Federal Register / Vol. 63, No. 146 /Thursday, July 30, 1998 /Rules and Regulations 40635

(b) The total amount received from all such

sources may not exceed the amount of your

actual loss. The total amount of the actual

loss is the difference between the fair market

value of the insured commodity before and

after the loss, based on your production

records and the highest price election or

amount of insurance available for the crop.

(c) FSA will determine and pay the

additional amount due you for any

applicable USDA program after first

considering the amount of any crop

insurance indemnity.

(d) Farm ownership and operating loans

may be obtained from USDA in addition to

crop insurance indemnities.

* * * * *

Signed in Washington, D.C., on July 24,

1998.

Kenneth D. Ackerman,

Manager, Federal Crop Insurance

Corporation.

[FR Doc. 98–20353 Filed 7–27–98; 5:10 pm]

BILLING CODE 3410–08–P

FEDERAL RESERVE SYSTEM

12 CFR Part 230

[Regulation DD; Docket No. R–0869]

Truth in Savings

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Final rule.

SUMMARY: The Board has adopted a rule

amending Regulation DD (Truth in

Savings); the action makes final an

interim rule adopted in January 1995.

The amendment permits institutions to

disclose an annual percentage yield

(APY) equal to the contract interest rate

for time accounts with maturities greater

than one year that do not compound but

that require interest distributions at

least annually.

EFFECTIVE DATE: August 28, 1998.

FOR FURTHER INFORMATION CONTACT: Jane

Ahrens, Senior Attorney, or Obrea Otey

Poindexter, Staff Attorney, Division of

Consumer and Community Affairs,

Board of Governors of the Federal

Reserve System at (202) 452–2412 or

452–3667; for the hearing impaired only

contact Diane Jenkins,

Telecommunications Device for the Deaf

at (202) 452–3544.

SUPPLEMENTARY INFORMATION:

I. Background

The Truth in Savings Act (TISA) was

enacted in December 1991. The Board

published a final regulation, Regulation

DD, to implement the act on September

21, 1992 (57 FR 43337) (correction

notice at 57 FR 46480, October 9, 1992).

Compliance with the regulation became

mandatory in June 1993. The act and

regulation require depository

institutions to disclose yields, fees, and

other terms concerning deposit accounts

to consumers at account opening. The

regulation also includes rules about

advertising of deposit accounts.

Depository institutions are generally

subject to civil liability for violations of

the act and regulation. Credit unions are

not subject to Regulation DD, but are

governed by a substantially similar

regulation issued by the National Credit

Union Administration.

II. Proposals Regarding APY

Calculation

In 1993, deposit brokers covered by

Regulation DD’s advertising rules

petitioned the Board to reconsider how

the annual percentage yield (APY) is

calculated. They expressed concern that

for a certificate of deposit that has a

maturity greater than one year and that

does not compound interest, the APY is

less than the contract interest rate under

the formula prescribed by Regulation

DD. The Board subsequently published

several proposals addressing this matter

(58 FR 64190, December 6, 1993; 59 FR

24376, May 11, 1994; 59 FR 35271, July

11, 1994; 60 FR 5142, January 26, 1995).

In January 1995, to address

immediately one anomaly created by the

regulation’s formula for APY

calculations, the Board adopted an

interim rule applicable to time accounts

with maturities greater than one year

that do not compound but require

interest distributions at least annually

(60 FR 5128, January 26, 1995).

III. Summary of Final Rule

The interim rule permitted

institutions to disclose an APY equal to

the contract interest rate for

noncompounding CDs with a maturity

greater than one year if they require

interest distributions at least annually.

The Board received more than 250

comments—about 75 comments on the

interim rule and the remainder on a

proposal published concurrently with

the interim rule that would have

amended the APY formula. The majority

of commenters supported the interim

rule and urged the Board to make the

interim rule permanent. Many

commenters believed that the interim

rule adequately addressed the concerns

of deposit brokers and depository

institutions that require interest

distributions at least annually.

