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#959684 - 05/15/08 06:33 PM Periodic statement - interest earned vs. paid
AuditorK Offline
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Okay, here is the scenario. Interest on the account is calculated based on the average daily balance method. Interest is compounded and credited quarterly (at month end). Statements are sent on the 15th of every month. What must we show on the monthly statements where interest is only accrued but not paid? Do we not need to show anything for interest or do we show interest accrued? What do we show on the statements where interest is paid? Do we show interest paid based on the quarter and interest accrued based on the other half of the month after interest was paid (15th - 31st)? This is really confusing by not having the interest payment dates correspond with the statement periods. HELP!!!

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#959697 - 05/15/08 06:56 PM Re: Periodic statement - interest earned vs. paid AuditorK
John Burnett Offline
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You must disclose the amount of interest earned during the statement period, even if not credited. See the commentary to section 230.6(a)(2). If I read your question correctly, if I had an account with you, I'd receive a statement as of the 15th of each month but you'd post (credit) interest only at quarter ends. That means that two of each quarter's statements would not show any interest paid (the statements cut on 2/15 and 3/15, for example). Each monthly statement would show the amount of interest earned (accrued) during that statement period only. The statement cut on 1/15 would show two interest figures -- the larger, labeled "Interest paid," would be posted on 12/31 and reflect a quarter's worth of interest. The smaller number would be for the statement period only, including 12/16 through 1/15, inclusive, and would be labeled something like "Interest earned."

And, of course, the APYE will be based on the earned interest.

That, as you may imagine, will be potentially even more confusing for your customers than it is for you!

Oops -- If you've read this far and are scratching your head because you recall a special rule for quarterly crediting and monthly statements, you're right. See the two posts just below.
Last edited by John Burnett; 05/15/08 07:42 PM.
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#959740 - 05/15/08 07:25 PM Re: Periodic statement - interest earned vs. paid AuditorK
AuditorK Offline
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Oh wow - not good! How does Supplement I to Part 230 - Official Staff Interpretations play into this situation, if at all. There it gives a special rule for average daily balance method.

Monthly statements and quarterly compounding. This rule applies, for example, when and institution calculates interest on a quarterly average daily balance and sends monthly statements. In this case, the first two monthly statements would omit annual percentage yield earned and interest earned figures; the third monthly statement would reflect the interest earned and the annual percentage yield earned for the entire quarter.

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#959756 - 05/15/08 07:40 PM Re: Periodic statement - interest earned vs. paid AuditorK
John Burnett Offline
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You know, this question comes up so infrequently that I had forgotten that little rule. The monthly statements on which interest paid does not appear can omit the interest earned and APYE disclosures. The statement with the quarterly interest posting will include three months' earned interest. Because you use the average daily balance method, you can disclose the interest earned and the APYE for the interest period rather than the statement period. That takes care of the out-of-sync cycles (interest v. statement).

To use that rule, you have to disclose the number of days in the statement period and in the interest period, or the beginning and ending dates of those periods.

Last edited by John Burnett; 05/16/08 01:27 PM.
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#959792 - 05/15/08 08:02 PM Re: Periodic statement - interest earned vs. paid John Burnett
AuditorK Offline
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Now I'm really confused...

Here is what I have in front of me:

A periodic statement dated 9/13/07-10/10/07: No disclosure of interest earned, paid, or APYE

A statement dated 10/11/07-11/14/07: Again, no disclosure of interest earned, paid, or APYE

A statement dated 11/15/07-12/12/07: Disclosing the following:
Interest paid for the period (9/1-11/30)
APYE for the period (9/1-11/30)
Days in the earnings period (91)

What violations do I have? I really appreciate your help!

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#960147 - 05/16/08 01:32 PM Re: Periodic statement - interest earned vs. paid AuditorK
John Burnett Offline
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As you can see, AuditorK, I've tweaked my response.

I don't think you've got any violations there. I was concerned about the requirement to disclose the number of days in both the interest period and the statement period. However, you cover that when you disclose the beginning and ending dates of a period.

Now I'm going to step away from this Thread before I confuse myself.
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