I

103D CONGRESS

1ST SESSION H. R. 2075

To require truth in disclosures for financial intermediaries, and for other

purposes.

IN THE HOUSE OF REPRESENTATIVES

MAY 11, 1993

Mr. SLATTERY introduced the following bill; which was referred jointly to the

Committees on Energy and Commerce and Banking, Finance and Urban

Affairs

A BILL

To require truth in disclosures for financial intermediaries,

and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Truth in Disclosure

5 Act’’.

6 SEC. 2. FINDINGS AND PURPOSE.

7 (a) FINDINGS.—The Congress hereby finds that eco8 nomic stability would be enhanced, competition between

9 financial intermediaries would be improved, and the ability

10 of the consumer to make informed decisions regarding in-
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1 vestment accounts, and to verify accounts, would be

2 strengthened if there was uniformity in the disclosure of

3 terms and conditions on which earnings are paid and fees

4 are assessed in connection with such accounts.

5 (b) PURPOSE.—It is the purpose of this Act to re6 quire the clear and uniform disclosure of—

7 (1) the rates of earnings which are payable on

8 investment accounts by financial intermediaries; and

9 (2) the fees that are assessable against invest10 ment accounts, so that consumers can make a mean11 ingful comparison between the competing claims of

12 financial intermediaries with regard to investment

13 accounts.

14 SEC. 3. DISCLOSURE OF EARNINGS AND TERMS OF AC15 COUNTS.

16 (a) IN GENERAL.—Except as provided in subsection

17 (b), each advertisement, announcement, or solicitation ini18 tiated by any financial intermediary relating to any invest19 ment account offered which includes any reference to a

20 specific rate payable on amounts invested in such account,

21 or to a specific yield or rate of earnings on amounts so

22 invested, shall state the following information, to the ex23 tent applicable, in a clear and conspicuous manner:

24 (1) The annual percentage yield based on earn25 ings for the latest 7-day period.
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1 (2) The period during which such annual per2 centage yield is in effect.

3 (3) All minimum account balance and time re4 quirements which must be met in order to earn the

5 advertised yield (and, in the case of accounts for

6 which more than 1 yield is stated, each annual per7 centage yield and the account minimum balance re8 quirement associated with each such yield shall be in

9 close proximity and have equal prominence).

10 (4) The minimum amount of the initial deposit

11 which is required to open the account in order to ob12 tain the yield advertised, if such minimum amount

13 is greater than the minimum balance necessary to

14 earn the advertised yield.

15 (5) A statement that regular fees or other con16 ditions could reduce the yield.

17 (6) A statement if a penalty is required for

18 early withdrawal or redemption.

19 (b) BROADCAST AND ELECTRONIC MEDIA AND OUT20 DOOR ADVERTISING EXCEPTION.—The appropriate Fed21 eral agency may, by regulation, exempt advertisements,

22 announcements, or solicitations made by any broadcast or

23 electronic medium or outdoor advertising display not on

24 the premises of the financial intermediary from any disclo25 sure requirements described in paragraph (4) or (5) of
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1 subsection (a) if the agency finds that any such disclosure

2 would be unnecessarily burdensome.

3 (c) MISLEADING DESCRIPTIONS.—

4 (1) No advertisement, announcement, or solici5 tation made by any financial intermediary may refer

6 to or describe an account as a free or no-cost ac7 count (or words of similar meaning) if—

8 (A) in order to avoid fees or service

9 charges for any period—

10 (i) a minimum balance must be main11 tained in the account during such period;

12 (ii) the number of transactions during

13 such period may not exceed a maximum

14 number; or

15 (iii) a dollar amount limitation is im16 posed on any type of withdrawal; or

17 (B) any regular service or transaction fee

18 is imposed.

19 (2) Financial intermediaries shall state in a

20 clear and conspicuous manner in any advertisement,

21 announcement, or solicitation relating to an invest22 ment account that such investment is not insured by

23 the Federal Government.

24 (3) Financial intermediaries shall state in a

25 large, bold, and conspicuous manner in any adver-
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1 tisement, announcement, or solicitation relating to

2 an investment account mentioning historical returns

3 the following: ‘‘These returns are not to be expected

4 on your investment.’’.