Commenters noted that the interim rule

provided a simple solution that would

be understandable to consumers. Some

banks that opposed any change to the

APY calculations favored the interim

rule among the alternatives offered.

Based on the comments received and

further analysis, the Board has amended

Regulation DD by making the interim

rule final. The final rule permits

institutions to disclose an APY equal to

the contract interest rate for

noncompounding CDs with a maturity

greater than one year if they require

interest distributions at least annually.

Institutions may not disclose an APY

equal to the contract interest rate for

noncompounding multi-year CDs that

either prohibit withdrawal of interest or

that permit but do not require interest

distributions; for these time accounts,

institutions will continue to use the

current formula for APY calculations.

The Board believes that this narrow rule

provides a targeted response to

questions about the APY disclosures for

certain time accounts that otherwise

would have to disclose an APY that is

lower than the contract interest rate.

The amendment retains the interim

rule’s requirement of a brief narrative

disclosure about the effect of interest

payments on the APY and earnings from

the account to minimize any possible

consumer confusion.

IV. Regulatory Revisions: Section-bySection Analysis

Section 230.4 Account Disclosures

4(b) Content of Account Disclosures

4(b)(6) Features of Time Accounts

4(b)(6)(iii) Withdrawal of Interest Prior

to Maturity

Consistent with the interim rule,

paragraph 4(b)(6) adds a brief narrative

for institutions stating an APY equal to

the contract interest rate for

noncompounding CDs that have a

maturity greater than one year and that

require interest payouts at least

annually. The Board believes a

statement alerting consumers to the fact

that interest cannot remain in the

account will assist them in comparison

shopping between CDs with annual

compounding and CDs that do not

compound but require interest payouts

during the account term. The Board

believes the disclosure does not add an

undue burden on institutions.

Section 230.8 Advertising

8(c) When Additional Disclosures are

Required

8(c)(6) Features of Time Accounts

Consistent with the interim rule,

paragraph 8(c)(6) adds a brief disclosure

for any advertisement that states an APY

equal to the contract interest rate for a

noncompounding multi-year CD that

requires the automatic payment of

interest at least annually. To assist
40636 Federal Register / Vol. 63, No. 146 /Thursday, July 30, 1998 /Rules and Regulations

1Federal Deposit Insurance Corporation [Online],

Statistics on Banking, All FDIC-Insured Depository

Institutions, Number of Institutions by Asset Size,

(September 30, 1996), Available through: http://

www.fdic.gov/databank/ [April 29, 1996].

2Monthly Survey of Selected Deposits (FR2042),

September 1994. More recent data on compounding

practices for time deposits by term to maturity are

not available.

consumers in comparison shopping,

institutions must state that interest

payouts are mandatory and that interest

cannot remain in the account, parallel to

the disclosure required by

§ 230.4(b)(6)(iii).

Appendix A to Part 230—Annual

Percentage Yield Calculation

Part I. Annual Percentage Yield for

Account Disclosures and Advertising

Purposes

E. Time Accounts With a Stated

Maturity Greater Than One Year That

Pay Interest at Least Annually

The final rule adds paragraph E to

Appendix A to clarify how APYs may

be determined for noncompounding

time accounts that have a maturity

greater than one year and that pay

interest at least annually. Two examples

are added, including an example

calculating the APY for a stepped-rate

account covered by the amendments.

The statute provides that the APY

shall be calculated under a method

prescribed by the Board in regulations.

It authorizes the Board to provide for

adjustments and exceptions for any

class of accounts that, in the Board’s

judgment, are necessary or proper to

carry out the purposes of the act,

prevent circumvention of the act’s

requirements, or facilitate compliance.

