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6500 - Consumer Protection
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Supplement 1 to Part 230Official Staff Interpretations
Introduction
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 laws.
(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 § 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
card
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
estate
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
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iv. Messages in a newspaper, magazine, or promotional flyer or on
radio
v. Messages that are provided along with information about the
consumer's existing account and that promote another account at the
institution
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. For purposes of § 230.8(b) of this part through § 230.8(e)
of this part, information given to consumers about existing accounts,
such as current rates recorded on a voice-response machine or notices
for automatically renewable time account sent before renewal
iv. Information about a particular transaction in an existing
account
v. Disclosures required by federal or other applicable law
vi. A deposit account agreement
(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
account
ii. Fees for travelers checks for account holders
iii. Discounts on interest rates charged for loans at the
institution
(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.
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(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)
[1831f(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 § 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
§ 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 § 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. 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
accounts.
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 § 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 made:
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
account
iv. On more than one page and on the front and reverse sides
v. By using inserts to a document or filling in blanks
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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 fee.
(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
§ 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
§ 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
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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
§ 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 § 230.5(a) regarding
advance notice requirements if terms are changed).
(a)(2) Requests
(a)(2)(i)
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, including requests made by electronic
means (such as by electronic mail).
4. Use of electronic means. If a consumer who is not
present at the institution makes a request for account disclosures,
including a request made by telephone, e-mail, or via the
institution's Web site, the institution may send the disclosures in
paper form or, if the consumer agrees, may provide the disclosures
electronically, such as to an e-mail address that the consumer provides
for that purpose, or on the institution's Web site, without regard to
the consumer consent or other provisions of the E-Sign Act. The
regulation does not require an institution to provide, nor a consumer
to agree to receive, the disclosures required by § 230.4(a)(2) in
electronic form.
(a)(2)(ii)(A)
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
disclosures.
(a)(2)(ii)(B)
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
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(b)(1)(ii)(B)
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
(b)(1)(ii)(C)
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.
(b)(1)(ii)(D)
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
disclosed.
(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 disclosed:
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 following:
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.
5. Fees for overdrawing an account. Under
§ 230.4(b)(4) of this part, institutions must disclose the conditions
under which a fee may be imposed. In satisfying this requirement
institutions must specify the categories of transactions for which an
overdraft fee may be
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exhaustive list of transactions is not required. It is sufficient for
an institution to state that the fee applies to overdrafts "created
by check, in-person withdrawal, ATM withdrawal, or other electronic
means," as applicable, Disclosing a fee "for overdraft items"
would not be sufficient.
(b)(5) Transaction limitations
1. General rule. Examples of limitations on the number
or dollar amount of deposits or withdrawals that institutions must
disclose are:
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
account
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
period.
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.
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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 of:
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 date.
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
period.
5. Renewal of a time account. In the case of a change in
terms that becomes effective if a rollover time account is subsequently
renewed.
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 § 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 term.)
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
automatically
(d) Notice before maturity for time accounts longer than one
year that do not renew automatically
{{6-30-05 p.7467}}
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
§ 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 option).
(a)(3) Fees imposed
1. General. Periodic statements must state fees
disclosed under § 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 (See § 230.11(a)(1) of this part regarding certain fees
that are required to be grouped when an institution promotes the
payment of overdrafts.) When fees of the same type are grouped
together, 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
{{6-30-05 p.7468}}
iii. fees for electronic fund transfers and fees for other
services, such as balance-inquiry or maintenance fees
iv. fees for paying overdrafts and fees for returning checks or
other items unpaid
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.
{{12-31-07 p.7469}}
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
account
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 "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
{{12-31-07 p.7470}}
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 229.14).
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
yield
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 § 230.4(b)(4)
ii. Check printing fees
iii. Balance inquiry fees
iv. Stop-payment fees and fees associated with checks returned
unpaid
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.
9. Electronic advertising. If an electronic
advertisement (such as an advertisement appearing on an Internet Web
site) displays a triggering term (such as a bonus or
annual
{{12-31-07 p.7471}}percentage
yield) the advertisement must clearly refer the consumer to the
location where the additional required information begins. For example,
an advertisement that includes a bonus or annual percentage yield may
be accompanied by a link that directly takes the consumer to the
additional information.
