[Federal Register Volume 60, Number 234 (Wednesday, December 6, 1995)]
[Proposed Rules]
[Pages 62349-62351]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29712]



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FEDERAL RESERVE SYSTEM
12 CFR Part 230

[Regulation DD; Docket No. R-0904]


Truth in Savings

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule; official staff interpretation.

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SUMMARY: The Board is publishing for comment proposed revisions to the 
official staff commentary to Regulation DD (Truth in Savings). The 
commentary applies and interprets the requirements of Regulation DD. 
The proposed revisions would clarify regulatory provisions or 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.

DATES: Comments must be received on or before February 2, 1996.

ADDRESSES: Comments should refer to Docket No. R-0904, and may be 
mailed to William W. Wiles, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW., 
Washington, DC 20551. 

[[Page 62350]]
Comments also may be delivered to Room B-2222 of the Eccles Building 
between 8:45 a.m. and 5:15 p.m. weekdays, or to the guard station in 
the Eccles Building courtyard on 20th Street, NW. (between Constitution 
Avenue and C Street) at any time. Comments may be inspected in Room MP-
500 of the Martin Building between 9 a.m. and 5 p.m. weekdays, except 
as provided in 12 CFR 261.8 of the Board's rules regarding the 
availability of information.

FOR FURTHER INFORMATION CONTACT: Jane Ahrens, Senior Attorney, or Obrea 
O. Poindexter, or Michael L. Hentrel, Staff Attorneys, Division of 
Consumer and Community Affairs, Board of Governors of the Federal 
Reserve System, at (202) 452-3667 or 452-2412. For users of 
Telecommunications Device for the Deaf (TDD) only, please contact 
Dorothea Thompson, at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

    The purpose of the Truth in Savings Act (12 U.S.C. 4301 et seq.) is 
to assist consumers in comparing deposit accounts offered by depository 
institutions. The act requires institutions to disclose fees, the 
interest rate, the annual percentage yield (APY), and other account 
terms whenever a consumer requests the information and before an 
account is opened. Fees and other information also must be provided on 
any periodic statement the institution sends to the consumer. Rules are 
set forth for deposit account advertisements and advance notices to 
account holders of adverse changes in terms. The act restricts how 
institutions must determine the account balance on which interest is 
calculated. The act is implemented by the Board's Regulation DD (12 CFR 
part 230). The regulation authorizes the issuance of official staff 
interpretations of the regulation.
    The Board is publishing proposed amendments to the commentary to 
Regulation DD, which provides guidance to depository institutions in 
applying the regulation to specific transactions and is a substitute 
for individual staff interpretations. The commentary is updated 
periodically to address significant questions that arise. The Board 
expects to adopt the commentary in final form by April 1996 with a six-
month time period for optional compliance and a mandatory compliance 
date of October 1996.
    On January 26, 1995, the Board published a proposal to amend the 
regulation's rules for calculating the APY (60 FR 5142). The Congress 
is considering legislation that would repeal several provisions of the 
Truth in Savings Act, including those calling for an APY. The Board has 
deferred action on the proposal, pending the Congress's resolution of 
the legislative proposals.

II. Proposed Commentary

Section 230.2--Definitions

(2)(f) Bonus
    Comment 2(f)-2 provides additional guidance regarding bonuses. The 
proposed comment clarifies the treatment of coupons. It also codifies 
guidance provided in the supplementary information accompanying the 
initial rulemaking (57 FR 43337, published September 21, 1992) 
concerning items given or offered to third parties.
2(u) Time Account
    Proposed comment 2(u)-3 clarifies that an interest-bearing account 
meets the definition of a time account if the amount of the early 
withdrawal penalty is equal to at least seven days' interest for 
withdrawals during the first six days the account is opened and the 
account has a maturity of at least seven days. Thus, the Board believes 
that where a depository institution imposes a dollar amount as its 
early withdrawal penalty (assessed during the first six days an account 
is opened) on an interest-bearing account, rather than applying a 
periodic rate to a balance (``interest,''), the fixed-dollar penalty is 
the functional equivalent of interest.

Section 230.7--Payment of Interest

7(b) Crediting and Compounding Policies
    Comment 7(b)-4 addresses crediting and compounding policies. The 
Board believes institutions may choose any crediting frequency. 
However, once interest is credited by posting interest to an account it 
becomes part of the principal, and if interest remains in the account, 
interest must accrue on those funds. The Board believes the act 
requires that once interest is credited to an account, institutions 
must calculate interest on the full principal in the account. For 
example, assume a consumer earns $5 in interest on a $1,000 balance for 
the month of January. If the institution credits interest monthly (in 
the example, at the end of January) and does not pay the interest by 
check or transfer to another account, the institution must accrue 
interest on $1,005 for the month of February. Comment 7(b)-4 would 
clarify that interest cannot be credited by posting to a consumer's 
account without becoming part of the principal.

