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Inactive Financial Institution Letters

[Federal Register: August 8, 1994]



12 CFR Part 230

[Regulation DD; Docket No. R-0824]

Truth in Savings

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule; interpretation.


SUMMARY: The Board is publishing its official staff commentary to 
Regulation DD (Truth in Savings). The commentary applies and interprets 
the requirements of Regulation DD and is a substitute for individual 
staff interpretations. The commentary incorporates much of the guidance 
provided when the regulation was adopted, and addresses additional 
questions raised since that time.

DATES: This rule is effective August 3, 1994. Compliance is optional 
until February 6, 1995.

FOR FURTHER INFORMATION CONTACT: Jane Ahrens, Senior Attorney, or Kyung 
Cho or Kurt Schumacher, Staff Attorneys, Division of Consumer and 
Community Affairs, Board of Governors of the Federal Reserve System, at 
(202) 452-3667 or 452-2412; for the hearing impaired only, Dorothea 
Thompson, Telecommunications Device for the Deaf, at (202) 452-3544.


I. Background

    The purpose of the Truth in Savings Act (12 U.S.C. 4301 et seq.) is 
to assist consumers in comparing deposit accounts offered by depository 
institutions. The act requires institutions to disclose fees, the 
interest rate, the annual percentage yield (APY), and other account 
terms whenever a consumer requests the information and before an 
account is opened. Fees and other information also must be provided on 
any periodic statement sent to the consumer. Rules are set forth for 
deposit account advertisements and advance notices to account holders 
of adverse changes in terms. The act restricts how institutions 
determine the account balance on which interest is calculated. The act 
is implemented by the Board's Regulation DD (12 CFR part 230), which 
became effective on June 21, 1993. The regulation authorizes the 
issuance of official staff interpretations of the regulation. (See 
Appendix D to Regulation DD.)

II. Commentary

    On February 7, 1994, the Board published for comment a proposed 
commentary to Regulation DD (59 FR 5536). The commentary is designed to 
provide guidance to depository institutions in applying the regulation 
to specific transactions and is a substitute for individual staff 
interpretations. The Board received about 150 comments, mostly from 
depository institutions and trade associations. Commenters generally 
supported the proposal.
    In large measure, the commentary incorporates supplementary 
information accompanying prior rulemakings, and reflects the views 
expressed therein without substantive change. (See final rule published 
on September 21, 1992 (57 FR 43337), correction notice published on 
October 9, 1992 (57 FR 46480), and amendments published on March 19, 
1993 (58 FR 15077).) The commentary also addresses issues that have 
arisen since the publication of the regulation and technical 
suggestions or concerns raised by commenters.
    To avoid unnecessary detail, the discussion accompanying the final 
commentary does not individually mention technical amendments that 
clarify the proposed text but make no substantive change in meaning. 
Similarly, additions to the final commentary of information previously 
published are not separately noted. For example, the supplementary 
information accompanying the September 1992 rulemaking discussed 
deposit accounts denominated in foreign currency and held by consumers 
as an example of accounts covered by the regulation. Foreign currency 
accounts were not mentioned in the proposal. Comment 230.2(a)-1 now 
lists foreign currency accounts among the examples of covered accounts, 
but the addition is not specifically mentioned in the supplementary 
information accompanying paragraph 2(a). Additions such as this were 
added in response to commenters' requests. Many comments have been 
renumbered, pursuant to the Federal Register's new publication rules.
    On May 11, 1994, the Board published a proposal to amend the 
regulation's rules regarding crediting and compounding practices (59 FR 
24378). The proposal also has the effect of producing an annual 
percentage yield (APY) that reflects the time value of money. On July 
11, 1994, the Board published a notice extending to September 6, 1994, 
the comment period for the May proposal (59 FR 35271). At the same 
time, the Board solicited comment on an alternative approach for 
calculating the APY. The approach would allow institutions to disclose 
an APY equal to the interest rate on time accounts with maturities 
greater than one year and that do not compound interest but pay 
interest at least annually. The Board has deferred adopting commentary 
on provisions of the regulation affected by the proposal, pending final 
action by the Board.

Section 230.2--Definitions

(a) Account
    Comment 2(a)-1 provides examples of accounts subject to the 
regulation. The Board proposed to narrow the regulation's coverage of 
trust accounts to individual retirement accounts (IRAs) and simplified 
employee pension (SEP) accounts, to minimize compliance burdens for 
    Many commenters supported the Board's general approach, but 
questioned whether the regulation should exclude accounts held by 
individuals pursuant to informal trust arrangements such as ``Totten'' 
or payable on death (POD) trusts. Commenters noted the purpose of a 
Totten trust is to avoid probate proceedings to transfer funds 
remaining in an account upon a depositor's death. Commenters also noted 
the account's signature card is often the sole evidence of the trust 
relationship. These commenters believed consumers opening Totten and 
POD trust accounts should be afforded the act's protections. The Board 
concurs, and the commentary reflects this approach.
(b) Advertisement
    Comment 2(b)-1 illustrates the scope of commercial messages 
considered to be advertisements. The Board proposed that advertisements 
would not include direct oral discussions conducted in person regarding 
a specific account. Many commenters urged the Board to expand the 
interpretation to include telephone conversations about specific 
accounts. The Board has retained the provision as proposed. The Board 
believes face-to-face discussions allow prospective customers to learn 
easily and quickly about basic terms of the account (thus, fulfilling 
the purpose of advertising disclosures). Also, at any time during a 
face-to-face conversation, consumers may request and receive written 
disclosures at that time. This is not the case for conversations by 
telephone. Thus, the commentary clarifies that except for information 
about an existing account, commercial messages delivered via telephone 
or voice response machines are advertisements.
(f) Bonus
    Comment 2(f)-3 has been added to clarify the rule excluding from 
bonuses items of de minimis value ($10 or less). (See 26 CFR 
Sec. 1.6049-5(a)(2) published by the Internal Revenue Service, which 
discusses the fair market value of property received.) Commenters 
expressed concern about potential violations for failing to disclose as 
a bonus early in the year an individual item of de minimis value deemed 
to be a bonus when aggregated with another de minimis item given in a 
separate promotional program involving the same account later in the 
year. The comment provides guidance about aggregating only the market 
value of items offered for the same promotional program. An example 
illustrating the rule has been included.
(h) Consumer
    An example relating to a landlord-tenant relationship in comment 
2(h)-2 has been deleted as unnecessary.
    The Board proposed two factors to consider in determining whether 
an account is held by an unincorporated nonbusiness association of 
natural persons, and the Board solicited comments on whether those or 
additional factors would be helpful. Based on the comments received and 
further analysis, the Board has adopted only one factor in comment 
(p) Passbook Savings Account
    Comment 2(p)-1 clarifies that institutions may consider accounts as 
``passbook savings'' even when direct deposits are made to the account 
electronically. The comment tracks the requirements of Regulation E (12 
CFR 205.9). But accounts that permit other electronic fund transfers--
and thus trigger Regulation E's requirement to send statements at least 
quarterly--are not passbook savings accounts, and institutions must 
comply with the periodic statement disclosures in Sec. 230.6 of this 
part. Accounts that send statements are not passbook savings accounts 
for purposes of Regulation DD, even if consumers are provided with a 
booklet for their records.
(r) State
    The proposal included examples of territories and possessions 
covered by the act. Commenters requested more examples. Upon further 
consideration, the Board believes a list of all the territories 
considered to be ``states'' is unnecessary. Thus, the comment has not 
been adopted.
(u) Time Account
    Comment 2(u)-1 has been added to clarify when club accounts must be 
considered time accounts for purposes of the regulation. Although club 
accounts typically have one feature of a time account (a maturity 
date), club accounts are not time accounts unless they also require a 
penalty of at least seven days' interest for a withdrawal of funds 
during the first six days after the account is opened--subject to 
exceptions permitted in Regulation D (as discussed in comment 2(u)-2).
(v) Variable-Rate Account
    Comment 2(v)-1 clarifies that a certificate of deposit (CD) 
permitting one or more rate adjustments prior to maturity at the 
consumer's option is a variable-rate account. The Board believes it is 
important for consumers to receive disclosures describing when their 
interest rate and APY could change, such as any time limitations on 
when the option may be exercised.

Section 230.3--General Disclosure Requirements

(b) General
    Comment 3(b)-1 provides guidance on the specificity required when 
time periods are disclosed. For example, the Board believes slight 
variations in compounding cycles are consistent with the notion of 
``monthly'' cycles, which are often not based on an actual calendar 
month. Many commenters generally supported the Board's approach, but 
expressed concern about the proposal's limitation of 28-33 days to 
describe a month. The Board has adopted a standard of roughly 
equivalent intervals occurring during a calendar year. The Board 
believes this standard is consistent with the act, provides 
flexibility, and eases compliance.
(e) Oral Responses to Inquiries
    Comment 3(e)-3 has been added in response to commenters' requests. 
It clarifies that this paragraph does not apply to responses to 
requests for rate information on an existing account.
(f) Rounding and Accuracy Rules for Rates and Yields
    Proposed comment 3(f)(2)-2 (regarding accuracy requirements for 
interest rate disclosures) was a restatement of the regulation and has 
been deleted as unnecessary. A comment illustrating rounding 
requirements for the APY has been added.

