Truth in Savings

SUMMARY: The NCUA Board is publishing its official staff commentary to

Part 707 of the NCUA Rules and Regulations (Truth in Savings). The

commentary applies and interprets the requirements of Part 707 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 that have been raised about

the application of its requirements. In addition, the Board is

implementing a provision of the Riegle Community Development and

Regulatory Improvement Act of 1994, exempting accounts of

unincorporated business associations from coverage of Part 707. A minor

housekeeping amendment is also made to Part 707.

DATES: This document is effective on January 1, 1995.

Compliance with Appendix C to Part 707 is optional until May 22,

1995.

FOR FURTHER INFORMATION CONTACT:

Martin S. Conrey, Staff Attorney, Office of General Counsel, telephone

(703) 518-6540; Elizabeth Whitehead, Region I, telephone (518) 464-

4180; Gini L. Corso, Region II, telephone (703) 838-0401; Joe W.

Ostrowidzki, Region III, telephone (404) 396-4042; Michael J.

Schneider, Region IV, telephone (708) 245-1000; Annette K. Moore,

Region V, telephone (512) 482-4500; and Bruce Lum, Region VI, telephone

(510) 825-6125.

SUPPLEMENTARY INFORMATION:

(1) Background

The purpose of the Truth in Savings Act (``TISA'') (12 U.S.C. 4301

et seq.) is to assist members in comparing share and deposit accounts

offered by credit unions and other depository institutions. TISA

requires credit unions to disclose fees, the dividend or interest rate,

the annual percentage yield, and other account terms whenever a member

requests the information and before an account is opened. Fees and

other information also must be provided on any periodic statement the

credit union sends to the member. Rules are set forth for share and

deposit account advertisements and advance notices to account holders

of adverse changes in terms. TISA restricts how credit unions must

determine the account balance on which dividends or interest are

calculated. TISA is implemented by part 707 of the NCUA's Rules and

Regulations (``part 707'') (12 CFR part 707), which becomes effective

on January 1, 1995, for most credit unions. TISA authorizes the

issuance of official staff interpretations of the regulation.

(2) Rule Amendments

The Riegle Community Development and Regulatory Improvement Act of

1994, included a provision amending TISA. The amendment changes the

definition of account:

(1) Account.--The term ``account'' means any account intended

for use by and generally used by consumers primarily for personal,

family, or household purposes that is offered by a depository

institution into which a consumer deposits funds, including demand

accounts, time accounts, negotiable order of withdrawal accounts,

and share draft accounts.

12 U.S.C. 4313(1). The Conference Report to the Act clarifies the

intent of this amendment:

Section 332 defines the term ``account'' for purposes of [TISA]

as an account used by consumers primarily for personal, family, or

household use. The Conferees intend this section to provide a

business purpose exemption similar to that provided in the Truth in

Lending Act. Under this provision, accounts of unincorporated

businesses (i.e., generally, non-profit entities) are exempt from

coverage under [TISA].

H.R. Conf. Rep. No. 103-652, 103d Cong., 2d Sess. 179 (1994). In order

to implement the letter and intent of this new legislation, the Board

is amending the definitions of the terms ``account'' (707.2(a)) and

``member'' (7072(q)) in Part 707, as well as other relevant references

to unincorporated association accounts (Proposed Commentary, comment

2(a)-3 has been removed from the final commentary). The FRB has already

adopted similar changes to Regulation DD. 59 FR 52657 (October 19,

1994).

In addition, a typographical error has been removed from section

707.6(b)(3). The redundant phrase ``dollar amounts of the'' has been

removed; so that the sentence now reads: ``The fees shall be itemized

by type and dollar amounts.''

The Board is adopting these rule amendments without notice and

comment. The Administrative Procedure Act provides that notice and

opportunity for public comment are not required if the Board finds that

notice and public comment are unnecessary or would be contrary to the

public interest. 5 U.S.C. 553(b)(B). The Board believes such a finding

is appropriate in this case. The Congress has eliminated a class of

accounts from Truth in Savings coverage, and the amendments merely make

that change. In light of the Congress' action, the Board has no

discretion with regard to the regulatory change; which is required by

law and essentially ministerial. The other amendment removes a

confusing redundancy in the rule. These amendments are technical in

nature and not subject to interpretation. For these reasons, the Board

has determined that publishing a notice of proposed rulemaking and

providing opportunity for public comment for the following amendments

is unnecessary and would be contrary to the public interest.

(3) Commentary

On August 3, 1994, the Board published for comment a proposed

commentary to Part 707 (59 FR 39486). The commentary is designed to

provide guidance to credit unions in applying the regulation to

specific transactions and is a substitute for, and a supplement to,

individual staff interpretations. The Board received 47 comments: 3

from national trade associations; 14 from state credit union leagues; 1

from a state credit union supervisor; 2 from state-chartered credit

unions; 21 from federal credit unions; 1 from a credit union data

processor; 1 from a credit union consultant; 2 from law firms; 1 from

an insurance company; and 1 from a bank holding company. Commenters

generally supported the proposal.

The Board contemplates updating the commentary periodically to

address significant questions that arise. Due to the special needs of

small, nonautomated credit unions, and for the reasons explained by the

Board in the Final Rule adopted at the July Board meeting, the Board

has decided to extend the compliance date of part 707 until January 1,

1996 for credit unions that are not automated and are under $2 million

in assets as of December 31, 1993. 59 Fed. Reg. 39425 (August 3, 1994).

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 27, 1993 (58 FR 50394), and final rule, corrections and

correcting amendments, published on March 22, 1994 (59 FR 13435).) The

commentary also addresses issues that have arisen since the publication

of the regulation and technical suggestions or concerns raised by

commenters. NCUA's proposed commentary was published before the

publication of the FRB's final commentary to Regulation DD. 59 FR

40217. NCUA's final commentary adopts many of the changes made by the

FRB in their final commentary. The commentary also reflects NCUA

staff's understanding of the FRB's interpretations which have not been

publicly published. The commentary, for the most part, does not repeat

information provided in part 707. The Board also notes, in response to

seven commenters' requests for a delayed compliance date for all credit

unions, that most credit unions have already been granted 14 months by

the Board to get ready for TISA and part 707. In addition, credit

unions can take advantage of the FRB's Regulation DD, and its

compliance by other depository institutions, which was implemented in

June of 1993. 58 FR 271 (January 5, 1993). The Board notes that the

commentary makes no substantive changes to the actual regulation, but

merely provides guidance. Therefore, the Board declines to extend the

compliance date of the rule; but, to provide credit unions time to

comply with the guidance provided in this commentary, and to provide

parity to the compliance period provided by the FRB when it promulgated

the final Regulation DD commentary, the Board has made compliance with

this commentary optional until a period of six months after publication

in the Federal Register, at which time compliance with the commentary

shall be mandatory.

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.

On December 6, 1993, the Federal Reserve Board (``FRB'') published

a proposal to amend the regulation's rules for calculating the annual

percentage yield for accounts that send dividends or interest prior to

maturity (58 FR 64190). (See also the notice extending the comment

period published on January 13, 1994, 59 FR 1921.) This FRB proposed

rule was withdrawn on May 11, 1994 (59 FR 24376). In its place, a new

FRB proposed rule was published on May 11, 1994 (59 FR 24378), as

amended on July 11, 1994 (59 FR 35271). The FRB amendments focus on two

issues: a desire for the annual percentage yield to reflect the time

value of money, and the concern of compliance costs and the impact on

depository institutions if the proposed rule is adopted. The NCUA Board

is delaying action regarding any adoption of similar amendments to part

707 until the completion of the FRB's rulemaking.

Section 707.1 Authority, Purpose, Coverage and Effect on State Laws

(b) Purpose

One commenter, a trade association for thrifts, correctly commented

that the purpose of TISA was to enhance consumer shopping of depository

accounts at all financial institutions--credit unions, thrifts, and

banks, and urged the NCUA Board to stress this in the commentary. While

the commenter is correct, the NCUA Board notes that the purpose is

already correctly stated in Sec. 707.1(c) of the rule, and that the

purpose of the commentary is to enhance and explain the rule. Since

this matter is already clearly covered in the rule, the Board has

decided not to repeat it in the commentary. In this same vein, the

commenter requested that the NCUA Board encourage credit unions to

institute deposit, as opposed to share, accounts in order to provide

uniformity of accounts for consumers. The Board does not agree with

this comment for many reasons. First, the FCU Act and many state acts

require credit unions to have share accounts instead of deposit

accounts, and to change these laws is beyond the authority of the

Board. Secondly, the members' equity, expressed in share accounts, is a

major defining characteristic of credit unions, and has served the

credit union movement well throughout its history. Thirdly, the Board

does not believe that credit union uniformity in all respects with

other financial institutions has been proven to be a desirable goal.

While many other financial institutions have been faltering, credit

unions, due to their uniqueness, have been growing better and stronger.

The membership structure, represented by share accounts, has kept them

close to their members and enabled them to provide services unavailable

on the same terms from other entities. ``Not for profit, not for

charity, but for service'' is a motto that characterizes the entire

credit union movement. For these reasons, the Board declines the

commenter's suggestion.

(c) Coverage

In response to questions raised regarding applicability of the rule

to United States-chartered credit unions with overseas branches or

offices, the Board would like to clarify that the rule does cover such

operations, if accounts at such locations are either insured, or

insurable, by the National Credit Union Share Insurance Fund (NCUSIF).

In addition, if any foreign-chartered credit unions were to establish

and maintain branch operations in the United States under the North

American Free Trade Agreement (NAFTA), if accounts at such foreign-

chartered branches were insured or insurable by the NCUSIF, those

operations would also be subject to the coverage of part 707. For this

reason, NCUA deleted a reference to state-chartered and federally-

chartered credit unions in comment 1(c)-1.

(d) Effect on State Laws

One national trade association commenter suggested that the Board

should adopt an additional appendix to Part 707 similar to Appendix C

to Regulation DD, entitled ``Effect on State Laws.'' 12 CFR Part 230,

App. C. Regulation DD's Appendix C addresses inconsistent state

requirements and provides procedures for institutions seeking

preemption determinations from the FRB. After receipt of a preemption

request, the FRB generally will issue a Federal Register notice of its

intent to make a preemption determination, and provide an opportunity

for public comment. Notices of final preemption determinations are also

to be published in the Federal Register. The commenter stated that NCUA

had not shown any uniqueness reasons for varying from the FRB in not

adopting a similar appendix for Part 707; or at least by adopting more

guidance in the commentary as to the preemption standards to be used,

and means for providing an opportunity to comment by the affected

states and other interested parties. The commenter also pointed out

that by allowing affected states and other interested parties to

comment, that the impact of any preemption determination could be

minimized upon the state. This is in accord with federal policy, as

enunciated in Executive Order No. 12612. Therefore, the Board has

decided to adopt changes in the commentary to provide preemption

standards, and an informal notification process to affected states,

allowing sufficient time and opportunity for comment, before issuing

any preemption determinations under Part 707. These changes are made in

comments 1(d)-1 through 4. Four commenters requested that the

requirement for the credit union requesting a preemption determination

demonstrate a compliance burden be deleted. One commenter believed that

the requirement was reasonable, and should be retained. The Board notes

that demonstration of a burden is a caselaw prerequisite for a finding

of preemption. Therefore, the Board has not modified comment 1(d)-2.

Section 707.2--Definitions

(a) Account

Comment 2(a)-1 provides examples of accounts subject to the

regulation. The FRB, as did NCUA, proposed to narrow the regulation's

coverage of trust accounts individual retirement accounts (IRAs) and

simplified employee pension (SEP) accounts, to minimize compliance

burdens for institutions. Many FRB commenters supported the FRB'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. These commenters

noted the purpose of a Totten trust is to avoid probate proceedings to

transfer funds remaining in an account upon an accountholder's death.

It was also noted that the account's signature card may be the sole

evidence of the trust relationship. The FRB commenters suggested, and

the FRB agreed, that consumers opening Totten and POD trust accounts be

afforded the protections of TISA and Regulation DD. Fourteen NCUA

commenters agreed with the FRB's approach. The NCUA Board concurs, and

the commentary reflects this approach.

Comment 2(a)-3 in the proposed commentary was removed to reflect

the amendments made in Part 707 to implement the Riegle Community

Development and Regulatory Improvement Act of 1994. As discussed

previously, this change exempts unincorporated association accounts

from coverage of TISA and Part 707. As a result, proposed comment 2(a)-

3 is not incorporated into the final commentary. This change was also

requested by thirteen commenters. Comment 2(a)-2(vii) adds

unincorporated nonbusiness association accounts as being exempt from

the coverage of part 707, as required by the new legislation.