10. Examples. Examples of advertisements that would
ordinarily be misleading, inaccurate, or misrepresent the deposit
contract are:
i. Representing an overdraft service as a "line of credit,"
unless the service is subject to the Board's Regulation Z, 12 CFR part
226.
ii. Representing that the institution will honor all checks or
authorize payment of all transactions that overdraw an account, with or
without a specified dollar limit, when the institution retains
discretion at any time not to honor checks or authorize transactions.
iii. Representing that consumers with an overdrawn account are
allowed to maintain a negative balance when the terms of the account's
overdraft service require consumers promptly to return the deposit
account to a positive balance.
iv. Describing an institution's overdraft service solely as
protection against bounced checks when the institution also permits
overdrafts for a fee for overdrawing their accounts by other means,
such as ATM withdrawals, debit card transactions, or other electronic
fund transfers.
v. Advertising an account-related service for which the institution
charges a fee in an advertisement that also uses the word "free"
or "no cost" (or a similar term) to describe the account, unless
the advertisement clearly and conspicuously indicates that there is a
cost associated with the service. If the fee is a maintenance or
activity fee under § 230.8(a)(2) of this part, however, an
advertisement may not describe the account as "free" or "no
cost" (or contain a similar term) even if the fee is disclosed in
the advertisement.
11. Additional disclosures in connection with the payment of
overdrafts. The rule in § 230.3(a), providing that disclosures
required by § 230.8 may be provided to the consumer in electronic
form without regard to E-Sign Act requirements, applies to the
disclosures described in § 230.11(b), which are incorporated by
reference in § 230.8(f).
(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 tier.
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."
{{12-31-07 p.7472}}
(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 opened."
(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
(e)(1)(i)
1. Internet advertisements. The exemption for
advertisements made through broadcast or electronic media does not
extend to advertisements posted on the Internet or sent by e-mail.
(e)(1)(iii)
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 tier.
(e)(2) Indoor signs
(e)(2)(i)
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.
{{12-31-07 p.7473}}
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.
Section 230.10 [Reserved]
Section
230.11 Additional disclosure requirements for institutions
advertising the payment of overdrafts
(a) Periodic statement disclosures.
(a)(1) Disclosure of total fees.
1. Examples of institutions advertising the payment of
overdrafts. An institution would trigger the periodic statement
disclosures if it:
i. Promotes the institution's policy or practice of paying some
overdrafts (unless the service would be subject to the Board's
Regulation Z (12 CFR part 226)), in advertisements using broadcast
media, brochures, telephone solicitations or electronic mail, or on
Internet sites, ATM screens or receipts, billboards, or indoor signs.
(But see § 230.11(a)(2) of this part regarding communications about
the payment of overdrafts that would not trigger periodic statement
disclosures);
ii. Includes a message on a periodic statement informing the
consumer of an overdraft limit or the amount of funds available for
overdrafts. For example, an institution that includes a message on a
periodic statement informing the consumer of a $500 overdraft limit or
that the consumer has $300 remaining on the overdraft limit, is
promoting an overdraft service;
iii. Discloses an overdraft limit or includes the dollar amount of
an overdraft limit in a balance disclosed by any means, including on an
ATM receipt or on an automated system, such as a telephone response
machine, ATM screen, or the institution's Internet site.
{{6-30-05 p.7475}}
2. Applicability of periodic statement disclosures. The
periodic statement disclosures apply to all accounts for which the
institution has advertised the payment of overdrafts. For example, if
an advertisement promoting the payment of overdrafts specifies the
types of accounts to which the advertisement applies, the institution
would not be required to provide the periodic statement disclosures for
other types of accounts offered by the institution for which the
advertisement does not apply. If an advertisement does not specify the
types of accounts to which it applies, the advertisement would be
considered to apply to all of an institution's deposit accounts.