Section 230.4--Account Disclosures

(a) Delivery of Account Disclosures
(a)(1) Account Opening
    Comment 4(a)(1)-1 provides examples of events that trigger the 
delivery of new account disclosures. The final comment differs from the 
proposal in several respects.
    The proposed commentary discussed the effect of a consumer-
initiated change in the term for an automatically renewable time 
account. In response to commenters' requests, the commentary clarifies 
that new account disclosures are required when the consumer changes any 
account term required to be disclosed (and not merely the duration of 
the CD). The clarification provides consistency with Sec. 230.5(b)-5.
    Commenters expressed concern about having to give new account 
disclosures when funds are transferred from one account to another, 
such as when funds in a money market deposit account (MMDA) are 
transferred to a NOW account because the consumer exceeded transaction 
limitations on the MMDA. Some requested clarification that disclosures 
at the time of transfer are not required if disclosures (including 
change-in-term notices, if appropriate) for both accounts had 
previously been given. To minimize possible burdens the Board has 
adopted that standard in the commentary.
    The Board received many comments regarding the proposed guidance 
for ``closed accounts.'' New account disclosures would have been 
required if institutions deemed an account closed and then accepted a 
deposit from the consumer. Commenters noted that consumers with 
accounts meeting an institution's criteria for a closed account--such 
as an account having a $0 balance--do not necessarily intend to close 
the account. Commenters believed consumers would be confused if new 
account disclosures were sent when a deposit is subsequently made. 
Commenters also expressed concerns about the burden of monitoring 
accounts to ensure compliance.
    The statute allows institutions not to pay accrued but uncredited 
interest when a consumer closes an account. (See 12 U.S.C. 4303(c)(9).) 
Based on comments received and upon further analysis, the Board 
believes that if an institution deems an account closed and treats 
accrued but uncredited interest as forfeited by the consumer, the 
institution must deem a new account to be opened when a deposit is 
subsequently accepted. This approach provides flexibility for 
institutions and consistent treatment for consumers regarding 
``closed'' accounts.
    Comment 4(a)(1)-2 clarifies that an institution acquiring accounts 
through a merger or acquisition is not required to provide new account 
disclosures. The new institution must comply with Sec. 230.5(a)(1) if 
it chooses to change terms of the acquired account. Private 
transactions are distinguishable, however, from acquisitions or mergers 
involving the Resolution Trust Corporation (RTC) and the Federal 
Deposit Insurance Corporation (FDIC). In a government-assisted 
acquisition, the acquiring institution receives only the consumer's 
funds on deposit. The deposit contract or other legal obligation--the 
terms and conditions of the account such as fees--stays (and ultimately 
terminates) with the failed institution. Thus, new account disclosures 
must be provided if the consumer chooses to open an account with the 
new institution. Also, if fees are imposed before the new account 
relationship is established, the fee must be disclosed prior to 
(a)(2) Requests
    Comment (a)(2)(i)-1 clarifies that institutions are not required to 
send disclosures for accounts no longer offered to the public.
    Comment 4(a)(2)(ii)(A)-1 has been added to clarify that when 
responding to a request for disclosures by giving rates ``accurate 
within the most recent seven calendar days,'' institutions should 
calculate the time period from the date the institution sends the 
(b) Content of Account Disclosures
(b)(1)(ii) Variable rates
    Comments 4(b)(1)(ii)(B)-1 and 4(b)(1)(ii)(C)-1, dealing with rate 
changes within the institution's discretion, have been modified. 
Commenters believed rates derived from formulas based on an 
institution's cost of funds, for example, are not ``solely'' in the 
institution's discretion. In response to commenters' requests, both 
comments have been revised for clarity and consistency.
(b)(2)(ii) Effect of Closing an Account
    Comment 4(b)(2)(ii)-1 is modified from the proposal to reflect that 
state or other law may affect an institution's ability to include in 
its contract specific consumer actions considered by the institution to 
be a request to close the account.
(b)(4) Fees
    The Board has provided additional guidance in comment 4(b)(4)-1 for 
fees imposed for sending to consumers checks that otherwise would be 
held by the institution. Comment 4(b)(4)-2 clarifies that photocopying 
fees are incidental fees not required to be disclosed. An example in 
comment 4(b)(4)-3 was deleted as unnecessary.
(b)(6) Features of Time Accounts
(b)(6)(ii) Early Withdrawal Penalties
    Comment 4(b)(6)(ii)-4 has been added in response to commenters 
requesting guidance for disclosing an early withdrawal penalty.

Section 230.5--Subsequent Disclosures

(a) Change in Terms
    Comment 5(a)(1)-3 provides guidance on an institution's 
responsibility to provide change-in-term notices when account 
disclosures reflect a term that will change upon the occurrence of an 
event. An example relating to student accounts has been deleted as 
unnecessary, and an example about terms in effect for a limited time 
has been added to comment 5(a)(1)-4 in response to commenters' 
Paragraph (a)(2)(ii) Check Printing Fees
    In response to comments received, comment 5(a)(2)(ii)-1 has been 
expanded to exclude increases in fees for printing deposit and 
withdrawal slips from change-in-term notice requirements, although the 
Board believes that separate charges for deposit or withdrawal slips, 
which are typically provided along with checks, are seldom imposed. 
Many commenters stated that, like check printing fees, fees for 
printing deposit and withdrawal slips are not within the institution's 
control, since the consumer determines the quantity ordered.
(b) Notice Before Maturity for Time Accounts Longer than One Month that 
Renew Automatically
    Comment 5(b)-2 provides guidance for disclosing the date when 
consumers can ascertain applicable rates for a renewing CD. The 
proposed comment required institutions to indicate when the rate will 
be available if the date falls on a nonbusiness day. Based on comments 
received and upon further analysis, the comment has been modified to 
delete the requirement.

Section 230.6--Periodic Statement Disclosures

(a) General Rule
    Comment 6(a)-1 clarifies that if zero interest is earned during the 
period, institutions may disclose $0 for interest earned (and the 
annual percentage yield earned) or omit the disclosure, at their 
(a)(2) Amount of Interest
    Comment 6(a)(2)-2 clarifies that institutions may use a variety of 
terms to disclose interest earned, and that the regulation does not 
mandate use of the examples.

Section 230.7--Payment of Interest

(a)(1) Permissible Methods
    Comment 7(a)(1)-1 has been expanded to reflect the act's 
legislative history, which cites the ``low balance'' method as an 
example of a prohibited interest calculation method.
    Proposed comment 7(a)(1)-6 addressed ``dormant'' accounts, and the 
Board solicited comment on whether an institution should be permitted 
to withhold the payment of interest for dormant accounts. Proposed 
comment 7(b)-4 raised a similar issue for dormant accounts. Many 
comments were received. Some commenters believed institutions should be 
permitted to withhold the payment of interest for dormant accounts, if 
authorized by state or other law and the deposit contract. Other 
commenters noted that what constitutes a ``dormant'' account varies 
widely among the states and institutions. These commenters expressed 
concern about the impact of the rule if any period of inactivity--
however brief--could transform an account to dormant status. Still 
others raised concerns whether the act, which requires that interest be 
paid on the full amount of principal in the account each day, permitted 
such an interpretation. (12 U.S.C. 4306(a).) Based on the comments 
received and further analysis, the Board believes that account 
inactivity does not affect an institution's duty to pay interest. (See 
comment 7(c)-3, which provides that institutions must accrue interest 
on funds until the funds are withdrawn from the account.) The Board 
believes this position--reflected in comment 7(a)(1)-6--is consistent 
with the purposes of the act and the rule that interest must be 
calculated for funds in accounts meeting minimum balance requirements 
for as long as funds remain in the account.
(a)(2) Determination of Minimum Balance to Earn Interest
    Comment 7(a)(2)-6 clarifies limitations on minimum balance 
requirements to earn interest for club accounts--such as ``holiday'' or 
``vacation'' club. The rule does not apply to a club account's minimum 
balance requirements for earning bonuses.
(b) Compounding and Crediting Policies
    Comment 7(b)-3 has been revised to clarify that the circumstances 
under which an institution may deem an account closed, and whether 
accrued but uncredited interest may be deemed forfeited, is subject to 
state or other law, if any (and to any limitations therein).
    Comment 7(b)-4, dealing with the forfeiture of accrued but 
uncredited interest for dormant accounts, has been withdrawn for the 
reasons discussed in comment (a)(1)-6 above.