5 (d) MISLEADING OR INACCURATE ADVERTISEMENTS,

6 ETC., PROHIBITED.—No financial intermediaries shall

7 make any advertisement, announcement, or solicitation re8 lating to an investment account that is inaccurate or mis9 leading or that misrepresents its terms and conditions con10 tract.

11 SEC. 4. ACCOUNT DISCLOSURE.

12 (a) IN GENERAL.—Each financial intermediary shall

13 maintain a schedule of fees, charges, interest rates, and

14 terms and conditions applicable to all products offered by

15 or through the financial intermediaries, in accordance with

16 the requirements of this section and regulations which

17 shall be prescribed. A Federal agency shall specify, in reg18 ulations, which fees, charges, penalties, terms, conditions,

19 and account restrictions must be included in a disclosure

20 required under this subsection. A financial intermediary

21 need not include in such disclosure any information not

22 specified in such regulation.

23 (b) INFORMATION ON FEES AND CHARGES.—The

24 disclosure required under subsection (a) with respect to

25 any account shall contain the following information:
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1 (1) A description of all fees, periodic service

2 charges, and penalties which may be charged or as3 sessed against the account (or against the account

4 holder in connection with such account), the amount

5 of any such fees, charge, or penalty (or the method

6 by which such amount will be calculated), and the

7 conditions under which any such amount will be as8 sessed.

9 (2) All minimum balance requirements that af10 fect fees, charges, and penalties, including a clear

11 description of how each such minimum balance is

12 calculated.

13 (3) Any minimum amount required with respect

14 to the initial investment in order to open the ac15 count.

16 (c) INFORMATION ON EARNINGS.—The disclosure re17 quired under subsection (a) with respect to any account

18 shall include the following information:

19 (1) The annual percentage yield for the opened

20 account based on earnings for the latest 7-day pe21 riod.

22 (2) The period during which any such annual

23 percentage yield will be in effect.

24 (3) Any annual rate of simple interest.
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1 (4) The frequency with which earnings will be

2 compounded and credited.

3 (5) A clear description of the method used to

4 determine the balance on which earnings are paid.

5 (6) The information described in paragraphs

6 (1) through (4) with respect to any period after the

7 end of the period referred to in paragraph (2) (or

8 the method for computing any information described

9 in any such paragraph), if applicable.

10 (7) Any minimum balance which must be main11 tained to earn the rates and obtain the yields dis12 closed pursuant to this subsection and a clear de13 scription of how any such minimum balance is cal14 culated.

15 (8) A clear description of any minimum time

16 requirement which must be met in order to obtain

17 the yields disclosed pursuant to this subsection and

18 any information described in paragraph (1), (2), (3),

19 or (4) that will apply if any time requirement is not

20 met.

21 (9) A statement, if applicable, that any earn22 ings which have accrued but has not been credited

23 to an account at the time of a withdrawal from the

24 account will not be paid by the financial
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1 intermediary or credited to the account by reason of

2 such withdrawal.

3 (10) Any provision or requirement relating to

4 nonpayment of earnings, including any charge or

5 penalty for early withdrawal, and the conditions

6 under which any such charge or penalty may be as7 sessed.

8 (d) OTHER INFORMATION.—The disclosure required

9 under subsection (a) shall include such other disclosures

10 as the Federal agency may determine to be necessary to

11 allow consumers to understand and compare accounts, in12 cluding frequency of earnings adjustments, account re13 strictions, and renewal policies.

14 (e) STYLE AND FORMAT.—Disclosures required

15 under subsection (a) shall be written in clear and plain

16 language and be presented in a format designed to allow

17 consumers to readily understand the terms of the accounts

18 offered.

19 SEC. 5. DISCLOSURE REQUIREMENTS FOR CERTAIN AC20 COUNTS.

21 The Federal agency shall require, in regulations, such

22 modification in the disclosure requirements under this Act

23 as may be necessary to carry out the purposes of this Act

24 in the case of—
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1 (1) accounts with respect to which determina2 tion of annual percentage yield is based on an an3 nual rate of interest that is guaranteed for a period

4 of less than 1 year;

5 (2) variable rate accounts;

6 (3) accounts which, pursuant to law, do not

7 guarantee payment of a stated rate;

8 (4) multiple rate accounts; and

9 (5) accounts with respect to which determina10 tion of annual percentage yield is based on an an11 nual effective rate of interest that is guaranteed for

12 a stated term.