Based on the comments received and

further analysis, the Board finds that a

final rule permitting institutions to

disclose an APY equal to the contract

interest rate, for noncompounding CDs

with a maturity greater than one year

that require interest distributions at

least annually, is necessary to carry out

the purposes of the act—enabling

consumers to make informed decisions

about deposit accounts. The exception

is narrowly drawn, and reflects the

value of receiving payments at least

annually on accounts that do not permit

account holders to keep interest on

deposit until maturity.

Appendix B to Part 230—Model Clauses

and Sample Forms

B–1 Model Clauses for Account

Disclosures

(h) Disclosures Relating to Time

Accounts

(h)(v) Required Interest Distribution

Under the final rule, the Board has

included a model clause to describe the

effect of interest payments on earnings.

V. Regulatory Flexibility Analysis

Final Rule on Annual Percentage Yields

for Certain Time Accounts

Need and objectives of the rule. The

annual percentage yield in Regulation

DD is an effective rate of interest, which

shows the effect of compounding on the

rate of return. Annual percentage yields

greater than the rate of simple interest

reflect the additional earnings resulting

from the conversion of interest to

principal during a year.

When interest is not compounded and

the term to maturity is greater than a

year, the annual percentage yield in the

original Regulation DD is less than the

rate of simple interest. This result

reflects an assumption that interest

accumulates idly in the account rather

than generating additional returns.

Following implementation of the

regulation, a national trade association

representing deposit brokers questioned

the appropriateness of this calculation

for multiple-year time deposits that

distribute the interest—such as brokered

deposits. The association argued that

because the distributed interest is

available to reinvest, the annual

percentage yield understated the

potential return on such time deposits.

The Truth in Savings requirement that

advertisements for brokered deposits

contain annual percentage yields made

it difficult for the association’s members

to market brokered deposits, which

distribute interest.

In response to a petition of the trade

association, Board staff and the Board

explored alternatives to the annual

percentage yield formula specified in

the original regulation in four requests

for public comment (December 1993,

May 1994, July 1994, and January 1995).

The most recent request for public

comment included an interim rule

permitting institutions to disclose an

annual percentage yield equal to the rate

of simple interest for multiple-year time

accounts that require distributions of

interest at least annually. The interim

rule is a limited exception to the general

formula for the annual percentage yield.

It eliminated the marketing problem of

members of the petitioning association

without fundamentally changing the

original regulation. The final rule adopts

this interim rule.

Issues raised by public comment to

proposed rule. Board staff and the Board

considered several alternative

approaches to resolve the issue raised

by the trade association. These

alternative approaches included (1)

proposals to change the assumptions

underlying the calculation of the annual

percentage yield, (2) proposals to

change industry practices regarding the

compounding and distribution of

interest, and (3) proposals to create

exceptions from the general rule.

Commenters suggested that proposals

following the first two approaches

would be especially costly to implement

and may not improve some consumers’

ability to make choices among

investment alternatives. They suggested

that proposals following the second

approach also had the potential to

impose opportunity costs by reducing

consumer choices. Some commenters

questioned the need to make any

changes in the original rule, noting that

an institution could avoid the problem

by simply offering to compound interest

at least annually. Many public

comments supported retaining the

original rule or, if necessary, creating a

limited exception.

Number of small entities to which the

rule will apply. There were 6,334 small

commercial banks at the end of

September 1996, where small is defined

as having assets of less than $100

million.1 Almost all small banks offered

time deposits with terms to maturity

greater than a year, and 15% of small

banks did not compound interest on

time deposits with terms to maturity

greater than a year.2 In contrast, only

about 10% percent of medium-sized and

large banks did not compound interest

on time deposits with terms to maturity

greater than a year.

Thrift institutions (savings banks,

savings and loan associations, and

credit unions) also offer time deposits,

and securities brokers offer brokered

deposits. Many of these institutions are

small, but data on the terms to maturity

on their offerings of time deposits or

brokered deposits are not available.

Description of projected compliance

requirements. Since the interim rule is

already effective, the start-up costs of

the final rule are probably negligible.