Section 230.8--Advertising

(a) Misleading or Inaccurate Advertisements
    Comment 8(a)-2 would have required institutions using indoor signs 
advertising APYs for tiered-rate accounts to state both the lower and 
higher dollar amount for the tier corresponding to the advertised APY. 
Many commenters believed stating both dollar amounts is unnecessary. 
The Board concurs. Thus, the comment provides that a sign is not 
misleading or inaccurate if it states the lower dollar amount of the 
tier corresponding to the advertised annual percentage yield.
    Institutions cannot advertise accounts as ``free'' or ``no cost'' 
(or terms of similar meaning) if maintenance and activity fees can be 
imposed. Comments 8(a)-3 and 8(a)-4 address the scope of ``maintenance 
and activity'' fees and addresses advertisements for ``free'' accounts 
with optional electronic services. Commenters were divided on whether 
fees for electronic services such as ATM access should preclude 
institutions from advertising accounts as free. Based on the comments 
received and further analysis, the Board believes that ATM services are 
not different from other optional services such as home banking.
    The Board believes that because ATM access is provided only upon a 
consumer's request and consumers receive information--including the 
cost of ATM access--before obtaining the service, the imposition of 
fees for ATM access (including annual fees) does not preclude 
institutions from advertising accounts as free or no-cost.
    The Board received numerous comments on its proposal to consider 
the term ``fees waived'' as similar to the terms ``free'' or ``no 
cost.'' Many commenters opposed the proposed comment. They stated that 
the term ``fees waived'' necessarily implies the existence of charges, 
and thus is distinguishable from the terms ``free'' or ``no cost.'' 
These commenters believed consumers would be unnecessarily 
disadvantaged if advertising fee waivers were restricted as proposed. 
Others believed most consumers would not distinguish between the terms 
and that advertising accounts with ``waived fees'' raised the concerns 
the Congress had in mind when prohibiting the advertisement of accounts 
as free or no-cost or ``words of similar meaning.'' The Board believes 
that ``fees waived'' is a term similar to ``free'' or ``no cost;'' 
thus, the commentary (now 8(a)-5) has been retained as proposed.
    Comment 8(a)-6 has been modified for clarity.
(b) Permissible Rates
    Comment 8(b)-3 provides guidance on advertising accounts for which 
institutions offer a number of versions (CDs, for example). The Board 
has revised the comment for clarity without any intended change in 
(c) When Additional Disclosures Are Required
    The regulation requires institutions to disclose additional 
information when the APY is advertised. Comment 8(c)-1 provides 
examples of account descriptions that do not trigger the additional 
    The Board has eliminated the reference to a bonus of 1% over an 
institution's current rate for one-year certificates of deposit as an 
example of a trigger term. Based on comments received and upon further 
analysis, the Board believes a reference to an institution's own rates 
(to which a ``bonus'' rate or margin will be applied) is not a trigger 
term if those rates are not readily determinable from the advertisement 
itself. This position is consistent with the rules regarding trigger 
terms in advertisements under the Board's Regulation Z (12 CFR part 
(c)(2) Time Annual Percentage Yield Is Offered
    Comment 8(c)(2)-2 has been added in response to commenters' 
requests. It specifies that an advertisement may refer to the APY as 
being accurate as of the date of publication, if the date is on the 
publication itself.

Appendix A--Annual Percentage Yield Calculation

Part II. Annual Percentage Yield Earned for Periodic Statements
    Comment app. A.II.A.-1 provides guidance about the treatment of 
accrued but uncredited interest in the balances used to calculate the 
APYE. The Board believes an inaccurate APYE would result if 
institutions include accrued interest in the balance figure when 
statements are sent less frequently than interest is credited. But when 
periodic statements are issued more frequently than interest is 
credited, accrued interest must be included in the balance figure for 
APYE computation purposes.
B. Special Formula for Use Where Periodic Statements Are Sent More 
Often Than the Period for Which Interest Is Compounded
    Comment app. A.II.B.-1 has been adopted as proposed. Institutions 
may use the special formula to calculate an APYE on a quarterly 
statement whether or not a monthly statement is triggered by Regulation 
E during the quarter. Commenters supported this rule as significantly 
reducing compliance burdens for institutions.
    Comment app. A.II.B.-2 clarifies that the special formula requires 
institutions to use the actual number of days in the compounding period 
in calculating the APYE. The Board believes using the actual number of 
days in a compounding period is necessary to produce an accurate APYE 
for a specific consumer's account.

Appendix B--Model Clauses and Sample Forms

    Proposed comments app. B-6, B-4-1 and B-9-1 have been deleted as 

List of Subjects in 12 CFR Part 230

    Advertising, Banks, banking, Consumer protection, Federal Reserve 
System, Reporting and recordkeeping requirements, Truth in savings.

    For the reasons set forth in the preamble, the Board amends 12 CFR 
part 230 as follows:


    1. The authority citation for part 230 continues to read as 

    Authority: 12 U.S.C. 4301, et seq.

    2. Part 230 is amended by adding a new Supplement I at the end of 
the appendices to the Part to read as follows:

Supplement I to Part 230--Official Staff Interpretations


    1. Official status. This commentary is the means by which the 
Division of Consumer and Community Affairs of the Federal Reserve 
Board issues official staff interpretations of Regulation DD. Good 
faith compliance with this commentary affords protection from 
liability under section 271(f) of the Truth in Savings Act.
    Section 230.1--Authority, purpose, coverage, and effect on state 
    (c) Coverage
    1. Foreign applicability. Regulation DD applies to all 
depository institutions, except credit unions, that offer deposit 
accounts to residents (including resident aliens) of any state as 
defined in Sec. 230.2(r). Accounts held in an institution located in 
a state are covered, even if funds are transferred periodically to a 
location outside the United States. Accounts held in an institution 
located outside the United States are not covered, even if held by a 
U.S. resident.
    2. Persons who advertise accounts. Persons who advertise 
accounts are subject to the advertising rules. For example, if a 
deposit broker places an advertisement offering consumers an 
interest in an account at a depository institution, the advertising 
rules apply to the advertisement, whether the account is to be held 
by the broker or directly by the consumer.
    Section 230.2--Definitions.
    (a) Account
    1. Covered accounts. Examples of accounts subject to the 
regulation are:

i. Interest-bearing and noninterest-bearing accounts
ii. Deposit accounts opened as a condition of obtaining a credit 
iii. Accounts denominated in a foreign currency
iv. Individual retirement accounts (IRAs) and simplified employee 
pension (SEP) accounts
v. Payable on death (POD) or ``Totten trust'' accounts

    2. Other accounts. Examples of accounts not subject to the 
regulation are:

i. Mortgage escrow accounts for collecting taxes and property 
insurance premiums
ii. Accounts established to make periodic disbursements on 
construction loans
iii. Trust accounts opened by a trustee pursuant to a formal written 
trust agreement (not merely declarations of trust on a signature 
card such as a ``Totten trust,'' or an IRA and SEP account)
iv. Accounts opened by an executor in the name of a decedent's 

    3. Other investments. The term ``account'' does not apply to all 
products of a depository institution. Examples of products not 
covered are:

i. Government securities
ii. Mutual funds
iii. Annuities
iv. Securities or obligations of a depository institution
v. Contractual arrangements such as repurchase agreements, interest 
rate swaps, and bankers acceptances
    (b) Advertisement

    1. Covered messages. Advertisements include commercial messages 
in visual, oral, or print media that invite, offer, or otherwise 
announce generally to prospective customers the availability of 
consumer accounts--such as:

i. Telephone solicitations
ii. Messages on automated teller machine (ATM) screens
iii. Messages on a computer screen in an institution's lobby 
(including any printout) other than a screen viewed solely by the 
institution's employee
iv. Messages in a newspaper, magazine, or promotional flyer or on 
v. Messages that are provided along with information about the 
consumer's existing account and that promote another account at the 

    2. Other messages. Examples of messages that are not 
advertisements are:

i. Rate sheets in a newspaper, periodical, or trade journal (unless 
the depository institution, or a deposit broker offering accounts at 
the institution, pays a fee for or otherwise controls publication)
ii. In-person discussions with consumers about the terms for a 
specific account
iii. Information given to consumers about existing accounts, such as 
current rates recorded on a voice response machine or notices for 
automatically renewable time accounts sent before renewal

    (f) Bonus
    1. Examples. Bonuses include items of value, other than 
interest, offered as incentives to consumers, such as an offer to 
pay the final installment deposit for a holiday club account. Items 
that are not a bonus include discount coupons for goods or services 
at restaurants or stores.
    2. De minimis rule. Items with a de minimis value of $10 or less 
are not bonuses. Institutions may rely on the valuation standard 
used by the Internal Revenue Service to determine if the value of 
the item is de minimis. Examples of items of de minimis value are:

i. Disability insurance premiums valued at an amount of $10 or less 
per year
ii. Coffee mugs, T-shirts or other merchandise with a market value 
of $10 or less