13 SEC. 6. DISTRIBUTION OF SCHEDULES.

14 (a) IN GENERAL.—A disclosure required account

15 shall be—

16 (1) made available to any person upon request;

17 (2) provided to any potential customer before

18 an account is opened or a service is rendered; and

19 (3) provided to the consumer, in the case of any

20 time account which is renewable at maturity without

21 notice from the consumer, at least 30 days before

22 the date of maturity.

23 (b) DISTRIBUTION IN CASE OF CERTAIN INITIAL IN24 VESTMENTS.—If a consumer is not physically present at

25 an office of a financial intermediary at the time an initial
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1 investment is accepted with respect to an account estab2 lished by or for such person, the financial intermediary

3 shall mail the disclosure to the customer at the address

4 shown on the records of the financial intermediary for

5 such account no later than 10 business days after the date

6 of the initial investment.

7 (c) DISTRIBUTION OF NOTICE OF CERTAIN

8 CHANGES.—If—

9 (1) any change is made in term or condition

10 which is required to be disclosed; and

11 (2) the change may reduce the yield or ad12 versely affect any holder of the account,

13 all account holders who may be affected by such change

14 shall be notified and provided with a description of the

15 change by mail at least 30 days before the change takes

16 effect.

17 (d) DISTRIBUTION IN CASE OF ACCOUNTS ESTAB18 LISHED BY MORE THAN 1 INDIVIDUAL OR BY A GROUP.—

19 If an account is established by more than 1 individual or

20 for a person other than an individual, any distribution de21 scribed in this section with respect to such account meets

22 the requirements of this section if the distribution is made

23 to 1 of the individuals who established the account or 1

24 individual representative of the person on whose behalf

25 such account was established.
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1 (e) NOTICE TO INVESTORS AS OF THE EFFECTIVE

2 DATE OF REGULATIONS.—For any account for which the

3 financial intermediary delivers an account statement on a

4 quarterly or more frequent basis, the financial

5 intermediary shall include on the first of any regularly

6 scheduled mailing posted or delivered after publication of

7 regulations issued in final form, a statement that the in8 vestor has the right to request an account disclosure con9 tinuing the terms, charges, and interest rates of the ac10 count, and that the account holder may wish to request

11 such an account disclosure.

12 SEC. 7. PAYMENT OF INTEREST.

13 (a) CALCULATED ON FULL AMOUNT OF PRIN14 CIPAL.—Earnings on an interest-earning account at any

15 financial intermediary shall be calculated on the full

16 amount of principal in the account for each day of the

17 stated calculation period at the rate or rates of interest

18 disclosed pursuant to this Act.

19 (b) NO PARTICULAR METHOD OF COMPOUNDING IN20 TEREST REQUIRED.—Subsection (a) shall not be con21 strued as prohibiting or requiring the use of any particular

22 method of compounding or crediting of interest.

23 (c) DATE BY WHICH INTEREST MUST ACCRUE.—In24 terest on accounts that are subject to this Act shall begin
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1 to accrue not later than the business day provisional credit

2 is received.

3 SEC. 8. PERIODIC STATEMENTS.

4 Each financial intermediary shall include on or with

5 each period statement provided to each investor a clear

6 and conspicuous disclosure of the following information

7 with respect to such account:

8 (1) The annual percentage yield earned.

9 (2) The amount of earnings.

10 (3) The amount of any fees or charges imposed.

11 (4) The number of days in the reporting period.

12 SEC. 9. REGULATIONS.

13 (a) IN GENERAL.—

14 (1) REGULATIONS REQUIRED.—Before the end

15 of the 9-month period beginning on the date of the

16 enactment of this Act, the Federal agency shall pre17 scribe regulations to carry out the purpose and pro18 visions of this Act.

19 (2) EFFECTIVE DATE OF REGULATIONS.—The

20 regulation prescribed under paragraph (1) shall take

21 effect not later than 6 months after publication in

22 final form.

