e m e n t s t r i g g e r e d b y R e g u l a t i o n E . Insti tutions may, but need not, use this formula to calculate the annual percentage yield earned for accounts that receive quarterly statements and 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. But institutions must use this formula for accounts that compound and credit interest quarterly and receive monthly statements that, while triggered by Regulation E, comply with the provisions o f section 230.6. 2. Days in compounding period. Institutions using the special annual-percentage-yieldeamed formula must use the actual number o f days in the compounding period. APPENDIX B—Model Clauses and Sample Forms 1. M o d i f i c a t i o n s . Institutions that modify the model clauses will be deemed in compliance as long as they do not delete required infor mation or rearrange the format in a way that affects the substance or clarity o f the disclosures. 2. F o r m a t . Institutions may use inserts to a document (see sample form B-4) or fill in blanks (see sample forms B-5, B-6, and B-7, which use underlining to indicate terms that have been filled in) to show current rates, fees, or other terms. 3. D i s c l o s u r e s f o r o p e n i n g a c c o u n t s . The sample forms illustrate the information that must be provided to consumers when an ac count is opened, as required by section 16 230.4(a)(1). (See section 230.4(a)(2), which states the requirements for disclosing the an nual percentage yield, the interest rate, and the maturity of a time account in responding to a consumer’s request.) 4. C o m p l i a n c e w i t h R e g u l a t i o n E . Institutions may satisfy certain requirements under Regu lation DD with disclosures that meet the re quirements o f Regulation E. (See section 230.3(c).) For disclosures covered by both this regulation and Regulation E (such as the amount of fees for ATM usage), institutions should consult appendix A to Regulation E for appropriate model clauses. 5. D u p l i c a t e d i s c l o s u r e s . If a requirement such as a minimum balance applies to more than one account term (to obtain a bonus and determine the annual percentage yield, for ex ample), institutions need not repeat the re quirement for each term, as long as it is clear which terms the requirement applies to. 6. S a m p l e f o r m s . The sample forms (B -4 through B-8) serve a purpose different from the model clauses. They illustrate ways of adapting the model clauses to specific ac counts. The clauses shown relate only to the specific transactions described. B-l Model Clauses for Account Disclosures B - l( h ) D is c lo s u r e s R e la tin g to T im e A c c o u n t s 1. M a t u r i t y . The disclosure in clause (h)(i) stating a specific date may be used in all cases. The statement describing a time period is appropriate only when providing disclosures in response to a consumer’s request. B-2 Model Clauses for Change in Terms 1. G e n e r a l . The second clause, describing a future decrease in the interest rate and annual percentage yield, applies to fixed-rate accounts only. B-4 Sample Form (Multiple Accounts) 1. R a t e - s h e e t i n s e r t . In the rate-sheet insert, the calculations of the annual percentage yield for the three-month and six-month certificates Regulation DD Official Staff Commentary are based on 92 days and 181 days respec tively. All calculations in the insert assume daily compounding. B-6 Sample Form (Tiered-Rate Money Market Account) 1. G e n e r a l . Sample form B-6 uses tiering method A (discussed in appendix A and Appendix B clause (a)(iv)) to calculate interest. It gives a narrative description o f a tiered-rate account; institutions may use different formats (for ex ample, a chart similar to the one in sample form B-4), as long as all required information for each tier is clearly presented. The form does not contain a separate disclosure of the minimum balance required to obtain the an nual percentage yield; the tiered-rate disclo sure provides that information. 17
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