    3. Aggregation. In determining if an item valued at $10 or less 
is a bonus, institutions must aggregate per account per calendar 
year items that may be given to consumers. In making this 
determination, institutions aggregate per account only the market 
value of items that may be given for a specific promotion. To 
illustrate, assume an institution offers in January to give 
consumers an item valued at $7 for each calendar quarter during the 
year that the average account balance in a negotiable order of 
withdrawal (NOW) account exceeds $10,000. The bonus rules are 
triggered, since consumers are eligible under the promotion to 
receive up to $28 during the year. However, the bonus rules are not 
triggered if an item valued at $7 is offered to consumers opening a 
NOW account during the month of January, even though in November the 
institution introduces a new promotion that includes, for example, 
an offer to existing NOW account holders for an item valued at $8 
for maintaining an average balance of $5,000 for the month.
    4. Waiver or reduction of a fee or absorption of expenses. 
Bonuses do not include value that consumers receive through the 
waiver or reduction of fees (even if the fees waived exceed $10) for 
banking-related services such as the following:

i. A safe deposit box rental fee for consumers who open a new 
ii. Fees for travelers checks for account holders
iii. Discounts on interest rates charged for loans at the 

    (h) Consumer
    1. Professional capacity. Examples of accounts held by a natural 
person in a professional capacity for another are attorney-client 
trust accounts and landlord-tenant security accounts.
    2. Other accounts. Accounts not held in a professional capacity 
include accounts held by an individual for a child under the Uniform 
Gifts to Minors Act.
    3. Sole proprietors. Accounts held by individuals as sole 
proprietors are not covered.
    4. Retirement plans. IRAs and SEP accounts are consumer accounts 
to the extent that funds are invested in covered accounts. But Keogh 
accounts are not subject to the regulation.
    5. Unincorporated associations. An institution may rely on the 
declaration of the person representing an unincorporated association 
as to whether the account is held for a business or nonbusiness 
    (j) Depository institution and institution
    1. Foreign institutions. Branches of foreign institutions 
located in the United States are subject to the regulation if they 
offer deposit accounts to consumers. Edge Act and Agreement 
corporations, and agencies of foreign institutions, are not 
depository institutions for purposes of this regulation.
    (k) Deposit broker
    1. General. A deposit broker is a person who is in the business 
of placing or facilitating the placement of deposits in an 
institution, as defined by the Federal Deposit Insurance Act (12 
U.S.C. 29(g)).
    (n) Interest
    1. Relation to Regulation Q. While bonuses are not interest for 
purposes of this regulation, other regulations may treat them as the 
equivalent of interest. For example, Regulation Q identifies 
payments of cash or merchandise that violate the prohibition against 
paying interest on demand accounts. (See 12 CFR Sec. 217.2(d).)
    (p) Passbook savings account
    1. Relation to Regulation E. Passbook savings accounts include 
accounts accessed by preauthorized electronic fund transfers to the 
account (as defined in 12 CFR Sec. 205.2(j)), such as an account 
that receives direct deposit of social security payments. Accounts 
permitting access by other electronic means are not ``passbook 
saving accounts'' and must comply with the requirements of 
Sec. 230.6 if statements are sent four or more times a year.
    (q) Periodic statement
    1. Examples. Periodic statements do not include:

i. Additional statements provided solely upon request
ii. Information provided by computer through home banking services
iii. General service information such as a quarterly newsletter or 
other correspondence describing available services and products
    (t) Tiered-rate account
    1. Time accounts. Time accounts paying different rates based 
solely on the amount of the initial deposit are not tiered-rate 
    2. Minimum balance requirements. A requirement to maintain a 
minimum balance to earn interest does not make an account a tiered-
rate account.
    (u) Time account
    1. Club accounts. Although club accounts typically have a 
maturity date, they are not time accounts unless they also require a 
penalty of at least seven days' interest for withdrawals during the 
first six days after the account is opened.
    2. Relation to Regulation D. Regulation D permits in limited 
circumstances the withdrawal of funds without penalty during the 
first six days after a ``time deposit'' is opened. (See 12 CFR 
Sec. 204.2(c)(1)(i).) But the fact that a consumer makes a 
withdrawal as permitted by Regulation D does not disqualify the 
account from being a time account for purposes of this regulation.
    (v) Variable-rate account
    1. General. A certificate of deposit permitting one or more rate 
adjustments prior to maturity at the consumer's option is a 
variable-rate account.

Section 230.3  General disclosure requirements.

    (a) Form
    1. Design requirements. Disclosures must be presented in a 
format that allows consumers to readily understand the terms of 
their account. Institutions are not required to use a particular 
type size or typeface, nor are institutions required to state any 
term more conspicuously than any other term. Disclosures may be 

i. In any order
ii. In combination with other disclosures or account terms
iii. In combination with disclosures for other types of accounts, as 
long as it is clear to consumers which disclosures apply to their 
iv. On more than one page and on the front and reverse sides
v. By using inserts to a document or filling in blanks
vi. On more than one document, as long as the documents are provided 
at the same time

    2. Consistent terminology. Institutions must use consistent 
terminology to describe terms or features required to be disclosed. 
For example, if an institution describes a monthly fee (regardless 
of account activity) as a ``monthly service fee'' in account-opening 
disclosures, the periodic statement and change-in-term notices must 
use the same terminology so that consumers can readily identify the 
    (b) General
    1. Specificity of legal obligation. Institutions may refer to 
the calendar month or to roughly equivalent intervals during a 
calendar year as a ``month.''
    (c) Relation to Regulation E
    1. General rule. Compliance with Regulation E (12 CFR part 205) 
is deemed to satisfy the disclosure requirements of this regulation, 
such as when:

i. An institution changes a term that triggers a notice under 
Regulation E, and uses the timing and disclosure rules of Regulation 
E for sending change-in-term notices
ii. Consumers add an ATM access feature to an account, and the 
institution provides disclosures pursuant to Regulation E, including 
disclosure of fees (See 12 CFR Sec. 205.7.)
iii. An institution complying with the timing rules of Regulation E 
discloses at the same time fees for electronic services (such as for 
balance inquiry fees at ATMs) required to be disclosed by this 
regulation but not by Regulation E
iv. An institution relies on Regulation E's rules regarding 
disclosure of limitations on the frequency and amount of electronic 
fund transfers, including security-related exceptions. But any 
limitations on ``intra-institutional transfers'' to or from the 
consumer's other accounts during a given time period must be 
disclosed, even though intra-institutional transfers are exempt from 
Regulation E.
    (e) Oral response to inquiries
    1. Application of rule. Institutions are not required to provide 
rate information orally.
    2. Relation to advertising. The advertising rules do not cover 
an oral response to a question about rates.
    3. Existing accounts. This paragraph does not apply to oral 
responses about rate information for existing accounts. For example, 
if a consumer holding a one-year certificate of deposit (CD) 
requests interest rate information about the CD during the term, the 
institution need not disclose the annual percentage yield.
    (f) Rounding and accuracy rules for rates and yields
    (f)(1) Rounding
    1. Permissible rounding. Examples of permissible rounding are an 
annual percentage yield calculated to be 5.644%, rounded down and 
disclosed as 5.64%; 5.645% rounded up and disclosed as 5.65%.
    (f)(2) Accuracy
    1. Annual percentage yield and annual percentage yield earned. 
The tolerance for annual percentage yield and annual percentage 
yield earned calculations is designed to accommodate inadvertent 
errors. Institutions may not purposely incorporate the tolerance 
into their calculation of yields.

Section 230.4  Account disclosures.