23 (3) CONTENTS OF REGULATIONS.—The regula24 tions prescribed under paragraph (1) may contain

25 such classifications, differentiations, or other provi-
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1 sions, and may provide for such adjustments and ex2 ceptions for any class of accounts as, in the judg3 ment of the Federal agency are necessary or proper

4 to carry out the purposes of this Act, to prevent cir5 cumvention or evasion of the requirements of this

6 Act, or to facilitate compliance with the require7 ments of this Act.

8 (b) MODEL FORMS AND CLAUSES.—

9 (1) IN GENERAL.—The Federal agency shall

10 publish model forms and clauses for common disclo11 sures to facilitate compliance with this Act. In devis12 ing such forms, the agency shall consider the use by

13 financial intermediaries of data processing or similar

14 automated machines.

15 (2) USE OF FORMS AND CLAUSES DEEMED IN

16 COMPLIANCE.—Nothing in this Act may be con17 strued to require a financial intermediary to use any

18 such model form or clause prescribed by the agency

19 under this subsection. A financial intermediary shall

20 be deemed to be in compliance with the disclosure

21 provisions of this Act if the financial intermediary—

22 (A) uses any appropriate model form or

23 clause as published by the agency; or

24 (B) uses any such model form or clause

25 and changes it by—
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1 (i) deleting any information which is

2 not required by this Act; or

3 (ii) rearranging the format, if in mak4 ing such deletion or rearranging the for5 mat, the financial intermediary does not

6 affect the substance, clarity, or meaningful

7 sequence of the disclosure.

8 SEC. 10. ADMINISTRATIVE ENFORCEMENT.

9 (a) IN GENERAL.—Compliance with the requirements

10 imposed under this Act shall be enforced under øidentify

11 agencies¿.

12 (b) REGULATIONS BY OTHER AGENCIES.—The au13 thority of the Federal agency to issue regulations under

14 this Act does not impair the authority of any other Fed15 eral agency referred to, to make rules regarding its own

16 procedures in enforcing compliance with the requirements

17 imposed under this Act.

18 SEC. 11. LIABILITY.

19 (a) LIABILITY.—Except as otherwise provided in this

20 section, any financial intermediaries which fails to comply

21 with any requirement imposed under this Act or any regu22 lation prescribed under this Act with respect to any person

23 who is an investor is liable to such person in an amount

24 equal to the sum of—
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1 (1) any actual damage sustained by such person

2 as a result of the failure;

3 (2)(A) in the case of an individual action, such

4 additional amount as the court may allow, except

5 that the liability under this subparagraph shall not

6 be less than $1,000; or

7 (B) in the case of a class action, such amount

8 as the court may allow, except that—

9 (i) as to each member of the class, no min10 imum recovery shall be applicable; and

11 (ii) the total recovery under this subpara12 graph in any class action or series of class ac13 tions arising out of the same failure to comply

14 by the same financial intermediary shall not be

15 less than $500,000; and

16 (3) in the case of any successful action to en17 force any liability under paragraph (1) or (2), the

18 costs of the action, together with a reasonable attor19 ney’s fee as determined by the court.

20 (b) CLASS ACTION AWARDS.—In determining the

21 amount of any award in any class action, the court shall

22 consider, among other relevant factors—

23 (1) the amount of any actual damages awarded;

24 (2) the frequency and persistence of failures of

25 compliance;
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1 (3) the resources of the financial intermediary;

2 (4) the number of persons adversely affected;

3 and

4 (5) the extent to which the failure of compli5 ance was intentional.

6 (c) BONA FIDE ERRORS.—

7 (1) GENERAL RULE.—A financial intermediary

8 may not be held liable in any action brought under

9 this section for a violation of this Act if the financial

10 intermediary demonstrates by a preponderance of

11 the evidence that the violation was not intentional

12 and resulted from a bona fide error notwithstanding

13 the maintenance of procedures reasonably adapted

14 to avoid any such error.

15 (2) EXAMPLES.—Examples of a bona fide error

16 include clerical, calculation, computer malfunction

17 and programming, and printing errors, except that

18 an error of legal judgment with respect to a finan19 cial intermediary’s obligation under this Act is not

20 a bond fide error.

21 (d) NO LIABILITY FOR OVERPAYMENT.—A financial

22 intermediary may not be held liable in any action under

23 this section for a violation of this Act if the violation has

24 resulted in—
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1 (1) earnings paid to the investor in an amount

2 greater than the amount determined under any dis3 closure applicable with respect to such payment; or

4 (2) a charge to the investor in an amount less

5 than the amount determined under the disclosed

6 charge or fee schedule applicable with respect to

7 such charge.