Most institutions that require at least

annual withdrawal of interest paid on

multiple-year time deposits probably

have already implemented the interim

rule because the annual percentage

yield for such time deposits is higher

under the interim rule than under the

original Regulation DD. If any

institutions waited because of

uncertainty about whether the interim

rule would be adopted as a final rule

and now choose to implement the rule,
Federal Register / Vol. 63, No. 146 /Thursday, July 30, 1998 /Rules and Regulations 40637

3For a summary of the evidence, see Gregory

Elliehausen, The Cost of Bank Regulation, Staff

Studies (Board of Governors of the Federal Reserve

System, forthcoming).

they would need new disclosures for

affected accounts. Software

modifications and some employee

training would be required to produce

the new disclosures.

The ongoing costs of the disclosures

under the new rule are likely to be

similar to those under the original

Regulation DD. Thus, adopting the

interim rule as a final rule would not

significantly change ongoing

compliance costs.

Description of the steps taken to

minimize the impact on small entities.

No special steps were taken to minimize

the impact of the rule on small entities.

The cost of implementing a change in

the method of calculating annual

percentage yields was a major

consideration leading to the choice of

the interim rule over the other

alternative rules, however. During its

deliberations, the Board was aware of

evidence of the existence of scale

economies in start-up compliance costs,

which implies that per-unit compliance

costs would be higher at small

institutions than at large institutions.3

Although the start-up costs of the

interim rule are probably subject to

scale economies, the interim rule may

have a less disparate effect on small

institutions than the other alternatives

because it has a relatively small effect

on institutions’ operations.

VI. Paperwork Reduction Act

In accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3506;

5 CFR 1320 Appendix A.1), the Board

reviewed the rule under the authority

delegated to the Board, by the Office of

Management and Budget, after

consideration of comments received

during the public comment period. The

Federal Reserve may not conduct or

sponsor, and an organization is not

required to respond to, this information

collection unless it displays a currently

valid OMB control number. The OMB

control number is 7100–0271.

The collection of information that is

revised by this rulemaking is found in

12 CFR 230 and in Appendices A and

B. This information is mandatory (12

U.S.C. 4308) to evidence compliance

with the requirements of the Truth in

Savings Act and the Board’s Regulation

DD. This information is used to assist

consumers in comparing deposit

accounts offered by depository

institutions, principally through the

disclosure of fees, APY, interest rate,

and other account terms whenever a

consumer requests the information and

before an account is opened. The

regulation also requires that fees and

other information be provided on any

periodic statement the institution sends

to the consumer. The recordkeepers are

for-profit financial institutions,

including small businesses. Records

must be retained for twenty-four

months.

No comments specifically addressing

the burden estimate were received.

The current estimated total annual

burden for this information collection is

1,478,395 hours, as shown in the table

below. These amounts reflect the

burden estimate of the Federal Reserve

System for the 996 state member banks

under its supervision. This regulation

applies to all types of depository

institutions (except credit unions), not

just to state member banks. Other

agencies account for the paperwork

burden for the institutions they

supervise.

The final rule revises the APY that

may be disclosed for noncompounding

CDs with maturities greater than one

year that require interest payouts at least

annually. It also adds a brief narrative

for account disclosures and

advertisements for accounts that

disclose the contract interest rate as the

APY. The Board believes that there is no

net change in the Board’s current

estimate of paperwork burden

associated with Regulation DD. There is

estimated to be no associated capital or

start up cost and no annual cost burden

over the annual hour burden.

Number of

respondents

Estimated

annual frequency

Estimated response

time

Estimated

annual burden hours

Complete account disclosures (Upon request and new accounts) ................. 996 300 5 minutes ................... 24,900

Subsequent notices:

Change in terms ........................................................................................ 996 1,130 1 minute .................... 18,757

Prematurity notices .................................................................................... 996 1,095 1 minute .................... 18,177

Periodic statements .......................................................................................... 996 84,615 1 minute .................... 1,404,609

Advertising ........................................................................................................ 996 12 1 hour ........................ 11,952

Total ........................................................................................................... .................... .................... .................................... 1,478,395

Because the records would be

maintained at state member banks and

the notices are not provided to the

Federal Reserve, no issue of

confidentiality under the Freedom of

Information Act arises.