Fifteen commenters, including two national trade associations,

requested guidance regarding permissible synonyms for various types of

accounts. For instance, whether credit unions could interchangeably use

the term ``checking'' for ``share draft''; or the term ``certificate of

deposit'' for ``term share.'' It is the opinion of the Board that the

chief overriding factor to the use of synonyms is whether it is

accurate and not misleading. The key consideration is whether a ``share

account'' could be confused with being a ``deposit account,'' or vice

versa. Generally, if a disclosure uses the correct legal term of the

account once, and the synonym is accurate, the use of the synonym is

permissible. For example, a disclosure stating that an account is a

``share draft'' account, that equates ``share draft'' with

``checking,'' which has a neutral (neither share not deposit)

connotation will be permissible. However, it is never permissible to

equate a share account with a deposit account. For example, it is

impermissible to call a ``share certificate'' a ``certificate of

deposit,'' though both legally are ``term share'' accounts for TISA and

Part 707 purposes. Similarly, it is impermissible to refer to term

share accounts as either ``time deposits'' or ``time accounts,'' which

are terms with inaccurate and misleading meanings in the term share

context of part 707. The correct use of synonyms is provided in comment

2(a)-5.

(b) Advertisement

Comment 2(b)-1 illustrates the scope of commercial messages

considered to be advertisements. The FRB, as did NCUA, proposed that

advertisements would not include direct oral discussions conducted in

person regarding a specific account. Many FRB commenters urged the FRB

to expand the interpretation to include telephone conversations, but

the FRB declined. The FRB believes face-to-face discussions allow

prospective customers to learn easily and quickly about basic terms of

the account (thus, fulfilling the purpose of the advertising

disclosures). Also, the FRB stated that at any time during a face-to-

face conversation, consumers may request and receive written

disclosures at that time. Thus, the FRB commentary clarifies that

except for information about an existing account, commercial messages

delivered via telephone or voice response machines are advertisements.

NCUA proposed that telephone conversations initiated by a member or

potential member about an account would not be considered an

advertisement. Proposed comment 2(b)-1. Two commenters, including a

national trade association comments, requested that NCUA maintain this

comment in its final commentary. NCUA has kept this provision in the

final commentary, though it seems at variance with the FRB. The Board

is mindful that NCUA's rule must be ``substantially similar'' to the

FRB, except where modifications are supported by credit union

uniqueness reasons or the limitations upon which dividends are paid.

Unlike other financial institutions, many credit unions rely upon

volunteer staffs who have careers outisde of the financial institutions

area. To expect volunteers to follow the technical, complex advertising

requirements while on the telephone to their colleagues, friends and

neighbors, constituting their fellow members, is unreasonable.

Furthermore, it places an additional burden upon the volunteers for

oral disclosures, which generally will already have been made, or will

be made, in written disclosures. Therefore, after careful review and

application of NCUA's TISA authority, and finding that sufficient

uniqueness grounds exist for the NCUA Board to grant a variance from

the FRB's position, the NCUA Board adopts the position taken in the

proposed commentary as comment 2(b)-2(ii). Of course, telephone

conversations remain subject to the requirements for oral responses to

inquiries. 12 CFR 707.3(e).

One commenter inquired as to what requirements telephone response

machines must follow. Telephone response machines are subject to the

electronic media exemption of Sec. 707.8(e)(1), and NCUA's treatment of

such machines is identical to that of the FRB in Regulation DD. See

comment 8(e)(1)(iii)-1. Another commenter requested guidance regarding

whether messages on ATM or other computer screens were subject to the

electronic media exemption. They are. The coverage of the electronic

media exemption is discussed at comment 8(e)(2)(i)-1.

(f) Bonus

Five commenters criticized the example of $25 being offered to a

parent or custodian to open an account for a minor in proposed comment

2(f)-2. The commenters stated that under state laws the parent or

custodian will often be a joint accountholder on the minor's account.

The Board, wishing to accurately reflect state laws, has deleted this

example from the commentary.

Two commenters requested a clarification regarding whether payment

of an annual membership fee or dues (e.g., such as payment of a

membership fee to the National Association of Retired Credit Union

Persons (NARCUP) for senior credit union members) would be considered a

bonus. A sufficient showing was made that such membership dues payments

are not made to open, renew, or maintain an account in the credit

union, but instead are payments made to a third party (e.g., NARCUP) as

a benevolent gesture to a certain group of credit union members (e.g.,

seniors, with regard to NARCUP). For these reasons, the NCUA Board

finds that such payments of an annual membership fee are not bonuses;

and a clarification has been made to comment 2(f)-3(v).

Like the FRB, the NCUA has clarified comment 2(f)-4 discussing the

exclusion from bonuses of items of de minimis value ($10 or less). (See

26 CFR 1.6049-5(a)(2) published by the Internal Revenue Service (IRS),

which discusses the fair market value of property received.) One law

firm commenter noted that the IRS citation provided by the FRB may not

provide a complete picture of the tax consequences of bonuses. The NCUA

Board agrees and has deleted the IRS citation from the final comment.

Credit unions are strongly advised to consult their own tax attorneys,

accountants, or consultants regarding the tax consequences of the

accounts they offer, as such matters are outside of the jurisdiction of

NCUA.

Eleven NCUA commenters, including a national trade association

commenter, like many FRB 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. Comment 2(f)-5

provides guidance about aggregating only the market value of items

offered for the same promotional program.

Seven commenters, including a national trade association commenter,

inquired whether the provision of free share drafts or checks would be

considered a bonus. After consultation with the FRB, NCUA has clarified

that provision of free share drafts or checks, whether provided to all

members, or only to certain groups, such as minors or seniors, would be

considered the waiver of a fee and not a bonus. This is reflected in

comment 2(f)-6(ii). Another commenter requested that free meals given

to the membership at an annual meeting be included as an example of a

bonus, however, under Sec. 707.2(r), such items are considered ``non-

dividend membership benefits.''

One commenter asked that the Board clarify whether the granting of

a higher dividend rate on an account if the member elects or uses

certain services offered by the credit union (i.e., ATM card, direct

deposit, other packaged or linked account terms) would not be

considered a bonus, based on the exclusion of dividends from the

definition of bonus. The Board confirms this in comment 2(f)-6(vii).

Nor, based on definitional reasons, would such higher dividends be

considered an extraordinary dividend; this is confirmed in comment

2(m)-1.

(i) Dividend and Dividends

The Board has clarified in comment 2(i)-1, that state law

determines the nature of an account for state-chartered credit unions.

This was generated in response to two commenters requesting

clarification regarding whether federal or state law determined the

nature (share or deposit) of accounts offered by state-chartered credit

unions. The Board stresses that this is solely a matter of state law,

as expressed in state statutes, regulations, interpretive orders, or by

any other official means. NCUA will not involve itself in

determinations of whether an account offered by a state-chartered

credit union is a share or deposit account, but will rely upon

applicable state law and the opinion of the relevant state supervisory

authority. Similar changes were made in comments 2(p)-1 and 2,

concerning the definition of interest.

Ten commenters, including one national trade association, lamented

that FCUs would not be able to offer fixed-rate accounts, due to the

dividend rate setting process described in comment 2(i)-1 through 3.

The NCUA Board wishes to stress that part 707 does not require FCUs to

offer only variable-rate accounts. FCUs may offer fixed-rate accounts

as long as the FCU, by contract, agrees to give at least 30 days

advance written notice of decreases in the initially disclosed dividend

rate. However, like a prospective rate set on a variable-rate account,

if FCUs offer a fixed-rate account, the NCUA Board believes that, as

discussed in comment 2(i)-3, every effort should be made in order to

pay the prospective fixed-rate disclosed. The fact that a prospective

rate is disclosed on a fixed-rate account, instead of a variable-rate

account, does not change the nature of the dividend setting process for

share accounts. To clarify this point, language has been added to

comment 2(i)-1. Nor does NCUA believe that it is appropriate to counsel

credit unions to make their accounts variable-rate, as opposed to

fixed-rate accounts, as requested by a few commenters. The NCUA Board

has no intention of limiting flexibility available under TISA and Part

707; the number, type, and terms of accounts are decisions within the

proper province of each credit union's board of directors and not the

federal government.

Ten commenters believed that proposed comment 2(i)-2 promulgated a

substantive federal dividend-setting process methodology for all credit

unions. The comment is set forth as guidance only, and was not meant to

substantively alter any contrary state laws. Therefore, the Board has

modified the final comment to use nondirective language. In addition,

sample dividend-setting resolutions are also provided in comment 2(i)-

4, to provide guidance to the boards' of directors of credit unions.

The resolution provided in comment 2(i)-4(i) may be used when the

dividend rate is declared after the close of a dividend period. The

resolution provided in comment 2(i)-4(ii) may be used when the dividend

rate is prospectively set before the close of the dividend period in

question, but will be ratified upon the occurrence of certain

conditions at the close of the dividend period. Both resolutions

contemplate that a list or table of accounts followed by corresponding

dividend rates will be attached to the resolution. This will prevent

credit unions from having to adopt a separate resolution for each

account type. These resolutions are not required, but are provided as

guidance of the proper corporate form to be used in declaring

dividends.

Nine commenters, including a national trade association commenter,

questioned the guidance provided by proposed comment 2(i)-3, which

stated that prospective rates may be altered ``if sufficient funds are

not available, or in the event of a superseding event, such as a

significant fluctuation in market rates, natural disaster or emergency

that alters the assumptions under which the `prospective rates' were

made.'' The commenters questioned the legality and prudence of the

proposed comment. Two commenters supported the comment. Basically, NCUA

proposed the comment in reference to natural disasters, such as the

recent California earthquake that destroyed several credit union

offices, resulting in extraordinary expenditures that reduced current

and undivided earnings, therefore lessening the amount of funds from

which dividends are properly payable. To provide general guidance to

credit unions affected by disasters and similar situations, in order to

reflect the unique nature of the dividend setting process, and to

provide commentary protection in the rare event that a credit union may

need to lower a dividend in response to a natural or man-made disaster,

NCUA has retained the comment, as revised. It is the intention of the

Board that credit unions make every effort to meet the disclosed

prospective rates on accounts when such rates are properly declarable,

available, and payable, and this guidance has also been added to

comment 2(i)-3. However, the NCUA Board disagrees with the position

taken by the commenters that NCUA could alter applicable legal

principles and agency interpretations on the proper payment of

dividends. The questioned statement reflects long-standing NCUA

interpretations of section 117 of the FCU Act for federal credit

unions, and is supported by well-grounded general corporate law in

regards to dividends, as expressed in legal encyclopedias, hornbooks

and other sources. Although NCUA believes that the statement would also

be applicable for many state-chartered credit unions, since applicable

state law controls the dividend process for state-chartered credit

unions, this clarification has also been added to the comment. For

further information on dividends, and when they are properly payable,

NCUA refers state-chartered credit unions and their members to relevant

state law.

(j) Dividend Declaration Date

Four commenters requested a clarification as to whether the

``dividend declaration date'' was the date of the actual board meeting

on which a credit union's board of directors declares the dividend, or

the actual effective date of the dividend declaration. The importance

of the dividend declaration date is to give members and potential

members an idea of the timing of the last paid, declared dividend. The

NCUA Board never intended for the dividend declaration date to be

determined by use of a technical, complex formula. In order to reflect

the intent of the use of dividend declaration date, the Board has

provided several examples of the types of statements indicating time

periods that would comply with the definition. The commenter also

requested a clarification on whether ``prospective rates'' must be

properly declared by a credit union's board of directors. Because the

declaration of a prospective rate is tantamount to the declaration of

an actual rate on an account (since only under rare circumstances would

the board not adopt or ratify a prospective rate), the declaration of a

prospective rate should be approached by a credit union's board of

directors with the same responsibility as a formal declaration of an

actual dividend rate. Further discussion of the dividend rate setting

process is contained in comments 2(i)-2 and 3 and an example of a

resolution to declare prospective dividend rates is provided in comment

2(i)-4(ii).

(m) Extraordinary Dividends

A national trade association commenter, as well as a few other

commenters, suggested that this comment be expanded to discuss whether

loan interest is considered an extraordinary dividend (no, as arises

from the loan relationship and not the share account relationship, FCUs

must follow 12 CFR 701.24 in order to make a refund of interest on a

loan); the relationship of extraordinary dividends to the APYE (none,

extraordinary dividends are excluded from the definition of

``dividends'' and ``interest,'' and therefore do not enter into the

APYE calculation); and the proper methods for calculating extraordinary

dividends (by any means determined by the board of directors of the

credit union). These changes have been incorporated into comment 2(m)-

1. After study, staff advised the Board that extraordinary dividends

are often paid on bases not related to the amount of dividends in the

account, such as evenly dividing the amount to be distributed by the

number of members, or through a formula tied to the number of credit

union loan and share account products used by the member. Since

extraordinary dividends are not a component of the dividend rate,

annual percentage yield, or annual percentage yield earned, and are a

unique practice of credit unions, the Board has determined that any

procedure devised by a board of directors may be used to figure

extraordinary dividends. Of course, it is acceptable if a board were to

use either the daily balance method or average daily balance method to

compute extraordinary dividends, even though those methods are not

required.

Twelve commenters, including a national trade association,

requested that credit unions be allowed to use the more common term

``bonus dividends'' to describe ``extraordinary dividends.''

Originally, the NCUA Board has declined to use the term ``bonus

dividends'' for fears that members would confuse it with ``bonuses,''

as defined by part 707. Final Rule, 58 FR 50394 at 50402 (September 27,

1993). However, after further reflection, given members' familiarity

with the distinctions between the two terms, and the long-standing

credit union tradition of calling such irregular dividends ``bonus

dividends,'' the Board has revised its position. NCUA has no objection

to the use of the term ``bonus dividends'' as a synonym for

``extraordinary dividends,'' as has revised comment 2(m)-2 accordingly.

