Skip to content
BOL Conferences
Thread Options
#1650173 - 01/12/12 05:01 PM Reg DD
pchandler Offline
Junior Member
Joined: Mar 2004
Posts: 37
ky
If a customer gets an interest check monthly should you disclose interest is compounded monthly? Our disclosures state interest is compounded quarterly, but actually it is not compounded. How should it be disclosed?

Return to Top
Deposits and Payments
#1650195 - 01/12/12 05:29 PM Re: Reg DD pchandler
BrendaC Offline
Power Poster
BrendaC
Joined: Sep 2001
Posts: 6,029
Sweet Home AL
Yes, your APY should reflect monthly compounding. The APY is based on the assumption that the money remains in the account.
_________________________
Life without Jesus is like an unsharpened pencil - it has no point.

Return to Top
#1650222 - 01/12/12 06:02 PM Re: Reg DD pchandler
Bob The Banker Offline
Platinum Poster
Bob The Banker
Joined: May 2010
Posts: 958
A regulatory mandated UDAP lol

Return to Top
#1650237 - 01/12/12 06:10 PM Re: Reg DD pchandler
Doug Hendrickson Offline
Power Poster
Doug Hendrickson
Joined: Oct 2009
Posts: 3,927
But if the customer is getting a check on a monthly basis, then there is no compounding, correct? The disclosure should then say that you don't compound.

We generally disclose that we don't compound, the interest is either sent to them by check, transferred to another internal account or ACHed to another institution.
_________________________
I hear and I forget. I see and I remember. I do and I understand.--Confucius

Return to Top
#1650360 - 01/12/12 08:02 PM Re: Reg DD pchandler
pchandler Offline
Junior Member
Joined: Mar 2004
Posts: 37
ky
There is that part that says it is assumed that interest is left on deposit and it was confusing. Thanks.

Return to Top
#1650385 - 01/12/12 08:28 PM Re: Reg DD pchandler
BrendaC Offline
Power Poster
BrendaC
Joined: Sep 2001
Posts: 6,029
Sweet Home AL
Reg DD Part I. Annual Percentage Yield for Account Disclosures and Advertising Purposes

A. General Rules
In determining the total interest figure to be used in the formula, institutions shall assume that all principal and interest remain on deposit for the entire term and that no other transactions (deposits or withdrawals) occur during the term.
_________________________
Life without Jesus is like an unsharpened pencil - it has no point.

Return to Top
#1650795 - 01/13/12 04:13 PM Re: Reg DD pchandler
Andy_Z Offline
10K Club
Andy_Z
Joined: Oct 2000
Posts: 27,748
On the Net
Brenda is spot on. You don't want to do various disclosures for all possibilities.

The disclosure might say figures don't lie, but liars figure, and here are our assumptions per the FRB.
_________________________
AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

Return to Top
#1650841 - 01/13/12 04:53 PM Re: Reg DD pchandler
BrendaC Offline
Power Poster
BrendaC
Joined: Sep 2001
Posts: 6,029
Sweet Home AL
Doug - There is an exception to the "assumption" rule IF the bank REQUIRES the interest be paid out (as opposed to allows the customer to elect interest be paid out).

"This assumption shall not be used if an institution requires, as a condition of the account, that consumers withdraw interest during the term. In such a case, the interest (and annual percentage yield calculation) shall reflect that requirement."
_________________________
Life without Jesus is like an unsharpened pencil - it has no point.

Return to Top
#1651348 - 01/17/12 12:27 PM Re: Reg DD pchandler
John Burnett Offline
10K Club
John Burnett
Joined: Oct 2000
Posts: 40,086
Cape Cod
So, for example, if your institution has two almost identical CDs, one of which pays 2.00% payable monthly but only to another account or by ACH out, and the other of which pays 2.00% compounding monthly, the APY on the first will be 2.00% and the APY on the second will be something like 2.02%.

[BTW, I recognize that 2.00% rates are high, but the effect of compounding at more realistic 1.00% levels aren't great enough to provide an illustration.]
Last edited by John Burnett; 01/17/12 12:42 PM. Reason: to correct an error.
_________________________
John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8

Return to Top
#1651460 - 01/17/12 03:20 PM Re: Reg DD John Burnett
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
laugh so true!
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top

Moderator:  John Burnett