8 (e) JURISDICTION.—Any action under this section

9 may be brought in any United States district court, or

10 in any other court of competent jurisdiction, within 1 year

11 after the date of the occurrence of the violation involved.

12 (f) RELIANCE ON FEDERAL AGENCY RULINGS.—No

13 provision of this section imposing any liability shall apply

14 to any act done or omitted in good faith in conformity

15 with any regulation or order, or any interpretation of any

16 regulation or order, of the agency, or in conformity with

17 any interpretation or approval by an official or employee

18 of the agency duly authorized by the agency to issue such

19 interpretation or approval under procedures prescribed by

20 the agency, notwithstanding, the fact that after such act

21 or omission has occurred, such regulation, order, interpre22 tation, or approval is amended, rescinded, or determined

23 by judicial or other authority to be invalid for any reason.

24 (g) NOTIFICATION OF AND ADJUSTMENT FOR ER25 RORS.—A financial intermediary shall not be liable under
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1 this section for any failure to comply with any requirement

2 imposed under this Act with respect to any account if—

3 (1) before—

4 (A) the end of the 60-day period beginning

5 on the date on which the financial intermediary

6 discovered the failure to comply;

7 (B) any action is instituted against the fi8 nancial intermediary by the investor under this

9 section with respect to such failure to comply;

10 and

11 (C) any written notice of such failure to

12 comply is received by the financial intermediary

13 from the investor, the financial intermediary

14 notifies the investor of the failure of such finan15 cial intermediary to comply with such require16 ment; and

17 (2) the financial intermediary makes such ad18 justments as may be necessary with respect to such

19 account to ensure that—

20 (A) the investor will not be liable for any

21 amount in excess of the amount actually dis22 closed with respect to any fee or charge;

23 (B) the investor will not be liable for any

24 fee or charge imposed under any condition not

25 actually disclosed; and
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1 (C) earnings on amounts in such account

2 will accrue at the annual percentage yield, and

3 under the conditions, actually disclosed (and

4 credit will be provided for earnings already ac5 crued at a different annual percentage yield and

6 under different conditions than the yield or con7 ditions disclosed).

8 (h) MULTIPLE INTERESTS IN 1 ACCOUNT.—If more

9 than 1 person holds an interest in any account—

10 (1) the minimum and maximum amounts of li11 ability under subsection (a)(2)(A) for any failure to

12 comply with the requirements of this Act shall apply

13 with respect to such account; and

14 (2) the court shall determine the manner in

15 which the amount of any such liability with respect

16 to such account shall be distributed among such per17 sons.

18 (i) CONTINUING FAILURE TO DISCLOSE.—

19 (1) CERTAIN CONTINUING FAILURES TREATED

20 AS 1 VIOLATION.—Except as provided in paragraph

21 (2), the continuing failure of any financial

22 intermediary to disclose any particular term required

23 to be disclosed under this Act with respect to a par24 ticular account shall be treated as a single violation

25 for purposes of determining the amount of any li-
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1 ability under subsection (a) for such failure to dis2 close.

3 (2) SUBSEQUENT FAILURE TO DISCLOSE.—The

4 continuing failure of any depository institution to

5 disclose any particular term required to be disclosed

6 under this Act with respect to a particular term re7 quired to be disclosed under this Act with respect to

8 a particular account after judgment has been ren9 dered in favor of the investor in connection with a

10 prior failure to disclose such term with respect to

11 such account shall be treated as a subsequent viola12 tion for purposes of determining liability under sub13 section (a).

14 SEC. 12. DEFINITIONS.

15 For purposes of this Act:

16 (1) ACCOUNT.—The term ‘‘account’’ means any

17 account offered to any person.

18 (2) INVESTOR.—The term ‘‘investor’’ means

19 any person.

20 (3) FINANCIAL INTERMEDIARY.—The term ‘‘fi21 nancial intermediary’’ excludes those identified in

22 clauses (i) through (vi) of section 19(b)(1)(A) of the

23 Federal Reserve Act.

24 (4) FEDERAL AGENCY.—øTo be supplied.¿
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