(q) Member

An example relating to a landlord-tenant relationship in proposed

comment 2(q)-2 was deleted as unnecessary by the FRB. A few commenters

agreed with the deletion. NCUA has followed the FRB and deleted the

example.

The Board also reminds readers that unincorporated association

accounts have been deleted from TISA and part 707 coverage by new

legislation discussed previously in this supplementary information.

(s) Passbook Account

NCUA, like the FRB, has clarified comment 2(s)-1 that institutions

may consider accounts as passbook accounts 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 statement

disclosures in Sec. 707.6 of this part. Accounts that send statements

are not passbook accounts for purposes of Part 707, even if members are

provided passbooks for their records.

(t) Periodic Statement

One national trade association stated that NCUA should clarify that

periodic statements are not required on accounts. This is clarified on

comment 2(t)-1. In order to provide more uniformity with the Regulation

DD format, proposed comment 2(t)-3, Regulation E interplay, has been

moved to comment 6(a)-2; proposed comment 2(t)-4, account status

information, has been moved to comment 6(a)-3; and proposed comment

2(t)-5, use of ledger and collected balance to calculate annual

percentage yield, has been moved to comment 6(b)(1)-1.

(u) Potential Member

One commenter requested that NCUA clarify that credit unions must

provide disclosures to potential members upon request. This is already

required in Sec. 707.4(a)(2)(i) of the rule. The purpose of the

commentary is to expound upon, but not to repeat, the rule

requirements. However, because the Board believes that it may assist

credit unions in complying with the rule, the regulatory requirement

has been repeated in comment 2(u)-2.

Three commenters suggested that NCUA note that proposed comment

2(u)-2, suggesting that credit unions have sound written procedures in

place to identify those for membership, be modified to note its

discretionary, rather than mandatory, character. The NCUA Board agrees

and has so modified comment 2(u)-2. In the case of a credit union

having a permissible indirect lending arrangement with a third party,

such as an automobile dealer, credit union's may invoke member

verification procedures before providing account disclosures when the

potential member is not present at the credit union.

(x) Term Share Account

Proposed comment 2(x)-2 distinguishing between regular share club

accounts and term share club accounts has been revised extensively

based on comments received and consultation with FRB staff. Basically,

although club accounts typically have one feature of a term share

account (a maturity date), club accounts are not term share accounts

unless they also require a penalty of at least seven days' dividends

for a withdrawal of funds during the first six days after the account

is opened--subject to exceptions permitted in Regulation D. 12 CFR part

204. As requested by many commenters, the final comment 2(x)-2 explains

distinctions between term share club accounts and regular share club

accounts. One national trade association commenter requested that NCUA

provide the same club account commentary as did the FRB. The Board

agrees with, and has adopted, this approach. One national trade

association suggested that all club accounts should be treated as

regular share accounts by NCUA. Since this position was not taken by

the FRB in Regulation DD, and no uniqueness reasons have been proffered

to NCUA to differentiate credit union club accounts from club accounts

offered by other depository institutions subject to Regulation DD, this

position has not been adopted by the NCUA Board.

(y) Tiered-Rate Account

One national trade association commenter requested clarification

regarding whether tiered-rate accounts could have minimum balance

requirements, and whether a zero rate (0%) could constitute a tier.

NCUA has carefully reviewed comment 2(y)-1, and finds no reason to

change the guidance provided.

(z) Variable-Rate Account

Comment 2(z)-1 clarifies that a share certificate permitting one or

more rate adjustments prior to maturity at the member's option is a

variable-rate account. NCUA, like the FRB, believes it is important for

members to receive disclosures describing when their dividend rate and

APY could change, such as any time limitations on when the option may

be exercised.

In response to a commenter, the Board has clarified comment 2(z)-2.

In the proposed commentary NCUA summarized that rate decreases and

other term changes members' accounts required 30-day changes-in-terms

notices to take effect. The final comment clarifies that changes-in-

terms notices are required for changes in terms adversely affecting the

member. The effective date of other, beneficial term changes would

depend upon the account agreement and applicable state law.

Section 707.3--General Disclosure Requirements

(a) Form

Four commenters criticized proposed comment 3(a)-3, which stated

that ``if a credit union provides one document for several types of

accounts, members must be able to understand clearly which disclosures

apply to their account.'' The pertinent regulation states:

``Disclosures * * * may be combined with disclosures for the credit

union's other accounts, as long as it is clear which disclosures are

applicable to the member's accounts.'' 12 CFR 707.3(a). Since the Board

did not mean to place an additional burden upon credit unions, but

merely to paraphrase the rule, to eliminate any potential confusion the

Board has revised the comment to more closely pattern after the

regulation.

(b) General

Comment 3(b)-2 provides guidance on the specificity required when

time periods are disclosed. For example, the FRB 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 FRB commenters generally supported the FRB's approach, but

expressed concern about the proposal's limitation of 28-33 days to

describe a month. The FRB decided to adopt a standard of roughly

equivalent intervals occurring during a calendar year. The FRB believes

this standard is consistent with TISA, provides flexibility, and eases

compliance. For the reasons provided by the FRB, the NCUA Board also

adopts this approach.

(d) Multiple Members

Proposed comment 3(d)-1 permitted credit unions to give a

disclosure to a nonmember joint accountholder. Four commenters,

including national trade association commenter, noted that the proposed

interpretation was incorrect. Under Sec. 707.2(q)(2), nonmember joint

accountholders are deemed to be members for purposes of part 707.

Therefore, the distinction made was an invalid one, and has been

deleted from the commentary.

(e) Oral Responses to Inquiries

Comment 3(e)-1 reflects that disclosures need only be made as

appropriate. Therefore, if a member telephones a credit union for

information, the credit union need not disclose a telephone number to

call, as the member would obviously already have that information. This

clarification, requested by seven commenters, is added to comment 3(e)-

1. Another commenter requested that the Board clarify that this

requirement applies only to employees and volunteers acting in the

course of credit union business. This change has also been adopted by

the Board in comment 3(e)-1, to reflect the unique nature and position

of volunteers in credit unions.

Seven commenters requested that the oral response to inquires

disclosures be simplified, such as by eliminating any reference to past

or prospective rates. To do so would require a change in Sec. 707.3(e)

of the regulation and is beyond the scope of this rulemaking. Also,

NCUA must stress that the need to disclose that rates are either past

or prospective is important to provide accurate, nonmisleading

information to credit union members to reflect the facts concerning

share accounts. A national trade association commenter noted that

proposed comment 3(e)-3 did not closely parallel the language of

Sec. 707.3(e). The Board agrees with the commenter, and, on further

reflection and to eliminate confusion, has deleted references in

comment 3(e)-3 repetitive of Sec. 707.3(e).

Comment 3(e)-3 has been added to conform to a change made in

Regulation DD, as requested by five commenters, including a national

trade association commenter. It clarifies that this paragraph does not

apply to responses to requests for rate information on an existing term

share account or on an account not currently offered to members and

potential members, such as obsolete accounts.

(f) Rounding and Accuracy Rules for Rates and Yields

(f)(1) Rounding

In response to a national trade association commenter, comment

3(f)(1)-1 has been amended to reflect that account disclosures, unlike

advertising and other disclosures, may show the dividend rate to more

than two decimal places.

Section 707.4--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. Proposed comment 4(a)(1)-1 discussed the

effect of a member-initiated change in the term for an automatically

renewable term share account. In response to FRB commenters' requests

on the Regulation DD proposed comment counterpart to 4(a)(1)-1, the FRB

commentary clarifies that new account disclosures are required when the

member changes any account term required to be disclosed (and not

merely the duration of a time account). The clarification provides

consistency with comment 5(b)-5, and has been adopted as comment

4(a)(1)-1(ii).

FRB 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-terms notices, if appropriate) for both accounts had

previously been given. To minimize possible burdens the FRB adopted

that standard in the FRB commentary. For similar reasons, the NCUA

Board adopts this position in comment 4(a)(1)-1(iii).

The FRB also 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. FRB 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. FRB commenters believed consumers would be confused if new

account disclosures were sent when a deposit is subsequently made. FRB

commenters also expressed concerns about the burden of monitoring

accounts to ensure compliance.

TISA 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 by the FRB and upon further analysis, the FRB

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. Five NCUA commenters agreed with the Regulation DD

approach. Five NCUA commenters, including a national trade association,

disagreed with the FRB's approach, on grounds that account terms may

not have changed between an account's closing and its reopening; that

some credit union's data processing systems automatically opened the

account with the former account's number; and to modify systems would

be a costly, unnecessary expense. While sympathetic to credit union's

facing this predicament, because these reasons do not reflect any

credit union uniqueness points. NCUA is bound to follow the FRB's

rationale, and the NCUA Board adopts the FRB's approach. However, it is

the belief of the Board that a credit union is not required to grant a

new account number to the holder of a reopened ``closed account''; all

that is required by this rule is the distribution of a new set of

account disclosures. No data processing changes are contemplated by

this commentary, and this is reflected in a revision to comment

4(a)(1)-1. The Board hopes that this revision will reduce the

compliance burden on credit unions.

The Board does note that account closure for credit unions does not

necessarily occur in the same manner as for other depository

institutions. A member may voluntarily close an account by actively

terminating membership in a credit union. For instance, under the

Standard FCU Bylaws, Art. II, Sec. 4, a member who withdraws all of his

shareholdings ceases to be a member. The membership of a member may

also be terminated by action of the credit union. For instance, a

member may be expelled by majority vote of the membership under

Standard FCU Bylaws, Art. XVI (and 12 U.S.C. 1764(a)); or an FCU may

terminate a member's membership if the board of directors has adopted a

nonparticipation policy, which has been publicized to the membership

(12 U.S.C. 1764(b)); or if a member falls outside of the credit union's

field of membership (e.g., the member moves out of the geographical

coverage of a community-based credit union), unless the credit union

has adopted a ``once a member, always a member'' policy under Standard

FCU Bylaws, Art. II, Sec. 5. If a member merely lets the membership

share account drop below the stated par value, neither the membership

nor the account of the member are terminated. Standard FCU Bylaws, Art.

III, Sec. 3; NCUA Letter to Credit Unions No. 70 (November 29, 1982).

Under the Standard FCU Bylaws, once an account is closed, and the

membership terminated, both the membership and the account must be

reestablished. Therefore, the ``closed account'' guidance adopted by

the NCUA Board conforming to that of the FRB applies only to accounts

closed by the member or the credit union in conformance with applicable

federal or state law. This clarification is made in comment 4(a)(1)-1.

This clarification agrees with guidance provided in the preamble to the

final part 707. 58 FR 50394 at 50414 (September 27, 1994).

Comment 4(a)(1)-2 clarifies that an institution acquiring accounts

through a merger or acquisition is not required to provide new account

disclosures. However, such accounts are required to calculate dividends

by either the daily or average daily balance method; comply with

Sec. 707.5(a)(1) if it chooses to change terms of the acquired account;

and follow the periodic statement requirements, if applicable. As the

accounts are no longer offered, no advertising rules should ever be

triggered. NCUA does note that certain term share accounts no longer

currently offered may require new account disclosures if they are

nonrollover or if new account disclosures would be required under

Sec. 707.5. Private merger and purchase of asset and shares

transactions are distinguishable, however, from acquisitions or mergers

involving the National Credit Union Share Insurance Fund (NCUSIF). In a

government-assisted acquisition, the acquiring institution receives

only the member's funds on account. The account contract or other legal

obligation--the terms and conditions of the account such as fees--stays

(and ultimately terminates) with the failed credit union. Thus, new

account disclosures must be provided if the member 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 imposition.

Two national trade association commenters, as well as fourteen

other commenters, requested that a clarification be issued regarding

guidance in proposed comment 4(a)(1)-1. Two commenters requested that

the provision be deleted as unnecessary and confusing. NCUA had

proposed that if a member were to open separate subaccounts from a main

account and if the terms were identical to that of the main account,

that new disclosures would not have to be provided to the member. The

commenters noted that the terms of an account will rarely be

``identical'' to those of a subaccount. The Board agrees with the

commenters, therefore the proposed comment (now comment 4(a)(1)-3) has

been amended to reflect that new disclosures need not be provided if

the credit union has already provided combined disclosures for the main

and subaccount within a reasonable time of when the subaccount is

opened and the applicable disclosures are still accurate when the

subaccount is opened.

(a)(2) Requests

(a)(2)(i)

As requested by a national trade association commenter, comment

4(a)(2)(i)-1 clarifies that institutions are not required to send new

account disclosures for accounts no longer offered to the public.

A national trade association requested that NCUA offer credit

unions the choice of offering members and potential members either

account disclosures or rate sheets in responses to requests for

disclosures under Sec. 707.4(a)(2). Since the rule only permits account

disclosures to be provided upon request, and the proposed rulemaking

concerned only Appendix C, the commentary to part 707, the commenter's

request is beyond the scope of this rulemaking. The Board would violate

the requirements of the Administrative Procedure Act to consider such

an amendment in this final rule. Also, as no credit union uniqueness

arguments were presented, the NCUA Board does not believe that even if

such request were within the scope of this rulemaking, that it would

adopt such an amendment.