Appendix A--Annual Percentage Yield Calculation

Part I. Annual Percentage Yield for Account Disclosures and Advertising 
Purposes
Part II. Annual Percentage Yield Earned for Periodic Statements
    Comment app. A.II.A.-2 provides additional guidance on rounding the 
interest earned figure of the annual percentage yield earned. Proposed 
comment app. A.II.-3 provides additional guidance on calculating 
interest and the annual percentage yield earned in a leap year.

III. Form of Comment Letters

    Comment letters should refer to Docket No. R-0904, and, when 
possible, should use a standard courier typeface with a type size of 10 
or 12 characters per inch. This will enable the Board to convert the 
text into machine-readable form through electronic scanning, and will 
facilitate automated retrieval of comments for review. Comments may 
also be submitted on 3\1/2\ inch or 5\1/4\ inch computer diskettes in 
any IBM-compatible DOS-based format, if accompanied by an original 
document in paper form.

List of Subjects in 12 CFR Part 230

    Advertising, Banks, banking, Consumer protection, Federal Reserve 
System, Reporting and recordkeeping requirements, Truth in savings.

    Certain conventions have been used to highlight the proposed 
revisions to the regulation. New language is shown inside bold-faced 
arrows, while language that would be deleted is set off with bold-faced 
brackets. Comments are numbered to comply with new Federal Register 
publication rules.
    For the reasons set forth in the preamble, the Board proposes to 
amend 12 CFR part 230 as follows:

PART 230--TRUTH IN SAVINGS (REGULATION DD)

    1. The authority citation for part 230 would continue to read as 
follows:

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

    2. In Supplement I to part 230, under Section 230.2 Definitions., 
the following amendments would be made:
    a. Under (f) Bonus, paragraph 1. would be revised, paragraphs 2. 
through 4. would be redesignated as paragraphs 3. through 5., 
respectively, and a new paragraph 2. would be added; and
    b. Under (u) Time account, a new paragraph 3. would be added.
    The revisions and additions would read as follows: 
    
[[Page 62351]]


Supplement I to Part 230--Official Staff Interpretations

* * * * *

Section 230.2  Definitions

* * * * *
    (f) Bonus.
    1. <rt-triang> General Rule<lf-triang> [Examples] 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.]
    <rt-triang>2. Examples of Excluded Items. Items that are not 
bonuses include:
    i. Discount coupons distributed by institutions for goods or 
services at restaurants or stores where the consumer must pay a sum 
to the restaurant or store to receive the benefit of the coupon
    ii. Items of value given to a third party by an institution when 
a consumer opens, maintains, or renews an account--such as donations 
made to a charitable organization.<lf-triang>
* * * * *
    (u) Time account
* * * * *
    <rt-triang>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.<lf-triang>
* * * * *
    3. In Supplement I to part 230, under Section 230.7 Payment of 
interest, the following amendments would be made:
    a. Under (a)(1) Permissible methods, paragraph 4. would be 
revised; and
    b. Under (b) Compounding and crediting policies, a new paragraph 4. 
would be added.
    The revisions and additions would read as follows:
* * * * *
    Section 230.7  Payment of Interest
* * * * *
    (a)(1) Permissible methods.
* * * * *
    4. Leap 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. <rt-triang>``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) Compounding and crediting policies.
* * * * *
    <rt-triang>4. Crediting and accrual of interest. Once interest 
is credited to an account it becomes part of the principal on which 
an institution must accrue interest.<rt-triang>
* * * * *
    4. In Supplement I to part 230, under Appendix A, the following 
amendments would be made:
    a. Under Part I. Annual Percentage Yield for Account Disclosures 
and Advertising Purposes, a new paragraph 2. would be added; and
    b. Under Part II. Annual Percentage Yield Earned for Periodic 
Statements, under A. General Formula, paragraph 2. would be revised, 
and a new paragraph 3. would be added.
    The additions and revisions would read as follows:
* * * * *

Appendix A to Part 230--Annual Percentage Yield Calculation

Part I. Annual Percentage Yield for Account Disclosures and 
Advertising Purposes

* * * * *
    <rt-triang>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:
    i. 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.<lf-triang>

Part II. Annual Percentage Yield Earned for Periodic Statements

* * * * *

A. General Formula

* * * * *
    2. Rounding. The interest earned figure used to calculate the 
annual percentage yield earned must be rounded to two decimals and 
reflect the amount actually paid, if at the end of the statement period 
the institution only accrues interest on two decimals. For 
example<rt-triang>:<lf-triang>[, if]
    <rt-triang>i. If<lf-triang> 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 <rt-triang>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<lf-triang>.
    <rt-triang>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.<lf-triang> 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].
    <rt-triang>3. 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 earned using 365 or 366 days during the 
leap year.<lf-triang>
* * * * *
    By order of the Board of Governors of the Federal Reserve System, 
acting through the Secretary of the Board under delegated authority, 
December 1, 1995.
Jennifer J. Johnson,
Deputy Secretary of the Board.
[FR Doc. 95-29712 Filed 12-5-95; 8:45 am]
BILLING CODE 6210-01-P