    (a) Delivery of account disclosures
    (a)(1) Account opening
    1. New accounts. New account disclosures must be provided when:

i. A time account that does not automatically rollover is renewed by 
a consumer
ii. A consumer changes a term for a renewable time account (see 
Sec. 230.5(b)-5 regarding disclosure alternatives)
iii. An institution transfers funds from an account to open a new 
account not at the consumer's request, unless the institution 
previously gave account disclosures and any change-in-term notices 
for the new account
iv. An institution accepts a deposit from a consumer to an account 
that the institution had deemed closed for the purpose of treating 
accrued but uncredited interest as forfeited interest (see 
Sec. 230.7(b)-3)

    2. Acquired accounts. New account disclosures need not be given 
when an institution acquires an account through an acquisition of or 
merger with another institution (but see Sec. 230.5(a) regarding 
advance notice requirements if terms are changed).
    (a)(2) Requests
    1. Inquiries versus requests. A response to an oral inquiry (by 
telephone or in person) about rates and yields or fees does not 
trigger the duty to provide account disclosures. But when consumers 
ask for written information about an account (whether by telephone, 
in person, or by other means), the institution must provide 
disclosures unless the account is no longer offered to the public.
    2. General requests. When responding to a consumer's general 
request for disclosures about a type of account (a NOW account, for 
example), an institution that offers several variations may provide 
disclosures for any one of them.
    3. Timing for response. Ten business days is a reasonable time 
for responding to requests for account information that consumers do 
not make in person.
    1. Recent rates. Institutions comply with this paragraph if they 
disclose an interest rate and annual percentage yield accurate 
within the seven calendar days preceding the date they send the 
    1. Term. Describing the maturity of a time account as ``1 year'' 
or ``6 months,'' for example, illustrates a statement of the 
maturity of a time account as a term rather than a date (``January 
10, 1995'').
    (b) Content of account disclosures
    (b)(1) Rate information
    (b)(1)(i) Annual percentage yield and interest rate
    1. Rate disclosures. In addition to the interest rate and annual 
percentage yield, institutions may disclose a periodic rate 
corresponding to the interest rate. No other rate or yield (such as 
``tax effective yield'') is permitted. If the annual percentage 
yield is the same as the interest rate, institutions may disclose a 
single figure but must use both terms.
    2. Fixed-rate accounts. For fixed-rate time accounts paying the 
opening rate until maturity, institutions may disclose the period of 
time the interest rate will be in effect by stating the maturity 
date. (See Appendix B, B-7--Sample Form.) For other fixed-rate 
accounts, institutions may use a date (``This rate will be in effect 
through May 4, 1995'') or a period (``This rate will be in effect 
for at least 30 days'').
    3. Tiered-rate accounts. Each interest rate, along with the 
corresponding annual percentage yield for each specified balance 
level (or range of annual percentage yields, if appropriate), must 
be disclosed for tiered-rate accounts. (See Appendix A, Part I, 
Paragraph D.)
    4. Stepped-rate accounts. A single composite annual percentage 
yield must be disclosed for stepped-rate accounts. (See Appendix A, 
Part I, Paragraph B.) The interest rates and the period of time each 
will be in effect also must be provided. When the initial rate 
offered for a specified time on a variable-rate account is higher or 
lower than the rate that would otherwise be paid on the account, the 
calculation of the annual percentage yield must be made as if for a 
stepped-rate account. (See Appendix A, Part I, Paragraph C.)
    (b)(1)(ii) Variable rates
    1. Determining interest rates. To disclose how the interest rate 
is determined, institutions must:

i. Identify the index and specific margin, if the interest rate is 
tied to an index
ii. State that rate changes are within the institution's discretion, 
if the institution does not tie changes to an index
    1. Frequency of rate changes. An institution reserving the right 
to change rates at its discretion must state the fact that rates may 
change at any time.
    1. Limitations. A floor or ceiling on rates or on the amount the 
rate may decrease or increase during any time period must be 
disclosed. Institutions need not disclose the absence of limitations 
on rate changes.
    (b)(2) Compounding and crediting
    (b)(2)(ii) Effect of closing an account
    1. Deeming an account closed. An institution may, subject to 
state or other law, provide in its deposit contracts the actions by 
consumers that will be treated as closing the account and that will 
result in the forfeiture of accrued but uncredited interest. An 
example is the withdrawal of all funds from the account prior to the 
date that interest is credited.
    (b)(3) Balance information
    (b)(3)(ii) Balance computation method
    1. Methods and periods. Institutions may use different methods 
or periods to calculate minimum balances for purposes of imposing a 
fee (the daily balance for a calendar month, for example) and 
accruing interest (the average daily balance for a statement period, 
for example). Each method and corresponding period must be 
    (b)(3)(iii) When interest begins to accrue
    1. Additional information. Institutions may disclose additional 
information such as the time of day after which deposits are treated 
as having been received the following business day, and may use 
additional descriptive terms such as ``ledger'' or ``collected'' 
balances to disclose when interest begins to accrue.
    (b)(4) Fees
    1. Covered fees. The following are types of fees that must be 

i. Maintenance fees, such as monthly service fees
ii. Fees to open or to close an account
iii. Fees related to deposits or withdrawals, such as fees for use 
of the institution's ATMs
iv. Fees for special services, such as stop-payment fees, fees for 
balance inquiries or verification of deposits, fees associated with 
checks returned unpaid, and fees for regularly sending to consumers 
checks that otherwise would be held by the institution

    2. Other fees. Institutions need not disclose fees such as the 

i. Fees for services offered to account and nonaccount holders 
alike, such as travelers checks and wire transfers (even if 
different amounts are charged to account and nonaccount holders)
ii. Incidental fees, such as fees associated with state escheat 
laws, garnishment or attorneys fees, and fees for photocopying

    3. Amount of fees. Institutions must state the amount and 
conditions under which a fee may be imposed. Naming and describing 
the fee (such as ``$4.00 monthly service fee'') will typically 
satisfy these requirements.
    4. Tied-accounts. Institutions must state if fees that may be 
assessed against an account are tied to other accounts at the 
institution. For example, if an institution ties the fees payable on 
a NOW account to balances held in the NOW account and a savings 
account, the NOW account disclosures must state that fact and 
explain how the fee is determined.
    (b)(5) Transaction limitations
    1. General rule. Examples of limitations on the number or dollar 
amount of deposits or withdrawals that institutions must disclose 

i. Limits on the number of checks that may be written on an account 
within a given time period
ii. Limits on withdrawals or deposits during the term of a time 
iii. Limitations required by Regulation D on the number of 
withdrawals permitted from money market deposit accounts by check to 
third parties each month. Institutions need not disclose 
reservations of right to require notices for withdrawals from 
accounts required by federal or state law.

    (b)(6) Features of time accounts
    (b)(6)(i) Time requirements
    1. ``Callable'' time accounts. In addition to the maturity date, 
an institution must state the date or the circumstances under which 
it may redeem a time account at the institution's option (a 
``callable'' time account).
    (b)(6)(ii) Early withdrawal penalties
    1. General. The term ``penalty'' may but need not be used to 
describe the loss of interest that consumers may incur for early 
withdrawal of funds from time accounts.
    2. Examples. Examples of early withdrawal penalties are:

i. Monetary penalties, such as ``$10.00'' or ``seven days' interest 
plus accrued but uncredited interest''
ii. Adverse changes to terms such as a lowering of the interest 
rate, annual percentage yield, or compounding frequency for funds 
remaining on deposit
iii. Reclamation of bonuses

    3. Relation to rules for IRAs or similar plans. Penalties 
imposed by the Internal Revenue Code for certain withdrawals from 
IRAs or similar pension or savings plans are not early withdrawal 
penalties for purposes of this regulation.
    4. Disclosing penalties. Penalties may be stated in months, 
whether institutions assess the penalty using the actual number of 
days during the period or using another method such as a number of 
days that occurs in any actual sequence of the total calendar months 
involved. For example, stating ``one month's interest'' is 
permissible, whether the institution assesses 30 days' interest 
during the month of April, or selects a time period between 28 and 
31 days for calculating the interest for all early withdrawals 
regardless of when the penalty is assessed.
    (b)(6)(iv) Renewal policies
    1. Rollover time accounts. Institutions offering a grace period 
on time accounts that automatically renew need not state whether 
interest will be paid if the funds are withdrawn during the grace 
    2. Nonrollover time accounts. Institutions paying interest on 
funds following the maturity of time accounts that do not renew 
automatically need not state the rate (or annual percentage yield) 
that may be paid. (See Appendix B, Model Clause B-1(h)(iv)(2).)

Section 230.5  Subsequent disclosures.