(a)(2)(ii)(A)

Comment 4(a)(2)(ii)(A)(2)-1 clarifies 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 disclosure. This

clarification is based upon a similar change made in the final

Regulation DD commentary.

(b) Content of Account Disclosures

(b)(1) Rate Information

(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. FRB

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 FRB commenters' requests, both

comments were revised in Regulation DD for clarity and consistency. A

national trade association commenter has also made the request that

NCUA conform to the Regulation DD commentary. For the reasons stated by

the FRB, and for uniformity, the NCUA Board has done so.

(b)(2) Compounding and Crediting

(b)(2)(i) Frequency

Three commenters believed that proposed comment 4(b)(2)(i)-2 was

confusing in that readers might be misled to not disclose dividend

periods for dividend-bearing accounts. To allay such fears, the comment

has been revised to clarify that a dividend period should be disclosed

on all dividend-bearing accounts.

(b)(2)(ii) Effect of Closing an Account

As requested by one commenter, 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 member

actions considered by the institution to be a request to close the

account.

Five commenters failed to understand the necessity of mentioning

the FCU bylaw restrictions on closing member's accounts in proposed

comment 4(b)(2)(ii)-1. Unlike banks and thrifts which can contractually

close accounts for non activity, an FCU cannot close a member's account

when it drops below the par value of one share. Instead, the FCU must

give the member at least six months to bring the account back up to par

value. To highlight this very important membership distinction, the

bylaw requirement is mentioned in the comment. The NCUA believes that

it is a critical distinction of the member of FCUs, and some state-

chartered credit unions, and declines to remove the comment from the

final commentary.

(b)(3) Balance Information

(b)(3)(i) Minimum Balance Requirements

Three commenters requested that the Board not require the par value

of a share to be disclosed, arguing that it is a membership, not a

minimum balance, requirement. The NCUA Board disagrees with this

approach. A member is generally not entitled to membership rights,

including transacting on accounts, until the par value of a membership

share is fully paid-in. Therefore, the payment of a full par value

share is a minimum balance requirement, as is stated in comment

4(b)(3)(i)-1.

(b)(3)(iii) When Dividends Begin to Accrue

One national trade association commenter requested that the NCUA

delete proposed comment 4(b)(3)(iii)-1, as in the commenter's opinion,

such disclosures are not necessary for credit unions that begin

accruing dividends for all deposits on the day of deposit. Even if all

credit unions did begin to accrue dividends for all deposits on the day

of deposit, which even the commenter admits is not the case, the Board

believes that its commentary should remain substantially similar to

that of the FRB. Therefore, the Board has left the proposed comment

unchanged in the final commentary.

(b)(4) Fees

The FRB 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. NCUA has adopted both of

these changes to conform to Regulation DD. In response to a national

trade association commenter, other clarifications have also been made

by the NCUA Board: (1) That ``fees related to the routine use of an

account must be disclosed;'' and (2) that fees for statements returned

to the credit union because of a wrong address need not be disclosed.

However, the Board disagrees with the commenter, and believes that it

is necessary, in order to conform with the final Regulation DD

commentary, that dormant account fees and inactivity fees be disclosed.

This clarification is also made in the final commentary.

Other commenters requested that the Board classify fee types not

discussed in the proposed commentary: dormant account fees, locator

fees, overdraft line of credit access fees, wire transfers, and

automated clearing house (ACH) transfers. These fees have been

classified in comment 4(b)(4)-1. In response to another commenter, the

Board has added a reference that merely providing fee information to

members in an account disclosure may not be enough to gain the legal

right to impose the fees involved under applicable state law.

(b)(5) Transaction Limitations

Eleven commenters, including two national trade associations,

requested that NCUA not require disclosures based upon a credit union's

bylaws that could be imposed and act as transaction limitations upon an

account. The commenters stated that it would place credit unions at an

unfair competitive advantage with banks. One national trade association

argued that since the bylaw requirements were rarely invoked, that they

should not be disclosed unless they were to be invoked, in which case

members would be notified through a change-in-terms notice. After

consultation with FRB staff, NCUA learned that the FRB does not require

disclosure of notice of withdrawal, and other unusual, rarely invoked,

requirements under state and local law under Regulation DD. For reasons

of parity, uniformity, and conformity, NCUA also adopts this approach,

reflected in comment 4(b)(5)-1(iii).

However, the Board does encourage credit unions to publicize bylaw

limitations, and other policies, that could potentially affect a

member's ability to use his account. Credit unions are different from

other financial institutions in that the bylaws form a contract between

the members and the credit union. Any restrictions upon a member's

account arising from the bylaws is as real as a restriction arising

from the account contract. In fact, many members are unfamiliar with

their bylaws. There are presently no federal requirements for a credit

union to publicize its bylaws among its members, even though it has

long been NCUA policy to encourage credit unions to educate their

members regarding the content of their credit union's bylaws. The

Standard FCU Bylaws only require that FCUs make their bylaws

``available for inspection by any member.'' Standard FCU Bylaws, Art.

XIX, Sec. 6. In state-chartered credit unions a member's right to view

the bylaws is dependent upon state law, which laws sometimes require a

proper business purpose. If credit unions believe the transaction

limitations in the Standard FCU Bylaws to be too restrictive, it is

suggested that they consider petitioning the appropriate NCUA Region

for a nonstandard bylaw amendment. However, FCUs are cautioned that

NCUA will not entertain petitions to change either Art. III, Sec. 3

(allowing members at least 6 months to increase a membership share to

par in order to retain membership) or Art. III, Sec. 5 (reserving the

right to require 60 days' notice on withdrawals, historically to be

sued in the event of an emergency). Seven commenters agree with this

approach.

One national trade association commented that credit unions should

not have to disclose suspension of services policies, because such

policies are not a common practice. For the reasons stated in the

preceding paragraph, NCUA agrees with this approach. While not

encouraging their use, NCUA has opined that an FCU may suspend services

to members who have caused a loss to the FCU if a proper suspension of

services policy is adopted by the FCU's board of directors. A proper

suspension of services policy should state: (1) When the services will

be suspended; (2) which services are suspended (e.g., ATM services,

credit cards, loans, share draft privileges, preauthorized transfers,

etc.); (3) note that the member has a fundamental right to maintain a

share account and vote in annual and special meetings; and (4) provide

for methods of reinstatement of services by the member. In addition,

the suspension of services policy should be publicized to members, and

not operated discriminatorily, in violation of the Equal Credit

Opportunity Act, Regulation B (12 CFR part 202), the Bankruptcy Code,

or any other applicable law. Due to the consequences deriving from a

suspension of services policy, NCUA believes that those credit unions

having such policies should publicize them in detail to their

membership.

(b)(6) Features of Term Share Accounts

(b)(6)(ii) Early Withdrawal Penalties

For uniformity and parity reasons, the NCUA Board has adopted

comment 4(b)(6)(ii)-4. The comment was added to Regulation DD in

response to FRB commenters requesting guidance for disclosing early

withdrawal penalties.

(b)(6)(iv) Renewal Policies

At the request of a national trade association commenter, the last

sentence of proposed comment 4(b)(6)(iv)-2 regarding club accounts has

been removed as being unnecessary, especially in light of the revised

comment on club accounts. Comment 2(x)-2.

(b)(8) Nature of Dividends

A national trade association commenter requested a revision of

proposed comment 4(b)(8)-2, to reflect that if a member already had a

share account at a state-chartered credit union offering deposit

accounts in accordance with state law, share account disclosures would

not be required. The commenter's position is unfounded. Since the share

account is a currently offered account, there are no grounds under

either TISA or Part 707 to exempt it from the disclosure requirements.

Therefore, the final comment is unchanged. Similarly, two other

commenters from Georgia requested that the comment reflect certain

unique provisions of Georgia law. NCUA believes that state law

determines whether an account is a deposit account or a share account

for accounts in state-chartered credit unions. However, to revise the

comment to reflect one state's laws, to the exclusion of other states,

would not be useful. Therefore, the NCUA Board has modified comment

4(b)(8)-2 to reflect that state law controls the nature of accounts for

accounts in state-chartered credit unions. The Board believes that this

action will enable state credit union supervisors to provide proper

guidance to state-chartered credit unions by interpreting various state

laws without federal interference.

(c) Notice to Existing Accountholders

A national trade association commenter requested that NCUA delete a

statement in proposed comment 4(c)-4, which stated that credit unions

complying with part 707 in advance of the compliance date would need to

comply with all aspects of part 707. NCUA staff has verified the

position in the proposed comment with FRB staff, and since NCUA must

maintain substantial similarity with the FRB, and no uniqueness grounds

were presented in order that an exemption could be justified, NCUA has

not changed the proposed comment.

Four commenters requested that NCUA clarify that credit unions that

have complied with TISA and part 707 requirements before the compliance

date, need not send second disclosures. The NCUA Board has clarified

this in comment 4(c)-4. The Board also wishes to clarify, in response

to a question raised by a commenter, that NCUA does not require any

credit union to issue new accounts, including new certificates, on the

mandatory compliance date of part 707. All that part 707 requires is

that credit unions send a notice to certain members of the availability

of disclosures, or the disclosures themselves, by, on or soon after the

compliance date, to have disclosures reflecting the terms of accounts

offered available, to make certain periodic statement and advertising

disclosures, and to pay dividends on the full balance in the account

using the daily balance or average daily balance method. Basically, no

new accounts need be issued; only accurate disclosures conforming to

part 707 reflecting accounts need be available.

Section 707.5--Subsequent Disclosures

(a) Change in Terms

(a)(1) Advance Notice Required

In response to the comments of eleven commenters, including a

national trade association commenter, comment 5(a)(1)-1 has been

amended to clarify that unless credit unions have reserved the right to

change terms in the account agreement or disclosures, they cannot

change terms by simply providing a change-in-terms notice, and to

clarify that change-in-terms notices can be included as a highlighted

portion of a credit union's newsletter provided to all affected

members. Another commenter requested that guidance in the final NCUA

Truth in Savings rule allowing notice by means of mail, newsletters,

and statement stuffers, be provided in the commentary. Final Rule, 58

FR 50394 at 50422. The Board has added this information to the final

commentary.

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. The comment has been revised to conform with the final

Regulation DD commentary.

One commenter requested guidance on which terms needed change-in-

terms notices in order to be changed. Section 707.5(a) refers to those

terms required to be disclosed under Sec. 707.4(b), if the change may

decrease the APY or adversely affect the member. The NCUA Board

believes the spirit and intent of TISA is that most changes in the

required account disclosures should be disclosed to members to enhance

the ability of members to comparison shop for accounts.

(a)(2)(ii) Share Draft and Check Printing Fees

In response to FRB 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

NCUA, like the FRB, believes that separate charges for deposit and

withdrawal slips, which are typically provided along with checks, are

seldom imposed. Many FRB 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.

(c) Notice for Term Share Accounts One Month or Less That Renew

Automatically

NCUA believes that 20 days is a reasonable amount of time to

provide these disclosures, particularly in light of small credit

unions, some only open one day each week, which would be subject to

this requirement.

Section 707.6--Statement Disclosures

(a) Rule When Statement and Crediting Periods Vary

Four commenters, including a national trade association, stated

that proposed comment 6(a)-3 implied that periodic statements were

required for credit union accounts. The NCUA has revised comment 6(a)-1

to reflect that periodic statements are not required on credit union

accounts. However, any statement setting forth information about an

account (other than a term share or passbook account) that is provided

to a member on a regular basis four or more times a year, is a periodic

statement subject to Sec. 707.6. NCUA cautions credit unions that if

transaction information is provided on a periodic statement on a

passbook account, that the credit union runs the risk of having the

account deemed a statement savings account subject to full periodic

statement requirements. This position has been taken after consultation

with FRB staff.

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

option. This change was made to conform to Regulation DD, and in

response to one commenter's request.

Seventeen commenters, including a national trade association

commenter, requested that the issue of account status information in

proposed comment 2(t)-4 be addressed. Commenters questioned whether

accounts not expressly covered by the periodic statement requirement,

such as term share and passbook accounts: (1) Were limited to account

status information; or (2) were subject to full application of the

advertising regulation (12 CFR 707.8); or (3) whether they could

disclose any information on such accounts, including rate and APY

information, as long as such information was accurate and not

misleading. After consultation with the FRB, the proposed comment was

moved to comment 6(a)-3 and clarified to indicate that a credit union

may provide any information regarding passbook (unless the provision of

transaction information on the account turns the passbook account into

a statement share account covered by Sec. 707.6) and term share

accounts on a periodic statement, as long as the information is

accurate and not misleading. For definitional reasons, the periodic

statement requirements do not apply. Also, since the information is

provided on an existing account, and not as an inducement to open,

maintain or renew an account, the advertising disclosures do not apply.

One commenter also asked whether account status information on

covered accounts could include joint accountholders' names, year-to-

date earned dividends, transaction dates, and social security or tax

identification numbers. These issues are addressed in comments 6(a)-3

and 4.

