We have a savings account that is disclosed to our customers as a variable rate account. The minimum balance to earn interest is $100. The current rate is 3.1 percent. We are contemplating changing the rate structure to 3 tiers, but the minimum balance to earn interest will remain $100. Do we have to re-disclose to our customers?

Mark: I haven't looked at Reg DD in a while, but I would say yes.

Although the minimum to earn ANY interest won't be changing, the minimum to earn interest AT EACH TIER LEVEL is new and previously undisclosed to your customers. As such, I believe re-disclosure is required.

Sorry I don't have a cite for you. I would look at the section that requires disclosure of minimums to earn interest.

I AM NOT ENGAGED IN PROVIDING LEGAL ADVICE AND THE VIEWS EXPRESSED ARE NOT THOSE OF MY EMPLOYER

Section 230.5(a) states:
(1) Advance notice required. A depository institution shall give advance notice to affected consumers of any change in a term required to be disclosed under 230.4(b) of this part if the change may reduce the annual percentage yield or adversely affect the consumer. The notice shall include the effective date of the change. The notice shall be mailed or delivered at least 30 calendar days before the effective date of the change.
(2) No notice required. No notice under this section is required for:
(i) Variable-rate changes. Changes in the interest rate and corresponding changes in the annual percentage yield in variable-rate accounts.

I understand that you can change the interest rate if you want, but I believe adding tiers to an account is a change that must be disclosed in advance. I'm assuming that the lowest tier will recieve less 3.10%, but even if they don't they aren't recieving the same rate as the highest tier - an adverse condition for account holders in the lowest tier.

I definitely suggest you provide a 30-day notice for a change of this type. You cannot always determine what a customer may deem to be "adverse". The most account complaints we have ever received came from a change I thought was positive. We started paying interest on an account which had not earned interest in the past. Because, I thought it was a benefit, we noticed customers after the change was made.

Mistake! I was put in my place very quickly by customers who informed me that they did not want to earn interest. Lesson learned.

I agree that you should redisclose. By creating tiers, you are really changing the product from a single-rate account to a tiered-rate account. This calls for jumping through all the Reg DD hoops.

While I agree that changing from a single rate to a tiered rate requires additional disclosure, a critical question is whether that additional disclosure needs to take place 30 days in advance of the change. That will depend on whether the change adversely impacts the consumer. If balances over $100 up to whatever the cap is for that tier will still earn at least 3.1% APY, I don't think you would need to provide 30 days advance notice. You would still be required to disclose the change to a tiered account, but if I had $200 in one of these accounts before the change earning 3.1%, and now after the change I'm still earning 3.1% I have not been adversely affected. The fact that someone else who had $10,000 in the account and was earning 3.1% before the change and is now earning 4.5% because they're in a higher tier is not an adverse impact on me and is not a trigger for advance disclosure.

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Jim Bedsole, CRCM, CBA, CFSA

Opinions expressed are my own, and do not necessarily reflect those of my employer.

Jim is correct that changes that are not adverse do not require advance notification - but they do require subsequent notification. If you want to take that to the extreme you could argue that the tiers cannot be seen as adverse because this is a variable rate account. Because of that, interest rate changes cannot be seen as adverse. Therefore, even if the lowest tier is less than 3.1%, it is still not adverse.

If you want to try that arguement, you can. I wouldn't. I would give advance notification.

Thank you all for responding to this question. We have yet to decide which route to take, but you can be sure that disclosures will be given if we go with the tiers. Safety First!

Mark:
Allow me to add my two cents' worth, please. Your bank need not always look at advance disclosures as a negative. If your bank is going to do the "tier thing," and all customers are going to benefit, why not consider this a marketing opportunity to get the word out?
That way, you can perhaps get the Marketing Department to eat the cost of the "disclosure."

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John Burnett
Cape Cod Bank and Trust Co., N.A.
jsburnett@ccbt.com
Opinions expressed are personal and not attributable to my employer