3. Transfer services. The overdraft services covered by
§ 230.11(a)(1) of this part do not include a service providing for
the transfer of funds from another deposit account of the consumer to
permit the payment of items without creating an overdraft, even if a
fee is charged for the transfer.
4. Fees for paying overdrafts. An institution that
advertises the payment of overdrafts must disclose on periodic
statements a total dollar amount for all fees charged to the account
for paying overdrafts. The institution must disclose separate totals
for the statement period and for the calendar year to date. The total
dollar amount includes per-item fees as well as interest charges, daily
or other periodic fees, or fees charged for maintaining an account in
overdraft status, whether the overdraft is by check or by other means.
It also includes fees charged when there are insufficient funds because
previously deposited funds are subject to a hold or are uncollected. It
does not include fees for transferring funds from another account to
avoid an overdraft, or fees charged when the institution has previously
agreed in writing to pay items that overdraw the account and the
service is subject to the Board's Regulation Z, 12 CFR part 226.
5. Fees for returning items unpaid. An institution that
advertises the payment of overdrafts must disclose a total dollar
amount for all fees charged to the account for dishonoring or returning
checks or other items drawn on the account. The institution must
disclose separate totals for the statement period and for the calendar
year to date. Fees imposed when deposited items are returned are not
included.
6. Waived fees. In some cases, an institution may
provide a statement for the current period reflecting that fees imposed
during a previous period were waived and credited to the account.
Institutions may, but are not required to, reflect the adjustment in
the total for the calendar year to date. Such adjustments should not
affect the total disclosed for fees imposed during the current
statement period.
7. Totals for the calendar year to date. Some
institutions' statement periods do not coincide with the calendar
month. In such cases, the institution may disclose a calendar
year-to-date total by aggregating fees for 12 monthly cycles, starting
with the period that begins during January and finishing with the
period that begins during December. For example, if statement periods
begin on the 10th day of each month, the statement covering December
10, 2006 through January 9, 2007 may disclose the year-to-date total
for fees imposed from January 10, 2006 through January 9, 2007.
Alternatively, the institution could provide a statement for the cycle
ending January 9, 2007 showing the year-to-date total for fees imposed
January 1, 2006 through December 31, 2006.
8. Itemization of fees. An institution may itemize each
fee in addition to providing the disclosures required by
§ 230.11(a)(1) of this part.
(a)(3) Time period covered by disclosures
1. Periodic statement disclosures. The disclosures under
§ 230.11(a)(1) of this part must be included on periodic statements
provided by an institution reflecting the first statement period that
begins after the institution advertises the payment of overdrafts. For
example, if a consumer's statement period typically closes on the 15th
of each month, an institution that promotes the payment of overdrafts
on July 1, 2006 must provide the disclosures required by
§ 230.11(a)(1) of this part on subsequent periodic statements for
that consumer beginning with the statement reflecting the period from
July 16, 2006 through August 15, 2006. Only depository institutions
that promote the payment of overdrafts in an advertisement on or after
July 1, 2006 must provide disclosures on periodic statements under
§ 230.11(a)(1) of this part.
{{6-30-05 p.7476}}
(a)(5) Acquired accounts
1. Examples. As provided in § 230.11(a)(5) of this
part, an institution that acquires deposit accounts through merger or
acquisition must provide the disclosures required by paragraph (a)(1)
of this section for the first statement period that begins after the
institution promotes the payment of overdrafts in an advertisement that
applies to the acquired account. If the acquiring institution does not
advertise the payment of overdrafts, or the advertisement does not
apply to the acquired accounts, the institution need not provide the
disclosures required by § 230.11(a)(1) of this part for the acquired
accounts even if the depository institution that previously held the
accounts advertised the payment of overdrafts with respect to those
accounts.