(b) Statement Disclosures

(b)(1) Annual Percentage Yield Earned

A national trade association commenter requested a clarification

that the ledger balance and collected balance are not methods to

calculate the APYE, but rather methods to determine the balance upon

which to pay dividends. This clarification has been made in comment

6(b)(1)-1. To provide more flexibility, and to conform to provisions in

Regulation DD, the Board has deleted statements in comment 6(b)(1)-1

indicating that credit unions must use the same balance (collected or

ledger) to accrue and pay dividends and to determine the annual

percentage yield earned.

(b)(2) Amount of Dividends

To provide uniformity and parity with provisions of Regulation DD,

the Board has adopted comment 6(b)(2)-2, but has limited its

application to interest-bearing deposit accounts. It would be difficult

and burdensome, if not impossible, for a credit union to state the

amount of accrued dividends on a statement, since as discussed in

comment 2(i)-3, such dividends are not generally properly declarable

until the close of the dividend period.

Comment 6(b)(2)-3 clarifies that institutions may use a variety of

terms to disclose dividends earned, and that the regulation does not

mandate use of the examples. In response to a national trade

association commenter, NCUA has conformed comment 6(b)(2)-4 to the

final Regulation DD commentary, and credit unions are permitted, but

not required, to show the APYE and dividends as zero, on a closed

account on the periodic statement. In response to two commenters, NCUA

has revised comment 6(b)(2)-5 to reflect that information, other than

the dollar amount, regarding extraordinary dividends may be disclosed

on the periodic statement as long as it is not inaccurate or

misleading. The Board believes that information regarding the

calculation of the extraordinary dividend, and additional APYE and

dividend rate figures taking into account the extraordinary dividend,

would not be inaccurate or misleading and might offer the member

additional useful information on the accounts held by the member.

(b)(3) Fees Imposed

This comment has been changed to reflect the final amendment to

Sec. 707.6(b)(3) of part 707 made in this rulemaking to correct a

redundant typographical error. In response to three commenters,

including a national trade association commenter, various

clarifications are made to enhance understanding without substantively

changing the meaning of proposed comment 6(b)(3)-2.

(b)(4) Length of Period

One national trade association requested that NCUA clarify proposed

comment 6(b)(4)-2, opening or closing an account midcycle. The

commenter stated that when a member opens an account in the middle of a

statement period the credit union should be required to use the actual

number of days the account has been opened, as opposed to the number of

days in the statement period. Comment 6(b)(4)-2 has not been changed,

as it is in conformance with Regulation DD. However, the NCUA Board

believes that the commenter's concern should be addressed, and has

plans to address it in the NCUA Accounting Manual for FCUs.

Section 707.7--Payment of Dividends

(a) Permissible Methods

(a)(1) Balance on Which Dividends Are Calculated

Comment 7(a)(1)-1 has been expanded to reflect TISA's legislative

history, which cites the ``low balance'' method as an example of a

prohibited dividend calculation method.

Proposed comment 7(a)(1)-6 addressed ``dormant'' accounts. The FRB

solicited and received numerous comment on whether an institution

should be permitted to withhold the payment of dividends for dormant

accounts. Some FRB 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 FRB commenters

noted that what constitutes a ``dormant'' account varies widely among

the states and institutions. These FRB 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 TISA, 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 FRB 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 FRB believes this

position--reflected in comment 7(a)(1)-6--is consistent with the

purposes of TISA and the rule that interest must be calculated for

funds in accounts meeting minimum balance requirements for as along as

funds remain in the account. For the reasons stated by the FRB, the

NCUA Board has revised its comment accordingly. Although two

commenters, including a national trade association commenter, requested

that the Board revise this comment to also include sample contract

language, the Board notes that the FRB did not provide such language,

and since the language must be in accord with state law, any attempt to

provide uniform national language might result in a disclosure that

would not accomplish its objectives in some states. Therefore, the

Board declines to provide such sample contract language. Another

commenter insisted that NCUA meant ``inactive account,'' which could be

defined by the credit union by contract, rather than ``dormant

account,'' which is defined by the state. However, NCUA has copied this

section from the FRB's Regulation DD, which concerns ``dormant

accounts.'' Therefore, NCUA declines to make the nomenclature change to

``inactive accounts,'' which might create a substantive variance from

the FRB.

Several commenters criticized proposed comment 7(a)(1)-7,

insufficient funds, which states that credit unions are not required to

pay dividends on deposits returned for insufficient funds. After

consultation with FRB staff, the NCUA Board, for reasons of parity,

uniformity and conformity, declines to change the substance of the

comment. However, the comment has been reworded, as suggested by a

commenter, to clarify its meaning.

Three commenters requested clarification on the time of day to

determine the day's balance. As long as the time of day used does not

reflect the low balance for the day (such as after debits are taken and

before credits are added), any uniform time of day may be used. The

time of day so chosen is not a required disclosure. The guidance was

provided in the proposed commentary and is in this final commentary as

comment App. A, Part II, Sec. 1-1.

(a)(2) Determination of Minimum Balance to Earn Dividends

Two commenters, including a national trade association commenter,

noted that proposed comment 7(a)(2)-4, regarding beneficial method, did

not conform to the position taken by the FRB in the final Regulation DD

commentary. Since no uniqueness reasons exist, NCUA has revised the

proposed commentary to conform to Regulation DD in this final

commentary. The national trade association commenter also requested a

definition of ``periodic rate'' in lieu of proposed comment 7(a)(2)-2.

However, for reasons of uniformity, conformity, and parity, the NCUA

Board declines to so modify this commentary. However, more

clarification regarding periodic rates will be provided in a revision

to the NCUA Accounting Manual for FCUs.

Comment 7(a)(2)-7 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. This position, taken by the

FRB in the final Regulation DD commentary, is also adopted by the NCUA

Board.

(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 that

accrued, but uncredited interest may be deemed forfeited, are subject

to state or other law, if any (such as limitations in the Standard FCU

Bylaws).

Proposed comment 7(b)-4, dealing with the forfeiture of accrued,

but uncredited interest for dormant accounts, has been withdrawn for

the reasons discussed in 7(a)(1)-6. This change is also in conformance

with the final Regulation DD commentary.

Section 707.8--Advertising

(a) Misleading or Inaccurate Advertisements

Proposed comment 8(a)-2 would have required institutions using

indoor signs advertising APY's for tiered-rate accounts to state both

the lower and higher dollar amount for the tier corresponding to the

advertised APY. Many FRB commenters convinced the FRB that stating both

dollar amounts is unnecessary. Therefore, for reasons of uniformity and

parity, NCUA has adopted the Regulation DD change and 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. Comment 8(a)-3 address the scope of ``maintenance and

activity'' fees and addresses advertisements for ``free'' accounts with

optional electronic services. FRB 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 FRB believes that ATM services are

not different from other optional services such as home banking.

Fourteen NCUA commenters, including two national trade associations,

agreed with the FRB's reasoning and position. For the reasons stated by

the FRB, NCUA follows the FRB and has revised comment 8(a)-4(vi)

accordingly. One commenter requested a cross-reference to comment

4(b)(4)-1 and 2 regarding fee disclosures, which cross-reference has

been added.

The FRB received numerous comments on its proposal to consider the

term ``fees waived'' as similar to the terms ``free'' or ``no cost.''

Many FRB 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

FRB 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 of

Congress had in mind when prohibiting the advertisement of accounts as

free or no-cost or ``words of similar meaning.'' The FRB believes that

``fees waived'' is a term similar to ``free'' or ``no cost;'' thus,

comment 8(a)-5 has been retained as proposed. For reasons of uniformity

and parity, NCUA has followed the FRB's position.

(b) Permissible Rates

Comment 8(b)-3 provides guidance on advertising account for which

institutions offer a number of versions (certificate accounts, for

example). The FRB revised its comment for clarity without any intended

change in meaning, and the NCUA Board has conformed the comment to do

likewise.

(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

disclosures. The FRB has eliminated the reference to a bonus of 1% over

an institution's current rate for one-year certificates as an example

of a trigger term. Based on comments it received and upon further

analysis, the FRB 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 FRB's Regulation Z (12 CFR part 226).

For these reasons, NCUA has conformed comment 8(c)-1 in this regard.

This clarification was also made in response to four commenters'

requests.

(c)(2) Time Annual Percentage Yield is offered

Comment 8(c)(2)-2 has been added in to conform to the final

Regulation DD commentary. 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.

(e) Exemption for Certain Advertisements

(e)(1) Certain Media

One commenter requested clarification regarding whether messages on

ATM and computer screens would be entitled to this advertising

exemption. The regulation states that this exemption is available for

broadcast and electronic media, such as radio and television, outdoor

media, such as billboards, and telephone response machines. The Board

believes that ATM and computer screens are similar to these types of

media in many respects. First, ATMs are part of an electronic network,

such as radio and television. Second, most ATMs are at locations

outside of a credit union branch. Third, only a limited amount of space

is available to make a message available to a member. With this

reasoning, the Board has determined that ATM screens are subject to the

electronic media exemption, and has clarified this in comment

8(e)(1)(i)-1.

(e)(3) Newsletters

A national trade association commenter noted that neither the

letter, spirit, nor intent of TISA and part 707 would be violated if

credit unions were permitted to make newsletters available to potential

members. Since potential members must receive all required account

disclosures upon becoming a member and opening an account, potential

members could not be harmed by receipt of a member newsletter

containing accurate information, but not conforming in every regard to

the advertising requirements of part 707. It was also pointed out by

the commenter that newsletters have traditionally been used by credit

unions as a tool to increase membership, and that it would be

difficult, if not impossible, for credit unions to prevent members from

sharing newsletters with potential members sharing a common bond. The

NCUA Board, which created the newsletter exemption based upon credit

union uniqueness, is sympathetic to these additional reasons to expand

availability of the newsletters to potential members. however, to do so

at this time would require a rule amendment to Sec. 707.8(e)(3)(i),

which would be beyond the scope of the initial, proposed rulemaking,

and therefore, impermissible under the Administrative Procedures Act.

This being the case, the Board has not made any changes to comments

8(e)(3)-1 and 2. The Board will continue to monitor this situation, and

if additional Truth in Savings rulemakings are necessary in the future,

will consider requesting comments on a proposed amendment to expand the

newsletter exemption to cover potential member distribution. Similarly,

another commenter asked that the Board include information provided on

an ATM screen under the newsletter exemption. As the FRB has clearly

included ATM screen messages as covered advertisements in the

definition of ``advertisement,'' and NCUA must be substantially similar

to the FRB, NCUA declines to make this change, which also is outside of

the scope of this rulemaking. However, the Board has stated that ATM

and computer screen messages may use the electronic media exemption.

Comment (e)(1)(i)-1.

Appendix A--Annual Percentage Yield Calculation

Part I. Annual Percentage Yield for Account Disclosures and Advertising

Purposes

In response to commenters, NCUA has revised comments app.A.I.-2 and

3. Comment app.A.I.-2 adds that, for leap year annual percentage yield

calculations, the ``days in term'' figure used in the denominator

should be consistent with the length of term used in the dividends

calculation. Comment app.A.I.-3 clarifies that the guidance on the

first tier of a tiered-rate account only applies when such information

is provided in a rate table format, and not in the written format of

sample clauses provided at Appendix B, Sec. B-1(a)(iv).

In response to another commenter, NCUA added comment app.A.I.-4,

which provides that term share club accounts may calculate the annual

percentage yield based on the maximum number of days in the term, not

to exceed the number of days in the year.

Part II. Annual Percentage Yield Earned for Statements

Comment app.A.II.-1 has been clarified without any change in

meaning. Proposed comment app.A.II.-2, requiring the provision of

certain collected balance information on the periodic statement, has

been deleted since it is not in conformity with the FRB's position in

Regulation DD and no uniqueness reasons exist for its existence. As a

result, proposed comment app.A.II.-3 has been renumbered comment

app.A.II.-2.

A. General formula. 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 FRB 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. The NCUA adopts the Regulation DD position.

B. Special formula for use where periodic statements are sent more

often than the period for which dividends are compounded. Comment

app.A.II.B.-1 has been adopted as proposed. Credit unions 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. FRB commenters supported this rule as significantly reducing

compliance burdens for institutions. For the same reasons, NCUA adopts

the Regulation DD position.

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 FRB believes using the actual number of

days in a compounding period is necessary to produce an accurate APYE

for a specific consumer's account. For reasons of conformity and

parity, NCUA has also adopted the Regulation DD position.

Appendix B--Model Clauses and Sample Forms

Comments to Appendix B have been adopted as proposed. Several

commenters requested changes in the Appendix B forms and sample

clauses. However, as these changes were beyond the scope of this

rulemaking, the Board could not consider them at this time. The Board

will consider inviting comment upon the Appendix B forms and clauses at

some future date.

Paperwork Reduction Act

Office of Management and Budget approval under the Paperwork

Reduction Act for part 707 was received on September 29, 1994 as OMB

No. 3133-0134.

List of Subjects in 12 CFR Part 707

Advertising, Credit unions, Consumer protection, Deposit accounts,

Interest, Interest rates, Truth in savings.

For the reasons set forth in the preamble, the Board proposes to

amend 12 CFR part 707 as follows:

PART 707--TRUTH IN SAVINGS

1. The authority citation for part 707 would continue to read as

follows:

Authority: 12 U.S.C. 4311.

2. Section 707.2 is amended by revising paragraphs (a) and (q) to

read as follows:

Sec. 707.2 Definitions.