The Federal Reserve has a continuing

interest in the public’s opinions of our

collections of information. At any time,

comments regarding the burden

estimate, or any other aspect of this

collection of information, including

suggestions for reducing the burden,

may be sent to: Secretary, Board of

Governors of the Federal Reserve

System, 20th and C Streets, N.W.,

Washington, DC 20551; and to the

Office of Management and Budget,

Paperwork Reduction Project (7100–

0271), Washington, DC 20503.

List of Subjects in 12 CFR Part 230

Advertising, Banks, Banking,

Consumer protection, Federal Reserve

System, Reporting and recordkeeping

requirements, Truth in savings.

Accordingly, the interim rule

amending 12 CFR part 230 which was

published at 60 FR 5128 on January 26,

1995, is adopted as a final rule with the

following changes:

PART 230—TRUTH IN SAVINGS

(REGULATION DD)

1. The authority citation for part 230

continues to read as follows:

Authority: 12 U.S.C. 4301, et seq.

2. Section 230.4 is amended by

revising the sentence at the end of

paragraph (b)(6)(iii) to read as follows:

§ 230.4 Account disclosures.

* * * * *

(b) * * *

(6) * * *

(iii) * * * For accounts with a stated

maturity greater than one year that do

not compound interest on an annual or

more frequent basis, that require interest

payouts at least annually, and that

disclose an APY determined in
40638 Federal Register / Vol. 63, No. 146 /Thursday, July 30, 1998 /Rules and Regulations

accordance with section E of Appendix

A of this part, a statement that interest

cannot remain on deposit and that

payout of interest is mandatory.

* * * * *

3. Section 230.8 is amended by

revising paragraph (c)(6)(iii) to read as

follows:

§ 230.8 Advertising.

* * * * *

(c) * * *

(6) * * *

(iii) Required interest payouts. For

noncompounding time accounts with a

stated maturity greater than one year

that do not compound interest on an

annual or more frequent basis, that

require interest payouts at least

annually, and that disclose an APY

determined in accordance with section

E of Appendix A of this part, a

statement that interest cannot remain on

deposit and that payout of interest is

mandatory.

* * * * *

4. In Part 230, Appendix A is

amended by revising section E of Part I

to read as follows:

Appendix A To Part 230—Annual

Percentage Yield Calculation

* * * * *

E. Time Accounts with a Stated Maturity

Greater than One Year that Pay Interest At

Least Annually

1. For time accounts with a stated maturity

greater than one year that do not compound

interest on an annual or more frequent basis,

and that require the consumer to withdraw

interest at least annually, the annual

percentage yield may be disclosed as equal

to the interest rate.

Example

(1) If an institution offers a $1,000 two-year

certificate of deposit that does not compound

and that pays out interest semi-annually by

check or transfer at a 6.00% interest rate, the

annual percentage yield may be disclosed as

6.00%.

(2) For time accounts covered by this

paragraph that are also stepped-rate accounts,

the annual percentage yield may be disclosed

as equal to the composite interest rate.

Example

(1) If an institution offers a $1,000 threeyear certificate of deposit that does not

compound and that pays out interest

annually by check or transfer at a 5.00%

interest rate for the first year, 6.00% interest

rate for the second year, and 7.00% interest

rate for the third year, the institution may

compute the composite interest rate and APY

as follows:

(a) Multiply each interest rate by the

number of days it will be in effect;

(b) Add these figures together; and

(c) Divide by the total number of days in

the term.

