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Regulation DD Has Arrived…
"SO THAT CONSUMERS CAN MAKE MEANINGFUL COMPARISONS"
The Federal Reserve Board published the proposed Regulation DD in April, 1992. It is to implement the Truth in Savings Act which was passed by Congress in December as part of the Federal Deposit Insurance Corporation Improvement Act of 1991. Comment is due by June 10, with final regulations to be issued by September 19, 1992, as directed by the statute.
Bankers were relieved that some of the proposals published before the Act was passed were eliminated from the final bill. Mandatory basic banking, government check-cashing requirements, and credit card interest rate caps were removed from the statute's final form.
What's left will cause problems enough. The Act, which applies to banks, credit unions and thrifts, requires:
DISCLOSURES of annual percentage yield on accounts, minimum account balance requirements, and minimum opening amount requirements-all in an understandable format,
CALCULATION on the full amount of principal for each day of the interest calculation period,
FEE disclosures that affect yields,
PENALTIES for early withdrawals clearly stated,
STATEMENTS that include yield earned, amount of interest paid, fees charged, and the number of days in the reporting period, and,
ADVERTISING that reflects truthful statements Advertising "free" accounts is prohibited if there are minimum balance requirements, transaction fees or a limit on the number of transactions.
Big Change For Some
An important change for some financial institutions is the requirement to pay interest on full balances. Interest is already calculated this way by most financial institutions. But there are a few that do not pay interest on that portion of an account that is required to be maintained as reserves. Fed requires 10% of transaction account deposits, which includes NOW accounts, be set aside as reserves. Those institutions which are not presently paying interest on this portion of the balance will have to change their calculations.
Now, with the requirement to pay on the full balance, some of these institutions may choose to lower their interest slightly to compensate for the lost investable funds.
What Is An "Account"?
The title of "Truth In Savings" might lead you to think this regulation affects only savings accounts. The definition of "account" in the regulation, however, is "…a deposit account held by or offered to a consumer by a depository institution. It includes accounts such as time deposits and demand, savings and negotiable order of withdrawal accounts."
Purpose Of "Truth In Savings"
The purpose of Regulation DD, according to the text, is to "enable consumers to make informed decisions about deposit accounts at depository institutions. The regulation requires depository institutions to provide disclosures of the terms and conditions on which interest is paid and fees are assessed against deposit accounts so that consumers can make meaningful comparisons among depository institutions."
Banks, Thrifts, and Credit Unions
Section 230.1(c) reads, in part, "This regulation applies to depository institutions except for credit unions," which is misleading. The Act provides that the National Credit Union Administration (NCUA) shall issue "substantially similar regulations for credit unions within 90 days of the effective date of regulations established by the Federal Reserve Board."
The 132 page proposed regulation contains an annual percentage yield calculation, model clauses, and sample forms, which should make the job of the compliance officer a little less complicated. It appears we will have an easier job dealing with this new regulation than we had with some others Fed has issued. At least it doesn't sound as complicated as Reg CC!
Copyright © 1992 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 3, No. 1, 5/92
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