* * * * *

(a) Account means a share or deposit account at a credit union held

by or offered to a member or potential member. It includes, but is not

limited to, accounts such as share, share draft, checking and term

share accounts. For purposes of the advertising regulations in

Sec. 707.8, the term also includes an account at a credit union that is

held by or offered by a share or deposit broker.

* * * * *

(q) Member means:

(1) A natural person member of the credit union who holds an

account primarily for personal, family, or household purposes;

(2) A natural person nonmember who holds an account primarily for

personal, family, or household purposes, either jointly with a natural

person member or in a credit union designated as a low-income credit

union, or to whom such an account is offered; and

(3) A natural person nonmember who holds a deposit account in a

state-chartered credit union pursuant to state law, or to whom such

deposit account is offered.

The term does not include a natural person who holds an account for

another in a professional capacity or an unincorporated nonbusiness

association of natural person members.

* * * * *

3. Section 707.6 is amended by revising paragraph (b)(3) to read as

follows:

Sec. 707.6 Statement disclosures.

* * * * *

(b) * * *

(3) Fees imposed. Fees required to be disclosed under

Sec. 707.4(b)(4) of this part and imposed on the account during the

statement period. The fees shall be itemized by type and dollar

amounts.

* * * * *

4. Part 707 is amended by adding a new Appendix C to Part 707 to

read as follows:

Appendix C to Part 707--Official Staff Interpretations

Introduction

1. Official status. This commentary is the means by which the

staff of the Office of General Counsel of the National Credit Union

Administration issues official staff interpretations of Part 707 of

the NCUA Rules and Regulations. Good faith compliance with this

commentary affords protection from liability under section 271(f) of

the Truth in Savings Act (TISA), 12 U.S.C. 4311.

Section 707.1--Authority, Purpose, Coverage, and Effect on State Laws

(c) Coverage

1. Foreign applicability. Part 707 applies to all credit unions

that offer share and deposit accounts to residents (including

resident aliens) of any state as defined in Sec. 707.2(v) and that

offer accounts insurable by the National Credit Union Share

Insurance Fund (NCUSIF) whether or not such accounts are insured by

the NCUSIF. Corporate credit unions designated as such by NCUA under

12 CFR 704.2 (definition of ``corporate credit union'') are exempt

from part 707.

2. Persons who advertise accounts. Persons who advertise

accounts are subject to the advertising rules. This includes agent

and agented accounts, such as a member who subdivides interests in a

jumbo term share certificate account for sale to other parties or

among members who form a certificate account investment club. For

example, if an agent places an advertisement that offers members an

interest in an account at a credit union, the advertising rules

apply to the advertisement, whether the account is held by the agent

or directly by the member.

(d) Effect on State Laws

1. Preemption of state laws/Inconsistent requirements. State law

requirements that are inconsistent with the requirements of TISA and

part 707 are preempted to the extent of the inconsistency. A state

law is inconsistent if it requires a credit union to make

disclosures or take actions that contradict the requirements of the

federal law. A state law is also contradictory if it requires the

use of the same term to represent a different amount or a different

meaning than the federal law, requires the use of a term different

from that required in the federal law to describe the same item, or

permits a method of calculating dividends or interest on an account

different from that required in the federal law.

2. Preemption determinations. A credit union, state, or other

interested party may request the Board to determine whether a state

law requirement is inconsistent with the federal requirements. A

request for a determination should be addressed to NCUA's Office of

General Counsel, 1775 Duke Street, Alexandria, VA 22314. Written

preemption requests should cite (or include a copy of) the allegedly

inconsistent state law, demonstrate the inconsistency with TISA and

part 707 and the burden on credit unions, and formally request a

preemption determination. The Office of General Counsel may provide

other interested parties, particularly affected states, an informal

opportunity to comment on any request for a preemption

determination, unless it finds that such notice and opportunity for

comment would be impracticable, unnecessary, or contrary to the

public interest. NCUA will publicize any preemption determinations

using any means readily at its disposal.

3. Effect of preemption determinations. After the Board, through

its Office of General Counsel, determines that a state law is

inconsistent, a credit union may not make disclosures using the

inconsistent term or take actions relying on the inconsistent law.

4. Reversal of determination. The Board reserves the right to

reverse a determination for any reason bearing on the coverage or

effect of state or federal law.

Section 707.2--Definitions

(a) Account

1. Covered accounts. Examples of accounts subject to the

regulation are:

i. Dividend-bearing and interest-bearing accounts.

ii. Non-dividend-bearing and non-interest-bearing accounts.

iii. Accounts opened as a condition of obtaining a credit card.

iv. Escrow accounts with a consumer purpose, such as an account

established by a member to escrow rental payments, pending

resolution of a dispute with the member's landlord.

v. Accounts held by a parent or custodian for a minor under a

state's Uniform Gift to Minors Act (or Uniform Transfers to Minors

Act).

vi. Individual retirement accounts (IRAs) and simplified

employee pension (SEP) accounts.

vii. 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 or SEP

account).

iv. Accounts opened by an executor in the name of decedent's

estate.

v. Accounts of individuals operating businesses as sole

proprietors.

vi. Certificates of indebtedness. Some credit unions borrow

funds from their members through a certificate of indebtedness that

sets forth the terms and conditions of the repayment of the

borrowing, such as federal credit unions do through 12 CFR 701.38.

Such an account does not represent an account in a credit union and

is not covered by part 707.

vii. Unincorporated nonbusiness association accounts.

3. Other investments. The term ``account'' does not apply to

these products. Examples of products not covered are:

i. Government securities.

ii. Mutual funds.

iii. Annuities.

iv. Securities or obligations of a credit union.

v. Contractual arrangements such as repurchase agreements,

interest rate swaps, and bankers acceptances.

vi. Purchases of U.S. Savings Bonds through a credit union.

vii. Services offered through a group purchasing plan or a

credit union service organization (CUSO).

4. Options. All dividend-bearing and interest-bearing accounts

are either fixed-rate or variable-rate accounts.

5. Use of synonyms. Generally, it is not the purpose of part 707

to prohibit specific descriptive terms for accounts. For example,

credit unions can use adjectives and trade names to describe

accounts such as ``Best Share Draft Account,'' or ``Ultra Money

Market Share Account.'' Synonyms for share, share draft, money

market share, and term share accounts may be used to describe

various types of credit union share and deposit accounts as long as

the synonym is accurate and not misleading. For example, the

following synonyms may be used:

i. The term ``checking account'' may be used to describe share

draft accounts.

ii. The term ``money market account'' may be used to describe

money market share accounts.

iii. The term ``savings account'' may be used to describe

regular share and share accounts.

iv. The terms ``share certificate,'' ``certificate account,'' or

``certificate'' may be used to describe share certificates and other

dividend-bearing term share accounts.

v. However, under no circumstances may a credit union describe a

share account as a deposit account, or vice versa. For example, the

term ``certificate of deposit'' or ``CD'' may not be used to

describe share certificates and other dividend-bearing term share

accounts. Similarly, the terms ``time account'' (used in Regulation

DD, 12 CFR 230.2(u)) and ``time deposit'' (used in Regulation D, 12

CFR 204.2(c)) may not be used to describe term share accounts.

(b) Advertisement

1. Covered messages. Advertisements include commercial messages

in visual, oral, or print media that invite, offer, or otherwise

announce generally to members and potential members the availability

of member accounts such as:

i. Telephone solicitations.

ii. Messages on automated teller machine (ATM) screens

(including any printout).

iii. Messages on a computer screen in a credit union's lobby

(including any printout) other than a screen viewed solely by the

credit union's employee.

iv. Messages in a newspaper, magazine, or promotional flyer or

on radio or television.

v. Messages promoting an account that are provided along with

information about the member's existing account at a credit union

and that promote another account at the credit union (such as

account promotional messages on the periodic statement).

2. Other messages. Examples of messages that are not

advertisements are:

i. Rate sheets published in newspapers, periodicals, or trade

journals (unless the credit union or share and deposit broker that

offers accounts at the credit union pays a fee to have the

information included or otherwise controls publication).

ii. Telephone conversations initiated by a member or potential

member about an account.

iii. An in-person discussion with a member about the terms for a

specific account.

iv. Information provided to members about their existing

accounts, such as on IRA disbursements, notices for automatically

renewable term share accounts sent before renewal, or current rates

recorded on a voice response machine.

(c) Annual Percentage Yield.

1. General. The annual percentage yield (APY) is required for

disclosures for new accounts, oral responses to inquiries about

rates; disclosures provided upon request; initial disclosures (if

the credit union chooses to provide full disclosures instead of the

abbreviated notice); notices prior to the renewal of a term share

account, if known at the time the notice is sent, and in

advertising. The annual percentage yield shows the total amount of

dividends for a 365 day period (or a 366 day period for a leap year)

on an assumed principal amount based on the dividend rate and

frequency of compounding as a percentage of the assumed principal

(for accounts such as share or share draft accounts) or for the

total amount of dividends over the term of the account for term

share accounts. The annual percentage yield assumes the principal

amount remains in the account for 365 days (366 days for leap year)

or for the term of the account.

2. How Annual Percentage Yield Differs from Annual Percentage

Yield Earned. The annual percentage yield (APY) differs from the

annual percentage yield earned (APYE). The annual percentage yield

earned is required for periodic statements only. The annual

percentage yield earned shows the total amount of dividends earned

for the dividend or statement period as a percent of the actual

average daily balance in the member's account. Unlike the annual

percentage yield, the annual percentage yield earned is affected by

additions and withdrawals during the period. The annual percentage

yield and the annual percentage yield earned must be calculated

according to the formulas provided in Appendix A to this rule.

(d) Average Daily Balance Method

1. General. One of the two required methods (the daily balance

is the other) of determining the balance upon which dividends must

be accrued and paid. The average daily balance method requires the

application of a periodic rate to the average daily balance in the

account for the average daily balance calculation period. The

average daily balance is determined by adding the full amount of

principal in the account for each day of the period and dividing

that figure by the number of days in the period.

(e) Board.

1. General. The NCUA Board.

(f) Bonus

1. General. Bonuses include items of value offered as incentives

to members, such as an offer to pay the final installment deposit

for a holiday club account if the final installment is over $10.

Bonuses do not include the payment of dividends (including

extraordinary dividends), the waiver or reduction of a fee, the

absorption of expenses, non-dividend membership benefits, or other

consideration aggregating $10 or less per year.

2. Examples. The following are examples of bonuses.

i. A credit union offers $25 to potential members for becoming a

member and opening an account. The $25 could be provided by check,

cash, or direct deposit.

ii. A credit union offers $25 to a member with only a regular

share account to open a share draft account. The $25 could be

provided by check, cash, or direct deposit.

iii. A credit union offers a portable radio with a value of $20

to members and potential members for opening a share draft account.

iv. A credit union pays the final installment deposit for a

holiday club account if over $10.

3. Examples not comprising bonuses. The following are examples

of items that are not bonuses:

i. Discount coupons distributed by credit unions for use at

restaurants or stores.

ii. A credit union offers $20 to any member if the member is

responsible for encouraging a potential member to open an account.

The $20 is not a bonus because the $20 is not paid to the individual

opening the account. Any item, including cash, given or offered to a

third party (that is not a joint member or joint owner in an account

being opened) in exchange for a member or potential member opening

(or a member renewing or adding to) an account is not a bonus.

iii. A credit union offers $25 to a member if the member can

locate his name in the body of a newsletter.

iv. Life savings benefits. Many credit unions offer life savings

benefits to beneficiaries of deceased members. Because the benefit

accrues to a third party, such life savings plans offered are not

bonuses.

v. A credit union offers to pay annual membership dues in a

benevolent organization for a class of members.

4. De minimis rule. Items with a de minimis value of $10 or less

are not bonuses. Credit unions may rely on the valuation standard

used by the Internal Revenue Service (IRS) to determine if the value

of the item is de minimis. Items required to be reported by the

credit union under IRS rules are bonuses under this regulation.

Examples of items of de minimis values are:

i. Disability insurance premiums on a share account 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 per year.

5. Aggregation. In determining if an item valued at $10 or less

is a bonus, credit unions must aggregate per account per calendar

year items that may be given to members. In making this

determination, credit unions aggregate per account only the market

value of items that may be given for a specific promotion. To

illustrate, assume a credit union offers in January to give members

an item valued at $7 for each calendar quarter during the year that

the average account balance in a share draft account exceeds

$10,000. The bonus rules are triggered, since members 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 members opening a share draft account during the month of

January, even though in November the credit union introduces a new

promotion that includes, for example, an offer to existing share

draft accountholders for an item valued at $8 for maintaining an

average balance of $5,000 for the month.

6. Waiver or reduction of a fee or absorption of expenses.

Bonuses do not include value received by members through the waiver

or reduction of fees for credit union-related services (even if the

fees waived exceed $10), such as the following:

i. Waiving a safe deposit box rental fee for one year for

members who open a new account.

ii. Waiving fees for travelers checks for members, and waiving

check and share draft printing fees.

iii. Nondiscriminatorily waiving all fees for a particular class

of members, such as seniors or minors.

iv. Discounts on interest rates charged for loans at the credit

union.

v. Rebates of loan interest already paid by a member.

vi. Discounts on application fees charged for loans at the

credit union.

vii. Packaged, linked, or tied-account services.

