4000 - Advisory Opinions
Regulation DD--Tiered-Rate Accounts and Disclosure Statement Requirements
September 27, 1993
Mark A. Mellon, Attorney
This is in response to your letter of August 30, 1993 pertaining to disclosures concerning tiered-rate accounts which are required by Regulation DD, 12 C.F. R. Part 230 ("Reg DD").
You enclose sample disclosures with your letter which you state are included with monthly statements sent by [BANK] to its depositors and you inquire whether the statements meet the Reg DD requirements. After reviewing the disclosures, it is our opinion that these disclosures do not satisfy Reg. DD.
As I noted in my last letter to you, annual percentage yields ("APYs") must be stated for each balance tier of a tiered rate account. For the second tier of the accounts listed in your disclosures (any amount over $500,000), you must provide a range which shows the lowest and highest percentage yields for that tier. The low APY must be calculated based on the total amount of interest earned for a year assuming the minimum principal required to earn the interest rate for that tier. The high APY must be based on the amount of interest the institution would pay on the highest principal that could be deposited to earn the interest rate for the second tier. If the account has no maximum limit on the last tier, however, the institution may assume any amount.
Your disclosures provide an APY for a balance of $600,000, thus satisfying one end of the range requirement. They do not, however, provide an APY which assumes that the minimum principal has been deposited which is required to earn the interest rate for that tier. In this instance, that amount would be $500,000.01. An APY for this amount of principal must be calculated and disclosed in these statements. See section D of Part 1 of Appendix A to Reg DD, Tiered Rate Accounts.
It is also our opinion that the disclosures must also satisfy the advertising requirements of Reg DD as set forth in section 230.8 because the disclosures appear to meet the Reg DD definition of advertisement (a commercial message that promotes the availability of an account). See 12 C.F.R. § 230.2(b). The disclosures will therefore have to satisfy the section 230.8 requirements which I listed in my previous letter to you.
I hope that this letter is responsive to your query. Please do not hesitate to contact me if you should have any questions about this or any other matter.