(2) Applied to the example, the products of

the interest rates and days the rates are in

effect are (5.00%×365 days) 1825,

(6.00%×365 days) 2190, and (7.00%×365

days) 2555, respectively. The sum of these

products, 6570, is divided by 1095, the total

number of days in the term. The composite

interest rate and APY are both 6.00%.

* * * * *

By order of the Board of Governors of the

Federal Reserve System, July 24, 1998.

Jennifer J. Johnson,

Secretary of the Board.

[FR Doc. 98–20268 Filed 7–29–98; 8:45 am]

BILLING CODE 6210–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 23

[Docket No. CE146, Special Condition 23–

98–02–SC]

Special Conditions; Raytheon Aircraft

Company, Beech Model 3000 Airplane:

Protection of Systems From High

Intensity Radiated Fields (HIRF)

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Final special conditions; request

for comments.

SUMMARY: These special conditions are

issued to Raytheon Aircraft Company,

9709 East Central, Wichita, Kansas

67201–0085 for a Type Certificate on the

Beech Model 3000 airplane. This

airplane will have novel and unusual

design features when compared to the

state of technology envisaged in the

applicable airworthiness standards.

These novel and unusual design

features include the installation of

electronic displays for which the

applicable regulations do not contain

adequate or appropriate airworthiness

standards for the protection of these

systems from the effects of high

intensity radiated fields (HIRF). These

special conditions contain the

additional safety standards that the

Administrator considers necessary to

establish a level of safety equivalent to

that provided by the existing

airworthiness standards.

DATES: The effective date of these

special conditions is July 14, 1998.

Comments must be received on or

before August 31, 1998 for domestic,

November 27, 1998 for foreign.

ADDRESSES: Comments may be mailed

in duplicate to: Federal Aviation

Administration, Office of the Assistant

Chief Counsel, ACE–7, Attention: Rules

Docket Clerk, Docket No. CE146, Room

1558, 601 East 12th Street, Kansas City,

Missouri 64106. All comments must be

marked: Docket No. CE146. Comments

may be inspected in the Rules Docket

weekdays, except Federal holidays,

between 7:30 a.m. and 4:00 p.m.

FOR FURTHER INFORMATION CONTACT:

Ervin Dvorak, Aerospace Engineer,

Standards Office (ACE–110), Small

Airplane Directorate, Aircraft

Certification Service, Federal Aviation

Administration, 601 East 12th Street,

Kansas City, Missouri 64106; telephone

(816) 426–6941.

SUPPLEMENTARY INFORMATION: The FAA

has determined that notice and

opportunity for prior public comment

hereon are impracticable because these

procedures would significantly delay

issuance of the approval design and

thus delivery of the affected aircraft. In

addition, the substance of these special

conditions has been subject to the

public comment process in several prior

instances with no substantive comments

received. The FAA therefore finds that

good cause exists for making these

special conditions effective upon

issuance.

Comments Invited

Interested persons are invited to

submit such written data, views, or

arguments as they may desire.

Communications should identify the

regulatory docket or notice number and

be submitted in duplicate to the address

specified above. All communications

received on or before the closing date

for comments will be considered by the

Administrator. The special conditions

may be changed in light of the

comments received. All comments

received will be available in the Rules

Docket for examination by interested

persons, both before and after the

closing date for comments. A report

summarizing each substantive public

contact with FAA personnel concerning

this rulemaking will be filed in the

docket. Commenters wishing the FAA to

acknowledge receipt of their comments

submitted in response to this notice

must include a self-addressed, stamped

postcard on which the following

statement is made: ‘‘Comments to

CE146.’’ The postcard will be date

stamped and returned to the

commenter.

Background

Beech Aircraft Corporation made

application for a new type certification

(TC) for the Beech Model 3000 airplane

on August 31, 1992, for the purpose of

entering the competition with several

other manufacturers for the contract to

build the Joint Primary Aircraft Training

System (JPATS) trainer aircraft. This

application was allowed to expire after

three years when it was determined that