7. Non-dividend membership benefits. Such benefits are not

bonuses because they are sporadic in nature, often difficult to

value, and providing non-dividend membership benefits is a long-

standing unique credit union practice. (See commentary to

Sec. 707.2(r) for examples of such benefits.)

(g) Credit Union

1. General. Includes credit unions in the United States, Puerto

Rico, Guam, U.S. Virgin Islands, and U.S. territories. Applies to

credit unions whether or not the accounts in the credit union are

federally, state, privately insured, or uninsured.

(h) Daily Balance Method

1. General. One of the two required methods (the average daily

balance is the other) of determining the balance upon which

dividends must be accrued and paid. The daily balance method

requires the application of a daily periodic rate to the full amount

of principal in the account each day.

(i) Dividend and Dividends

1. General. Member savings placed in share accounts are equity

investments, and the returns earned on these accounts are dividends.

Federal credit unions may only offer dividend-bearing and non-

dividend-bearing share accounts. State-chartered credit unions may

offer both share and deposit accounts if permitted by state law.

State law, including without limitation regulations and official

interpretations, will determine if returns earned in accounts in

state-chartered credit unions are dividends. Dividends exclude the

payment of a bonus or other consideration worth $10 or less given

during a year, the waiver or reduction of a fee, the absorption of

expenses, non-dividend membership benefits and extraordinary

dividends. Dividend-bearing accounts must be either fixed-rate or

variable-rate accounts.

2. Procedure. Credit unions must follow appropriate law (state

law for state-chartered credit unions and federal law for federal

credit unions) in determining dividend policies and declaring

dividends. Generally, dividends may be viewed as a portion of the

available account and undivided earnings of the credit union which

is set apart, after required transfer to reserves, by valid act of

the board of directors, for distribution among the members. As a

matter of legal procedure, members are usually not entitled to

dividends until the following steps are completed: (1) The board of

the credit union develops a nondiscriminatory dividend policy, by

establishing dividend periods, dividend credit determination dates

dividend distribution dates, any associated penalties (if

applicable), and the method of dividend computation for each type of

share account; (2) the provisions for required transfers to reserves

are made; (3) sufficient and available prior and/or current earnings

are available at the end of the dividend period; (4) the board

formally makes a dividend declaration in accordance with the credit

union's dividend policy; and (5) dividends must be paid to members

by a credit to the appropriate share account, payment by check or

share draft, or by a combination of the two methods.

3. When available. Credit unions must follow the law of their

primary chartering authority to determine when dividends are

available. Generally, it is the declaration of the dividend itself

which creates the dividend and the member has no right to receive a

dividend until it is so declared. The decision of when to declare

dividends lies within the official discretion of each credit union's

board of directors and cannot be abrogated by contract. An agreement

to pay dividends on a share account is generally interpreted not as

an obligation to pay the stipulated dividends absolutely and

unconditionally, but as an undertaking to pay them out of the

earnings when sufficiently accumulated from which dividends in

general are properly payable. Generally, ``prospective rates'' are

rates set in good faith in advance of the close of a dividend

period, that may be altered if sufficient funds are not available,

or in the event of a superseding event, such as a strike, plant

closure, significant fluctuation in market rates and/or a

significant change in financial structure, natural disaster or

emergency that alters the assumptions under which the ``prospective

rates'' were made. It is the intent of TISA that all disclosure be

accurate when made, and credit unions are urged to make every effort

to ratify disclosed ``prospective rates.'' ``Prospective rates'' may

also be referred to as ``projected rates'' or similar wording, but

not as ``estimated rates.'' (See comment 3(b)-2, prohibiting use of

estimates).

4. Sample dividend resolutions. (i) The following resolution may

be used where the dividend rates are set after the close of a

dividend period.

Resolution of Board of Directors for the Declaration of Dividends

A. I, ________________, certify that I am Secretary of

________________ Credit Union Board of Directors, and that the

following is a correct copy of the resolution for declaring dividend

adopted by the ________________ Credit Union at a meeting of the

Board of Directors duly and properly held on ____________, 19______.

This resolution appears in the minutes of this meeting and has not

been rescinded or modified.

B. Resolved, that

(1) The Board of Directors has developed a nondiscriminatory

dividend policy, by establishing dividend periods, dividend credit

determination dates, dividend distribution dates, any associated

penalties (if applicable), and the method of dividend computation

for each type of share account;

(2) The required transfers to reserves have been made; and

(3) Sufficient and available prior and/or current earnings are

available at the end of this dividend period.

C. Resolved, further, that the Board of Directors now formally

makes a dividend declaration in accordance with the Credit Union's

dividend policy and authorizes that on ____________, 19______,

dividends must be paid to members by a credit to the appropriate

share account, payment by share draft or by a combination of the two

methods.

D. I further certify that the Board of Directors of this Credit

Union has, and the time of adoption of this resolution had, full

power and lawful authority to adopt the foregoing resolutions and

that this resolution revokes any prior resolution.

In witness whereof, this is my signature and the date on which I

signed this Resolution.

----------------------------------------------------------------------

Signature

----------------------------------------------------------------------

Date

[Attach list of accounts with dividend rates for each type of

account.]

(ii) The following resolution may be used where the dividend

rates are set before the close of a dividend period.

Resolution of Board of Directors for the Declaration of Dividends

A. I, ________________, certify that I am the Secretary of

________________ Credit Union, and that the following is a correct

copy of the resolution for declaring dividends adopted by the

________________ Credit Union at a meeting of the Board of Directors

duly and properly held on ________________, 19________________. This

resolution appears in the minutes of that meeting and has not been

rescinded or modified.

B. Resolved, that the Board of Directors has adopted a

nondiscriminatory dividend policy, by establishing dividend periods,

dividend credit determination dates, dividend distribution dates,

any associated penalties (if applicable) and the method of dividend

computation for each type of share account.

C. Resolved, that it is the policy and practice of the Board of

Directors to meet periodically to establish prospective dividend

rates for each type of dividend-bearing share account.

D. Resolved, that if the required transfers to reserves have

been made and there are sufficient and available prior and/or

current earnings available at the end of a dividend period, the

officers of the Credit Union are authorized to pay dividends at the

rate prospectively established by the Board of Directors for each

account for the dividend period. The officers may pay the dividends

without any further action of the Board of Directors. The act of

paying the dividends shall constitute the declaration of the

dividends and shall be a ratification of the prospective dividend

rate.

In witness whereof, this is my signature and the date on which I

signed this Resolution.

----------------------------------------------------------------------

Signature

----------------------------------------------------------------------

Date

[Attach list of accounts with prospective dividend rates for each

type of account.]

5. Referencing. Except where specifically stated otherwise, use

of the term ``share'' in part 707, as in ``share account,'' also

refers to ``deposit,'' as in ``deposit account,'' where appropriate

(for interest-bearing or non-interest-bearing deposit accounts at

some state-chartered credit unions).

(j) Dividend Declaration Date

1. General. The importance of the dividend declaration date is

to tie the last paid dividend to a certain period of time to place

members and potential members on notice that the last paid dividend

is different from the next dividend to be paid. In order to achieve

this purpose, a credit union may use any of the following methods:

i. ``As of 3/15/95'' (the date the board of directors last met

and declared the last paid dividend).

ii. ``As of 3/31/95'' (the last day of the last dividend period

upon which a dividend has been paid).

iii. ``For the period 1/1/95 to 3/31/95'' (the last dividend

period upon which a dividend has been paid).

iv. ``For the first quarter of 1995'' (the last dividend period

upon which a dividend has been paid).

v. ``For April 1995'' (the last dividend period upon which a

dividend has been paid).

(k) Dividend Period

1. General. The dividend period is to be set by a credit union's

board of directors for each account type, e.g., regular share, share

draft, money market share, and term share. The most common dividend

periods are weekly, monthly, quarterly, semi-annually, and annually.

Dividend periods need not agree with calendar months, e.g., a

monthly dividend period could begin March 15 and end April 14.

(l) Dividend Rate

1. General. The dividend rate does not reflect compounding.

Compounding is reflected in the ``annual percentage yield''

definition.

2. Referencing. Except where specifically stated otherwise, use

of the term ``dividend rate'' in part 707 also refers to ``interest

rate,'' where appropriate (for interest-bearing and non-interest-

bearing deposit accounts at some state-chartered credit unions).

(m) Extraordinary Dividends

1. General. The definition encompasses all irregularly scheduled

and declared dividends, and as dividends, extraordinary dividends

are exempt from the ``bonus'' disclosure requirements. Extraordinary

dividends do not have to be disclosed on account disclosures, but

the dollar amount of an extraordinary dividend credited to the

account during the statement period does have to be separately

disclosed on the periodic statement for the dividend period during

which the extraordinary dividends are earned. Extraordinary

dividends, like ordinary dividends, do not include the payment of a

bonus or other consideration worth $10 or less given during a year,

the waiver or reduction of a fee, the absorption of expenses or non-

dividend membership benefits. See comments 2(f) 1 through 7 and 2(i)

1 through 4. Extraordinary dividends may be calculated by any means

determined by the board of directors of a credit union and may not

be used in the annual percentage yield earned calculation.

2. Use of synonym. Extraordinary dividends may be described as

``bonus dividends.''

(n) Fixed-Rate Account

1. General. Includes all accounts in which the credit union, by

contract, agrees to give at least 30 days advance written notice of

decreases in the dividend rate. Thus, credit unions can decrease

rates only after providing advance written notice of rate decreases,

e.g., a ``change-in-terms notice.''

(o) Grace Period

1. General. A period after maturity of an automatically renewing

term share account during which the member may withdraw funds

without being assessed a penalty. Use of a ``grace period'' is

discretionary, not mandatory. This definition does not refer to the

``grace period'' account, which is a synonym for ``federal rollback

method'' or ``in by the 10th'' accounts, which are prohibited by

TISA and part 707.

(p) Interest

1. General. Member savings placed in deposit accounts are debt

investments, and the return earned on these accounts is interest.

Federal credit unions are not authorized to offer any interest-

bearing deposit accounts. State-chartered credit unions may offer

both share and deposit accounts if permitted by state law. State

law, including without limitation regulations and official

interpretations, will determine if returns earned in accounts in

state-chartered credit unions are interest. Interest excludes the

payment of a bonus or other consideration worth $10 or less given

during a year, the waiver of reduction of a fee, the absorption of

expenses, non-dividend membership benefits, and extraordinary

dividends.

2. Differences between dividends and interest. Generally,

dividends are returns on an equity investment (shares); interest is

return on a debt investment (deposits). Dividends, in general, are

not properly payable until declared at the close of a dividend

period; interest, in general, is properly payable daily according to

the deposit contract. Dividend rates are prospective until actually

declared; interest rates are set according to contract in advance

and are earned on that basis. Share accounts establish a member

(owner)/credit union (cooperative) relationship; deposit accounts

establish a depositor (creditor)/depository (debtor) relationship.

3. Referencing. Except where specifically stated otherwise, use

of the terms ``dividend'' or ``dividends'' in part 707 also refers

to ``interest'' where appropriate (for interest-bearing and non-

interest-bearing deposit accounts at some state-chartered credit

unions).

(q) Member

1. Professional capacity. Examples of accounts held by a natural

person in a professional capacity for another are:

i. Attorney-client trust accounts.

ii. Trust, estate and court-ordered accounts.

iii. Landlord-tenant security accounts.

2. Other accounts. Examples of accounts not held in a

professional capacity include accounts held by parents for a child

under the Uniform Gifts to Minors Act (or Uniform Transfers to

Minors Act.

3. Retirement plans. IRAs and SEP accounts are member accounts

to the extent that funds are invested in accounts subject to the

regulation. Keogh accounts, like sole proprietor accounts, are not

subject to the regulation.

(r) Non-Dividend Membership Benefits

1. General. Term reflects unique credit union practices that are

difficult to value, encourage community spirit, and are not granted

in such quantity as to be includable as calculable dividends.

2. Examples. Examples include:

i Food, refreshments, and drawings and raffles at annual

meetings, member functions, and branch openings.

ii. Travel club benefits.

iii. Prizes offered at annual meetings, such as U.S. Savings

Bonds, a deposit of funds into the winner's account, trips, and

other gifts. Such prizes are not bonuses because they are offered as

an incentive to increase attendance at the annual meeting, and not

to entice members to open, maintain, or renew accounts or increase

an account balance.

iv. Life savings benefits.

(s) Passbook Account

1. Relation to Regulation E. Passbook 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 credited by

direct share and deposit of social security payments. Accounts that

permit access by other electronic means are not ``passbook

accounts,'' and any statements that are sent four or more times a

year must comply with the requirements of Sec. 707.6.

(t) Periodic Statement

1. General. Periodic statements are not required by part 707.

Passbook and term share accounts are exempt from periodic statement

requirements.

2. Examples. Periodic statements do not include:

i. Additional statements provided solely upon request.

ii. Information provided by computer through home electronic

credit union account services.

iii. General service information such as a quarterly newsletter

or other correspondence that describes available services and

products.