    (a) Change in terms
    (a)(1) Advance notice required
    1. Form of notice. Institutions may provide a change-in-term 
notice on or with a periodic statement or in another mailing. If an 
institution provides notice through revised account disclosures, the 
changed term must be highlighted in some manner. For example, 
institutions may note that a particular fee has been changed (also 
specifying the new amount) or use an accompanying letter that refers 
to the changed term.
    2. Effective date. An example of language for disclosing the 
effective date of a change is ``As of November 21, 1994.''
    3. Terms that change upon the occurrence of an event. An 
institution offering terms that will automatically change upon the 
occurrence of a stated event need not send an advance notice of the 
change provided the institution fully describes the conditions of 
the change in the account opening disclosures (and sends any change-
in-term notices regardless of whether the changed term affects that 
consumer's account at that time).
    4. Examples. Examples of changes not requiring an advance 
change-in-terms notice are:

i. The termination of employment for consumers for whom account 
maintenance or activity fees were waived during their employment by 
the depository institution
ii. The expiration of one year in a promotion described in the 
account opening disclosures to ``waive $4.00 monthly service charges 
for one year''

    (a)(2) No notice required
    (a)(2)(ii) Check printing fees
    1. Increase in fees. A notice is not required for an increase in 
fees for printing checks (or deposit and withdrawal slips) even if 
the institution adds some amount to the price charged by the vendor.
    (b) Notice before maturity for time accounts longer than one 
month that renew automatically
    1. Maturity dates on nonbusiness days. In determining the term 
of a time account, institutions may disregard the fact that the term 
will be extended beyond the disclosed number of days because the 
disclosed maturity falls on a nonbusiness day. For example, a 
holiday or weekend may cause a ``one-year'' time account to extend 
beyond 365 days (or 366, in a leap year) or a ``one-month'' time 
account to extend beyond 31 days.
    2. Disclosing when rates will be determined. Ways to disclose 
when the annual percentage yield will be available include the use 

i. A specific date, such as ``October 28''
ii. A date that is easily determinable, such as ``the Tuesday before 
the maturity date stated on this notice'' or ``as of the maturity 
date stated on this notice''

    3. Alternative timing rule. Under the alternative timing rule, 
an institution offering a 10-day grace period would have to provide 
the disclosures at least 10 days prior to the scheduled maturity 
    4. Club accounts. If consumers have agreed to the transfer of 
payments from another account to a club time account for the next 
club period, the institution must comply with the requirements for 
automatically renewable time accounts--even though consumers may 
withdraw funds from the club account at the end of the current club 
    5. Renewal of a time account. In the case of a change in terms 
that becomes effective if a rollover time account is subsequently 

i. If the change is initiated by the institution, the disclosure 
requirements of this paragraph apply. (Paragraph 230.5(a) applies if 
the change becomes effective prior to the maturity of the existing 
time account.)
ii. If the change is initiated by the consumer, the account opening 
disclosure requirements of Sec. 230.4(b) apply. (If the notice 
required by this paragraph has been provided, institutions may give 
new account disclosures or disclosures highlighting only the new 

    6. Example. If a consumer receives a prematurity notice on a 
one-year time account and requests a rollover to a six-month 
account, the institution must provide either account opening 
disclosures including the new maturity date or, if all other terms 
previously disclosed in the prematurity notice remain the same, only 
the new maturity date.
    (b)(1) Maturities of longer than one year
    1. Highlighting changed terms. Institutions need not highlight 
terms that changed since the last account disclosures were provided.
    (c) Notice for time accounts one month or less that renew 
    1. Providing disclosures within a reasonable time. Generally, 10 
calendar days after an account renews is a reasonable time for 
providing disclosures. For time accounts shorter than 10 days, 
disclosures should be given prior to the next renewal date. For 
example, if a time account automatically renews every seven days, 
disclosures about an account that renews on Wednesday, December 7, 
1994, should be given prior to Wednesday, December 14.
    (d) Notice before maturity for time accounts longer than one 
year that do not renew automatically
    1. Subsequent account. When funds are transferred following 
maturity of a nonrollover time account, institutions need not 
provide account disclosures unless a new account is established.

Section 230.6  Periodic statement disclosures.

    (a) General rule
    1. General. Institutions are not required to provide periodic 
statements. If they do provide statements, disclosures need only be 
furnished to the extent applicable. For example, if no interest is 
earned for a statement period, institutions need not state that 
fact. Or, institutions may disclose ``$0'' interest earned and 
``0%'' annual percentage yield earned.
    2. Regulation E interim statements. When an institution provides 
regular quarterly statements, and in addition provides a monthly 
interim statement to comply with Regulation E, the interim statement 
need not comply with this section unless it states interest or rate 
information. (See 12 CFR Sec. 205.9(b).)
    3. Combined statements. Institutions may provide information 
about an account (such as an MMDA) on the periodic statement for 
another account (such as a NOW account) without triggering the 
disclosures required by this section, as long as:

i. The information is limited to the account number, the type of 
account, or balance information, and
ii. The institution also provides a periodic statement complying 
with this section for each account.

    4. Other information. Additional information that may be given 
on or with a periodic statement includes:

i. Interest rates and corresponding periodic rates applied to 
balances during the statement period
ii. The dollar amount of interest earned year-to-date
iii. Bonuses paid (or any de minimis consideration of $10 or less)
iv. Fees for products such as safe deposit boxes

    (a)(1) Annual percentage yield earned
    1. Ledger and collected balances. Institutions that accrue 
interest using the collected balance method may use either the 
ledger or the collected balance in determining the annual percentage 
yield earned.
    (a)(2) Amount of interest
    1. Accrued interest. Institutions must state the amount of 
interest that accrued during the statement period, even if it was 
not credited.
    2. Terminology. In disclosing interest earned for the period, 
institutions must use the term ``interest'' or terminology such as:

i. ``Interest paid,'' to describe interest that has been credited
ii. ``Interest accrued'' or ``interest earned,'' to indicate that 
interest is not yet credited

    3. Closed accounts. If consumers close an account between 
crediting periods and forfeits accrued interest, the institution may 
not show any figures for interest earned or annual percentage yield 
earned for the period (other than zero, at the institution's 
(a)(3) Fees imposed
    1. General. Periodic statements must state fees disclosed under 
Sec. 230.4(b) that were debited to the account during the statement 
period, even if assessed for an earlier period.
    2. Itemizing fees by type. In itemizing fees imposed more than 
once in the period, institutions may group fees if they are the same 
type. But the description must make clear that the dollar figure 
represents more than a single fee, for example, ``total fees for 
checks written this period.'' Examples of fees that may not be 
grouped together are:

i. Monthly maintenance and excess activity fees
ii. ``Transfer'' fees, if different dollar amounts are imposed--such 
as $.50 for deposits and $1.00 for withdrawals
iii. Fees for electronic fund transfers and fees for other services, 
such as balance inquiry or maintenance fees

    3. Identifying fees. Statement details must enable consumers to 
identify the specific fee. For example:

i. Institutions may use a code to identify a particular fee if the 
code is explained on the periodic statement or in documents 
accompanying the statement.
ii. Institutions using debit slips may disclose the date the fee was 
debited on the periodic statement and show the amount and type of 
fee on the dated debit slip.

    4. Relation to Regulation E. Disclosure of fees in compliance 
with Regulation E complies with this section for fees related to 
electronic fund transfers (for example, totaling all electronic 
funds transfer fees in a single figure).
    (a)(4) Length of period
    1. General. Institutions providing the beginning and ending 
dates of the period must make clear whether both dates are included 
in the period.
    2. Opening or closing an account mid-cycle. If an account is 
opened or closed during the period for which a statement is sent, 
institutions must calculate the annual percentage yield earned based 
on account balances for each day the account was open.
(b) Special rule for average daily balance method
    1. Monthly statements and quarterly compounding. This rule 
applies, for example, when an 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.
    2. Length of the period. Institutions must disclose the length 
of both the interest calculation period and the statement period. 
For example, a statement could disclose a statement period of April 
16 through May 15 and further state that ``the interest earned and 
the annual percentage yield earned are based on your average daily 
balance for the period April 1 through April 30.''
    3. Quarterly statements and monthly compounding. Institutions 
that use the average daily balance method to calculate interest on a 
monthly basis and that send statements on a quarterly basis may 
disclose a single interest (and annual percentage yield earned) 
figure. Alternatively, an institution may disclose three interest 
and three annual percentage yield earned figures, one for each month 
in the quarter, as long as the institution states the number of days 
(or beginning and ending dates) in the interest period if different 
from the statement period.

Section 230.7  Payment of interest.

    (a)(1) Permissible methods
    1. Prohibited calculation methods. Calculation methods that do 
not comply with the requirement to pay interest on the full amount 
of principal in the account each day include:

i. Paying interest on the balance in the account at the end of the 
period (the ``ending balance'' method)
ii. Paying interest for the period based on the lowest balance in 
the account for any day in that period (the ``low balance'' method)
iii. Paying interest on a percentage of the balance, excluding the 
amount set aside for reserve requirements (the ``investable 
balance'' method)

    2. Use of 365-day basis. Institutions may apply a daily periodic 
rate greater than 1/365 of the interest rate--such as 1/360 of the 
interest rate--as long as it is applied 365 days a year.
    3. Periodic interest payments. An institution can pay interest 
each day on the account and still make uniform interest payments. 
For example, for a one-year certificate of deposit an institution 
could make monthly interest payments equal to 1/12 of the amount of 
interest that will be earned for a 365-day period (or 11 uniform 
monthly payments--each equal to roughly 1/12 of the total amount of 
interest--and one payment that accounts for the remainder of the 
total amount of interest earned for the period).
    4. Leap year. Institutions may apply a daily rate of 1/366 or 1/
365 of the interest rate for 366 days in a leap year, if the account 
will earn interest for February 29.
    5. Maturity of time accounts. Institutions are not required to 
pay interest after time accounts mature. (See 12 CFR part 217, the 
Board's Regulation Q, for limitations on duration of interest 
payments.) Examples include:

i. During a grace period offered for an automatically renewable time 
account, if consumers decide during that period not to renew the 
ii. Following the maturity of nonrollover time accounts
iii. When the maturity date falls on a holiday, and consumers must 
wait until the next business day to obtain the funds