(b) Advertising Disclosures in Connection With Overdraft
Services
1. Examples of institutions promoting the payment of
overdrafts. A depository institution would be required to include
the advertising disclosures in § 230.11(b)(1) of this part if the
institution:
i. Promotes the institution's policy or practice of paying
overdrafts (unless the service would be subject to the Board's
Regulation Z (12 CFR part 226)). This includes advertisements using
print media such as newspapers or brochures, telephone solicitations,
electronic mail, or messages posted on an Internet site. (But see
§ 230.11(b)(2) of this part for communications that are not subject
to the additional advertising disclosures);
ii. Includes a message on a periodic statement informing the
consumer of an overdraft limit or the amount of funds available for
overdrafts. For example, an institution that includes a message on a
periodic statement informing the consumer of a $500 overdraft limit or
that the consumer has $300 remaining on the overdraft limit, is
promoting an overdraft service.
iii. Discloses an overdraft limit or includes the dollar amount of
an overdraft limit in a balance disclosed on an automated system, such
as a telephone response machine, ATM screen or the institution's
Internet site. (See, however, § 230.11(b)(3) of this part).
2. Transfer services. The overdraft services covered by
§ 230.11(b)(1) of this part do not include a service providing for
the transfer of funds from another deposit account of the consumer to
permit the payment of items without creating an overdraft, even if a
fee is charged for the transfer.
3. Electronic media. The exception for advertisements
made through broadcast or electronic media, such as television or
radio, does not apply to advertisements posted on an institution's
Internet site, on an ATM screen, provided on telephone response
machines, or sent by electronic mail.
4. Fees. The fees that must be disclosed under
§ 230.11(b)(1) of this part include per-item fees as well as interest
charges, daily or other periodic fees, and fees charged for maintaining
an account in overdraft status, whether the overdraft is by check or by
other means. The fees also include fees charged when there are
insufficient funds because previously deposited funds are subject to a
hold or are uncollected. The fees do not include fees for transferring
funds from another account to avoid an overdraft, or fees charged when
the institution has previously agreed in writing to pay items that
overdraw the account and the service is subject to the Board's
Regulation Z, 12 CFR part 226.
5. Categories of transactions. An exhaustive list of
transactions is not required. Disclosing that a fee may be imposed for
covering overdrafts "created by check, in-person withdrawal, ATM
withdrawal, or other electronic means' would satisfy the requirements
of § 230.11(b)(1)(ii) of this part where the fee may be imposed in
these circumstances. See comment 4(b)(4)--5 of this part.
6. Time period to repay. If a depository institution
reserves the right to require a consumer to pay an overdraft
immediately or on demand instead of affording consumers a specific time
period to establish a positive balance in the account, an institution
may comply with § 230.11(b)(1)(iii) of this part by disclosing this
fact.
7. Circumstances for nonpayment. An institution must
describe the circumstances under which it will not pay an overdraft. It
is sufficient to state, as applicable: "Whether your overdrafts will
be paid is discretionary and we reserve the right not to pay. For
example,
{{6-30-05 p.7476.01}}we typically do
not pay overdrafts if your account is not in good standing, or you are
not making regular deposits, or you have too many overdrafts.
8. Advertising an account as "free." If the
advertised account-related service is an overdraft service subject to
the requirements of § 230.11(b)(1) of this part, institutions must
disclose the fee or fees for the payment of each overdraft, not merely
that a cost is associated with the overdraft service, as well as other
required information. Compliance with comment 8(a)--10.v. is not
sufficient.
Appendix A to
Part 230--Annual Percentage Yield Calculation
Part I. Annual Percentage Yield for Account Disclosures and
Advertising Purposes
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
§ 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
{{6-30-05 p.7476.02}}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 § 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 § 230.4(a)(1). (See
§ 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
§ 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.
B1 Model Clauses for Account Disclosures
B1(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.
B2 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.
B4 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.
B6 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
SampleForm 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.
{{12-31-07 p.7476.03}}
[Codified to 12 C.F.R. Part 230, Supplement I]
[Source: 59 Fed. Reg. 40221, August 9, 1994, effective August 3,
1994 but compliance optional until February 6, 1995; amended at 59 Fed.
Reg. 52658, October 19, 1994, effective September 23, 1994; 70 Fed.
Reg. 29594, May 24, 2005, effective July 1, 2006; 72 Fed. Reg. 63483
and 63484, November 9, 2007, effective December 10, 2007, the mandatory
compliance date is October 1, 2008]
[The page following this is 7477.]
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