    6. Dormant accounts. Institutions must pay interest on funds in 
an account, even if inactivity or the infrequency of transactions 
would permit the institution to consider the account to be 
``inactive'' or ``dormant'' (or similar status) as defined by state 
or other law or the account contract.
    (a)(2) Determination of minimum balance to earn interest
    1. Daily balance accounts. Institutions that require a minimum 
balance may choose not to pay interest for days when the balance 
drops below the required minimum, if they use the daily balance 
method to calculate interest.
    2. Average daily balance accounts. Institutions that require a 
minimum balance may choose not to pay interest for the period in 
which the balance drops below the required minimum, if they use the 
average daily balance method to calculate interest.
    3. Beneficial method. Institutions may not require that 
consumers maintain both a minimum daily balance and a minimum 
average daily balance to earn interest, such as by requiring 
consumers to maintain a $500 daily balance and a prescribed average 
daily balance (whether higher or lower). But an institution could 
offer a minimum balance to earn interest that includes an additional 
method that is ``unequivocally beneficial'' to consumers such as the 
following: An institution using the daily balance method to 
calculate interest and requiring a $500 minimum daily balance could 
offer to pay interest on the account for those days the minimum 
balance is not met as long as consumers maintain an average daily 
balance throughout the month of $400.
    4. Paying on full balance. Institutions must pay interest on the 
full balance in the account that meets the required minimum balance. 
For example, if $300 is the minimum daily balance required to earn 
interest, and a consumer deposits $500, the institution must pay the 
stated interest rate on the full $500 and not just on $200.
    5. Negative balances prohibited. Institutions must treat a 
negative account balance as zero to determine:

i. The daily or average daily balance on which interest will be paid
ii. Whether any minimum balance to earn interest is met

    6. Club accounts. Institutions offering club accounts (such as a 
``holiday'' or ``vacation'' club) cannot impose a minimum balance 
requirement for interest based on the total number or dollar amount 
of payments required under the club plan. For example, if a plan 
calls for $10 weekly payments for 50 weeks, the institution cannot 
set a $500 ``minimum balance'' and then pay interest only if the 
consumer has made all 50 payments.
    7. Minimum balances not affecting interest. Institutions may use 
the daily balance, average daily balance, or any other computation 
method to calculate minimum balance requirements not involving the 
payment of interest--such as to compute minimum balances for 
assessing fees.
    (b) Compounding and crediting policies
    1. General. Institutions choosing to compound interest may 
compound or credit interest annually, semi-annually, quarterly, 
monthly, daily, continuously, or on any other basis.
    2. Withdrawals prior to crediting date. If consumers withdraw 
funds (without closing the account) prior to a scheduled crediting 
date, institutions may delay paying the accrued interest on the 
withdrawn amount until the scheduled crediting date, but may not 
avoid paying interest.
    3. Closed accounts. Subject to state or other law, an 
institution may choose not to pay accrued interest if consumers 
close an account prior to the date accrued interest is credited, as 
long as the institution has disclosed that fact.
    (c) Date interest begins to accrue
    1. Relation to Regulation CC. Institutions may rely on the 
Expedited Funds Availability Act (EFAA) and Regulation CC (12 CFR 
part 229) to determine, for example, when a deposit is considered 
made for purposes of interest accrual, or when interest need not be 
paid on funds because a deposited check is later returned unpaid.
    2. Ledger and collected balances. Institutions may calculate 
interest by using a ``ledger'' or ``collected'' balance method, as 
long as the crediting requirements of the EFAA are met (12 CFR 
    3. Withdrawal of principal. Institutions must accrue interest on 
funds until the funds are withdrawn from the account. For example, 
if a check is debited to an account on a Tuesday, the institution 
must accrue interest on those funds through Monday.

Section 230.8  Advertising.

    (a) Misleading or inaccurate advertisements
    1. General. All advertisements are subject to the rule against 
misleading or inaccurate advertisements, even though the disclosures 
applicable to various media differ.
    2. Indoor signs. An indoor sign advertising an annual percentage 
yield is not misleading or inaccurate when:

i. For a tiered-rate account, it also provides the lower dollar 
amount of the tier corresponding to the advertised annual percentage 
ii. For a time account, it also provides the term required to obtain 
the advertised annual percentage yield

    3. Fees affecting ``free'' accounts. For purposes of determining 
whether an account can be advertised as ``free'' or ``no cost,'' 
maintenance and activity fees include:

i. Any fee imposed when a minimum balance requirement is not met, or 
when consumers exceed a specified number of transactions
ii. Transaction and service fees that consumers reasonably expect to 
be imposed on a regular basis
iii. A flat fee, such as a monthly service fee
iv. Fees imposed to deposit, withdraw, or transfer funds, including 
per-check or per-transaction charges (for example, $.25 for each 
withdrawal, whether by check or in person)

    4. Other fees. Examples of fees that are not maintenance or 
activity fees include:

i. Fees not required to be disclosed under Sec. 230.4(b)(4)
ii. Check printing fees
iii. Balance inquiry fees
iv. Stop-payment fees and fees associated with checks returned 
v. Fees assessed against a dormant account
vi. Fees for ATM or electronic transfer services (such as 
preauthorized transfers or home banking services) not required to 
obtain an account

    5. Similar terms. An advertisement may not use the term ``fees 
waived'' if a maintenance or activity fee may be imposed because it 
is similar to the terms ``free'' or ``no cost.''
    6. Specific account services. Institutions may advertise a 
specific account service or feature as free if no fee is imposed for 
that service or feature. For example, institutions offering an 
account that is free of deposit or withdrawal fees could advertise 
that fact, as long as the advertisement does not mislead consumers 
by implying that the account is free and that no other fee (a 
monthly service fee, for example) may be charged.
    7. Free for limited time. If an account (or a specific account 
service) is free only for a limited period of time--for example, for 
one year following the account opening--the account (or service) may 
be advertised as free if the time period is also stated.
    8. Conditions not related to deposit accounts. Institutions may 
advertise accounts as ``free'' for consumers meeting conditions not 
related to deposit accounts, such as the consumer's age. For 
example, institutions may advertise a NOW account as ``free for 
persons over 65 years old,'' even though a maintenance or activity 
fee is assessed on accounts held by consumers 65 or younger.
    (b) Permissible rates
    1. Tiered-rate accounts. An advertisement for a tiered-rate 
account that states an annual percentage yield must also state the 
annual percentage yield for each tier, along with corresponding 
minimum balance requirements. Any interest rates stated must appear 
in conjunction with the applicable annual percentage yields for each 
    2. Stepped-rate accounts. An advertisement that states an 
interest rate for a stepped-rate account must state all the interest 
rates and the time period that each rate is in effect.
    3. Representative examples. An advertisement that states an 
annual percentage yield for a given type of account (such as a time 
account for a specified term) need not state the annual percentage 
yield applicable to other time accounts offered by the institution 
or indicate that other maturity terms are available. In an 
advertisement stating that rates for an account may vary depending 
on the amount of the initial deposit or the term of a time account, 
institutions need not list each balance level and term offered. 
Instead, the advertisement may:

i. Provide a representative example of the annual percentage yields 
offered, clearly described as such. For example, if an institution 
offers a $25 bonus on all time accounts and the annual percentage 
yield will vary depending on the term selected, the institution may 
provide a disclosure of the annual percentage yield as follows: 
``For example, our 6-month certificate of deposit currently pays a 
3.15% annual percentage yield.''
ii. Indicate that various rates are available, such as by stating 
short-term and longer-term maturities along with the applicable 
annual percentage yields: ``We offer certificates of deposit with 
annual percentage yields that depend on the maturity you choose. For 
example, our one-month CD earns a 2.75% APY. Or, earn a 5.25% APY 
for a three-year CD.''

    (c) When additional disclosures are required
    1. Trigger terms. The following are examples of information 
stated in advertisements that are not ``trigger'' terms:

i. ``One, three, and five year CDs available''
ii. ``Bonus rates available''
iii. ``1% over our current rates,'' so long as the rates are not 
determinable from the advertisement
    (c)(2) Time annual percentage yield is offered
    1. Specified date. If an advertisement discloses an annual 
percentage yield as of a specified date, that date must be recent in 
relation to the publication or broadcast frequency of the media 
used, taking into account the particular circumstances or production 
deadlines involved. For example, the printing date of a brochure 
printed once for a deposit account promotion that will be in effect 
for six months would be considered ``recent,'' even though rates 
change during the six-month period. Rates published in a daily 
newspaper or on television must reflect rates offered shortly before 
(or on) the date the rates are published or broadcast.
    2. Reference to date of publication. An advertisement may refer 
to the annual percentage yield as being accurate as of the date of 
publication, if the date is on the publication itself. For instance, 
an advertisement in a periodical may state that a rate is ``current 
through the date of this issue,'' if the periodical shows the date.
    (c)(5) Effect of fees
    1. Scope. This requirement applies only to maintenance or 
activity fees described in paragraph 8(a).
    (c)(6) Features of time accounts
    (c)(6)(i) Time requirements
    1. Club accounts. If a club account has a maturity date but the 
term may vary depending on when the account is opened, institutions 
may use a phrase such as: ``The maturity date of this club account 
is November 15; its term varies depending on when the account is 
    (c)(6)(ii) Early withdrawal penalties
    1. Discretionary penalties. Institutions imposing early 
withdrawal penalties on a case-by-case basis may disclose that they 
``may'' (rather than ``will'') impose a penalty if such a disclosure 
accurately describes the account terms.
    (d) Bonuses
    1. General reference to ``bonus.'' General statements such as 
``bonus checking'' or ``get a bonus when you open a checking 
account'' do not trigger the bonus disclosures.
    (e) Exemption for certain advertisements
    (e)(1) Certain media
    1. Tiered-rate accounts. Solicitations for a tiered-rate account 
made through telephone response machines must provide the annual 
percentage yields and the balance requirements applicable to each 
    (e)(2) Indoor signs
    1. General. Indoor signs include advertisements displayed on 
computer screens, banners, preprinted posters, and chalk or peg 
boards. Any advertisement inside the premises that can be retained 
by a consumer (such as a brochure or a printout from a computer) is 
not an indoor sign.
    2. Consumers outside the premises. Advertisements may be 
``indoor signs'' even though they may be viewed by consumers from 
outside. An example is a banner, in an institution's glass-enclosed 
branch office, that is located behind a teller facing customers but 
is readable by passersby.

Section 230.9  Enforcement and record retention.

    (c) Record retention
    1. Evidence of required actions. Institutions comply with the 
regulation by demonstrating that they have done the following:

i. Established and maintained procedures for paying interest and 
providing timely disclosures as required by the regulation, and
ii. Retained sample disclosures for each type of account offered to 
consumers, such as account-opening disclosures, copies of 
advertisements, and change-in-term notices; and information 
regarding the interest rates and annual percentage yields offered.

    2. Methods of retaining evidence. Institutions must be able to 
reconstruct the required disclosures or other actions. They need not 
keep disclosures or other business records in hard copy. Records 
evidencing compliance may be retained on microfilm, microfiche, or 
by other methods that reproduce records accurately (including 
computer files).
    3. Payment of interest. Institutions must retain sufficient rate 
and balance information to permit the verification of interest paid 
on an account, including the payment of interest on the full 
principal balance.

Appendix A to Part 230--Annual Percentage Yield Calculation

Part I. Annual Percentage Yield for Account Disclosures and Advertising 

    1. Rounding for calculations. The following are examples of 
permissible rounding for calculating interest and the annual 
percentage yield:

i. The daily rate applied to a balance carried to five or more 
decimal places
ii. The daily interest earned carried to five or more decimal places

Part II. Annual Percentage Yield Earned for Periodic Statements

    1. Balance method. The interest figure used in the calculation 
of the annual percentage yield earned may be derived from the daily 
balance method or the average daily balance method. The balance used 
in the formula for the annual percentage yield earned is the sum of 
the balances for each day in the period divided by the number of 
days in the period.
    2. Negative balances prohibited. Institutions must treat a 
negative account balance as zero to determine the balance on which 
the annual percentage yield earned is calculated. (See commentary to 
Sec. 230.7(a)(2).)

A. General Formula

    1. Accrued but uncredited interest. To calculate the annual 
percentage yield earned, accrued but uncredited interest:

i. May not be included in the balance for statements issued at the 
same time or less frequently than the account's compounding and 
crediting frequency. For example, if monthly statements are sent for 
an account that compounds interest daily and credits interest 
monthly, the balance may not be increased each day to reflect the 
effect of daily compounding.
ii. Must be included in the balance for succeeding statements if a 
statement is issued more frequently than compounded interest is 
credited on an account. For example, if monthly statements are sent 
for an account that compounds interest daily and credits interest 
quarterly, the balance for the second monthly statement would 
include interest that had accrued for the prior month.

    2. Rounding. The interest earned figure used to calculate the 
annual percentage yield earned must be rounded to two decimals and 
reflect the amount actually paid. For example, if the interest 
earned for a statement period is $20.074 and the institution pays 
the consumer $20.07, the institution must use $20.07 (not $20.074) 
to calculate the annual percentage yield earned. For accounts paying 
interest based on the daily balance method that compound and credit 
interest quarterly, and send monthly statements, the institution 
may, but need not, round accrued interest to two decimals for 
calculating the annual percentage yield earned on the first two 
monthly statements issued during the quarter. However, on the 
quarterly statement the interest earned figure must reflect the 
amount actually paid.

B. Special Formula for Use Where Periodic Statement is Sent More Often 
Than the Period for Which Interest is Compounded

    1. Statements triggered by Regulation E. Institutions may, but 
need not, use this formula to calculate the annual percentage yield 
earned for accounts that receive quarterly statements and are 
subject to Regulation E's rule calling for monthly statements when 
an electronic fund transfer has occurred. They may do so even though 
no monthly statement was issued during a specific quarter. But 
institutions must use this formula for accounts that compound and 
credit interest quarterly and receive monthly statements that, while 
triggered by Regulation E, comply with the provisions of Sec. 230.6.
    2. Days in compounding period. Institutions using the special 
annual percentage yield earned formula must use the actual number of 
days in the compounding period.

Appendix B to Part 230--Model Clauses and Sample Forms

    1. Modifications. Institutions that modify the model clauses 
will be deemed in compliance as long as they do not delete required 
information or rearrange the format in a way that affects the 
substance or clarity of the disclosures.
    2. Format. Institutions may use inserts to a document (see 
Sample Form B-4) or fill-in blanks (see Sample Forms B-5, B-6 and B-
7, which use underlining to indicate terms that have been filled in) 
to show current rates, fees, or other terms.
    3. Disclosures for opening accounts. The sample forms illustrate 
the information that must be provided to consumers when an account 
is opened, as required by Sec. 230.4(a)(1). (See Sec. 230.4(a)(2), 
which states the requirements for disclosing the annual percentage 
yield, the interest rate, and the maturity of a time account in 
responding to a consumer's request.)
    4. Compliance with Regulation E. Institutions may satisfy 
certain requirements under Regulation DD with disclosures that meet 
the requirements of Regulation E. (See Sec. 230.3(c).) For 
disclosures covered by both this regulation and Regulation E (such 
as the amount of fees for ATM usage, institutions should consult 
appendix A to Regulation E for appropriate model clauses.
    5. Duplicate disclosures. If a requirement such as a minimum 
balance applies to more than one account term (to obtain a bonus and 
determine the annual percentage yield, for example), institutions 
need not repeat the requirement for each term, as long as it is 
clear which terms the requirement applies to.
    6. Sample forms. The sample forms (B-4 through B-8) serve a 
purpose different from the model clauses. They illustrate ways of 
adapting the model clauses to specific accounts. The clauses shown 
relate only to the specific transactions described.

B-1 Model Clauses for Account Disclosures

B-1(h) Disclosures Relating to Time Accounts

    1. Maturity. The disclosure in Clause (h)(i) stating a specific 
date may be used in all cases. The statement describing a time 
period is appropriate only when providing disclosures in response to 
a consumer's request.

B-2 Model Clauses for Change in Terms

    1. General. The second clause, describing a future decrease in 
the interest rate and annual percentage yield, applies to fixed-rate 
accounts only.

B-4 Sample Form (Multiple Accounts)

    1. Rate sheet insert. In the rate sheet insert, the calculations 
of the annual percentage yield for the three-month and six-month 
certificates are based on 92 days and 181 days respectively. All 
calculations in the insert assume daily compounding.

B-6 Sample Form (Tiered-Rate Money Market Account)

    1. General. Sample Form B-6 uses Tiering Method A (discussed in 
Appendix A and Clause (a)(iv)) to calculate interest. It gives a 
narrative description of a tiered-rate account; institutions may use 
different formats (for example, a chart similar to the one in Sample 
Form B-4), as long as all required information for each tier is 
clearly presented. The form does not contain a separate disclosure 
of the minimum balance required to obtain the annual percentage 
yield; the tiered-rate disclosure provides that information.

    By order of the Board of Governors of the Federal Reserve 
System, August 2, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-19224 Filed 8-5-94; 8:45 am]
Last Updated 07/17/1999

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