(u) Potential Member

1. General. A potential member is a natural person eligible for

membership in a credit union, who has not yet taken the steps

necessary to become a member. The term also includes natural person

nonmembers eligible to hold accounts in a credit union pursuant to

relevant federal or state law.

2. Verification of eligibility. It is recommended that credit

unions have sound written procedures in place to identify those

eligible for membership. If these procedures include verification

measures, such as an application process, verification telephone

call or letter to an employer or association within the field of

membership, witnessing by an existing member, or similar procedure,

then the credit union may first verify the membership eligibility of

a potential member before providing account disclosures or other

information to the potential member. This process of verifying a

member's eligibility status, making a recommendation for membership,

and providing account disclosures should be completed within 20

calendar days. This period also applies when potential members not

on credit union premises request disclosures.

3. Nonmembers. Within its sole discretion, the board of

directors of a credit union may provide TISA disclosures to

nonmembers who are ineligible for membership or to hold an account

at the credit union. If disclosures are made to such nonmembers, it

is the position of the Board that no civil liability can accrue to

the credit union for any errors in such disclosures. (See commentary

to Sec. 707.3(d)).

(v) State

1. General. Territories and possessions include American Samoa,

Guam, the Mariana Islands, and the Marshall Islands.

(w) Stepped-Rate Account

1. General. Stepped-rate accounts are those accounts in which

two or more dividend rates (known at the time the account is opened)

will take effect in succeeding periods.

2. Example. An example of a stepped-rate account is a one-year

term share certificate account in which a 5.00% dividend rate is

paid for the first six months, and 5.50% for the second six months.

(x) Term Share Account

1. 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 member makes a withdrawal as

permitted by Regulation D does not disqualify the account from being

a term share account for purposes of this regulation (such as

withdrawals upon the death of the member, or within a ``grace

period'' for automatically renewable term share accounts).

2. Club accounts. Club accounts, including Christmas club,

holiday club, and vacation club accounts may be either term share or

regular share accounts, depending on the terms of the account.

Although club accounts typically have a maturity date, they are not

term share accounts unless they also require a penalty of at least

seven days' dividends for withdrawals during the first six days

after the account is opened.

(v) Tiered-Rate Account

1. General. Tiered-rate accounts are those accounts in which two

or more dividend rates are paid on the account and are determined by

reference to a specified balance level. Tiered-rate accounts are of

two types: Tiering Method A and Tiering Method B. In Tiering Method

A accounts, the credit union pays the applicable tiered dividends

rate on the entire amount in the account. This method is also known

as the ``hybrid'' or ``plateau'' tiered-rate account. In Tiering

Method B accounts, the credit union does not pay the applicable

tiered dividends rate on the entire amount in the account, but only

on the portion of the share account balance that falls within each

specified tier. This method is also known as the ``pure'' or

``split-rate'' tiered-rate account. (See commentary to Appendix A,

Sec. I, D.)

2. Example. An example of a tiered-rate account is one in which

a credit union pays a 5.00% dividend rate on balances below $1,000,

and 5.50% on balances $1,000 and above.

3. Term share accounts. Term share accounts that pay different

rates based solely on the amount of the initial share and deposit

are not tiered-rate accounts.

4. Minimum balance accounts. A requirement to maintain a minimum

balance to earn dividends does not make an account a tiered-rate

account. If dividends are not paid on amounts below a specified

balance level, then the account has a minimum balance requirement

(required to be disclosed under Sec. 707.4(b)(3)(i)), but the

account does not constitute a tiered-rate account. A zero rate (0%)

cannot constitute a tier. Minimum balance accounts are single rate

accounts with a minimum balance requirement.

(z) Variable-Rate Account

1. General. Includes accounts in which the credit union does not

contract to give at least 30 days advance written notice of

decreases in the dividend rate. An account meets this definition

whether the rate change is determined by reference to an index, by

use of a formula, or merely at the discretion of the credit union's

board of directors. An account that permits one or more rate

adjustments prior to maturity at the member's option, such as a rate

relock option, is a variable-rate account.

2. Differences between fixed-rate and variable-rate accounts.

All ccounts must either be fixed-rate or variable-rate accounts.

Classifying an account as variable-rate affects credit unions three

ways:

i. Additional account disclosures are required

(Sec. 707.4(b)(1)(ii));

ii. Rate decreases are exempted from change-in-terms

requirements (Sec. 707.5(a)(2)(i)); and

iii. Advertising notice required (Sec. 707.8(c)(1)).

Fixed-rate accounts require a contract term obligating the

credit union to a 30-day advance, written notice to members before

decreasing the dividend rate on the account. Term changes adversely

affecting the member and rate decreases cannot take effect until 30

days after such fixed-rate change-in-terms notices are mailed or

delivered to members (Sec. 707.5(a)).

Section 707.3--General Disclosure Requirements

(a) Form

1. General. Alal required disclosures (e.g., account

disclosures, change-in-terms notices, term share renewal/maturity

notices, statement disclosures and advertising disclosures) must be

made clearly and conspicuously, in a form the member may retain.

Disclosures need be made only as applicable (e.g., disclosures for a

non-dividend-bearing account would not include disclosure of annual

percentage yield, dividend rate, or other disclosures pertaining to

dividend calculations).

2. Design requirements. Disclosures must be presented in a

format that allows members and potential members to readily

understand the terms of their account. Credit unions are not

required to use a particular type size or typeface, nor are credit

unions 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 members and potential members

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.

vi. On more than one document, as long as the documents are

provided at the same time.

3. Consistent terminology. A credit union must use the same

terminology to describe terms or features that are required to be

disclosed. For example, if a credit union describes a monthly fee

(regardless of account activity), as a ``monthly service fee'' in

account opening disclosures, the periodic statements and change-in-

terms notices must use the same terminology so that members and

potential members can readily identify the fee.

(b) General

1. Terms and conditions. Credit unions are required to have

disclosures reflect the terms of the legal obligation between the

credit union and a member at the time the member opens the account.

This provision does not impose any contract terms or supersede state

or other laws that define how the legal obligations between a credit

union and its membership are determined.

2. Specificity of legal obligation. Credit unions may refer to

the calendar month or to roughly equivalent intervals during a

calendar year as a ``month.'' Use of estimates is prohibited in TISA

disclosures.

3. Foreign language. Disclosures may be made in any foreign

language, if desired by the board of directors of a credit union.

However, disclosures must also be provided in English, upon request.

(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. A credit union changes a term that triggers a notice under

Regulation E, and the timing and disclosure rules of Regulation E

for sending change-in-terms notices.

ii. A member adds an ATM access feature to an account, and the

credit union provides disclosures pursuant to Regulation E,

including disclosure of fees before the member receives ATM access.

(See 12 CFR 205.7.)

iii. A credit union complying with the timing rules of

Regulation E discloses at the same time fees for electronic services

(such as balance inquiry fees imposed if the inquiry is made at an

ATM) that are required to be disclosed by this regulation, but not

by Regulation E.

iv. A credit union relies on Regulation E's rules regarding

disclosures of limitations on the frequency and amount of electronic

fund transfers, including security-related exceptions. But any

limitation on the number of ``intra-institutional transfers'' to or

from the member's other accounts at the credit union during a given

time period must be disclosed, even though intra-institutional

transfers are exempt from Regulation E.

(d) Multiple Members

1. General. When an account has multiple natural person member

accountholders, delivery of disclosures to any member accountholder

or agent authorized by the accountholder satisfies the disclosure

requirements of part 707.

(e) Oral Response to Inquiries

1. Application of rule. Credit unions need not provide rate

information orally. Disclosures need be made only as appropriate.

For example, the requirement to give a telephone number for a member

to call about rates for interest-bearing accounts and dividend-

bearing term share accounts, would not be necessary for members

calling the credit union for information. Also, the disclosure

reqirements are applicable only to credit union employees and

volunteers acting the in ordinary course of credit union business.

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 term share accounts or

accounts not currently offered. For example, if a member holding a

one-year term share account requests dividend rate information about

the account during the term, the credit union need not disclose the

annual percentage yield, unless the member is calling for rate

information under a maturity notice.

(f) Rounding and Accuracy Rules for Rates and Yields

(f)(1) Rounding

1. Permissible rounding. The annual percentage yield, annual

percentage yield earned and dividend rate must be rounded to the

nearest one-hundredth of one percentage point (.01%) when disclosed.

Examples of permissible rounding are an annual percentage yield

calculated to be 5.644%, rounded down and shown as 5.64%; 5.645%

would be rounded up and disclosed as 5.65%. For account disclosures,

the dividend rate may be expressed to more than two decimal places.

(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. Credit unions may not purposely incorporate the one-

twentieth of one percentage point (.05%) tolerance into their

calculation of yields.

2. Dividend rate. There is no tolerance for an inaccuracy in the

dividend rate.

Section 707.4--Account Disclosures

(a) Delivery of Account Disclosures

(a)(1) Account Opening

1. New accounts. New account disclosures must be provided when:

i. A term share account that does not automatically rollover is

renewed by a member.

ii. A member changes the term for a renewable term share account

(from a one-year term share account to a six-month term share

account, for instance) (see comment 5(b)-5 regarding disclosure

alternatives).

iii. A credit union transfers funds from an account to open a

new account not at the member's request, unless the credit union

previously gave account disclosures and any change-in-terms notices

for the new account (e.g., funds in a money market share account are

transferred by a credit union to open a new account for the member,

such as a share draft account, because the member exceeded

transaction limitations on the money market share account).

iv. A credit union accepts a deposit from a member to an account

that the credit union had previously deemed to be ``closed,'' under

applicable federal or state law, for the purpose of treating

accrued, but uncredited, dividends as forfeited dividends. New

account numbers are not required by this requirement.

2. Acquired accounts. New account disclosures need not be given

when a credit union acquires an account through an acquisition of,

or merger with, another credit union (but see Sec. 707.5(a)

regarding advance notice requirements if terms are changed).

3. Combination disclosures. New account disclosures need not be

given when a member has already received disclosures covering

several accounts, and opens a new account properly disclosed by the

already received combination disclosures, if the new account is

opened within a reasonable amount of time after receipt of the

combination disclosures and if the received disclosures and terms

are accurate at the time the new account is opened.

(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 a member

asks for written information about an account (whether by telephone,

in person, or by other means), the credit union must provide

disclosures unless the account is no longer offered to the public.

2. General requests. When member's or potential member's

request disclosures about a type of account (a share draft account,

for example), a credit union that offers several variations may

provide disclosures for any one of them. No disclosures need be made

to nonmembers, though a credit union may provide disclosures to

nonmembers within its sole discretion.

3. Timing for response. Twenty calendar days is a reasonable

time for responding to a request for account information that a

member does not make in person.

(a)(2)(ii)(A)(2)

1. Recent rates. Credit unions comply with this paragraph if

they disclose an interest rate (or dividend rate on a dividend-

bearing term share account) 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 term share account as ``1

year'' or ``6 months,'' for example, illustrates a response stating

the maturity of a term share account as a term rather than a date

(e.g., ``June 1, 1995'').

(b) Content of Account Disclosures

(b)(1) Rate Information

(b)(1)(i) Annual Percentage Yield and Dividend Rate

1. Rate disclosures. In addition to the dividend rate and annual

percentage yield, credit unions may disclose a periodic rate

corresponding to the dividend rate. No other rate or yield (such as

``tax effective yield'') is permitted. If the annual percentage

yield is the same as the dividend rate, credit unions may disclose a

single figure but must use both terms.

2. Fixed-rate accounts. For fixed-rate term share accounts

paying the opening rate until maturity, credit unions may disclose

the period of time the dividend rate will be in effect by stating,

or cross-referencing, the maturity date. For other fixed-rate

accounts, credit unions may use a date (such as ``This rate will be

in effect through June 30, 1995'') or a period (such as ``This rate

will be in effect for at least 30 days'').

3. Tiered-rate accounts. Each dividend 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 dividend 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.)

5. Minimum balance accounts. If a credit union sets a minimum

balance to earn dividends, the credit union may, but need not, state

that the annual percentage yield is 0% for those days the balance in

the account drops below the minimum balance level when using the

daily balance method. Nor is a disclosure of 0% required for credit

unions using the average daily balance method, if the member fails

to meet the minimum balance required for the average daily balance

period.

(b)(1)(ii) Variable Rates

(b)(1)(ii)(B)

1. Determining dividend rates. To disclose how the dividend rate

is determined, credit unions must:

i. Identify the index and specific margin, if the dividend rate

is tied to an index.

ii. State that rate changes are within the credit union's

discretion, if the credit union does not tie changes to an index.

(b)(1)(ii)(C)

1. Frequency of rate changes. A credit union 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. Credit unions need not disclose the absence of

limitations on rate changes.

(b)(2) Compounding and Crediting

(b)(2)(i) Frequency

1. General. Descriptions such as ``quarterly'' or ``monthly''

are sufficient. Irregular crediting and compounding periods, such as

if a cycle is out short at year end for tax reporting purposes, need

not be disclosed.

2. Dividend period. For dividend-bearing accounts, the dividend

period must be disclosed. (A specific example must also be given,

see Appendix B, Sec. B-1(c).) The dividend period for term share

accounts generally may be disclosed as the account's term (e.g., two

years).

(b)(2)(ii) Effect of Closing an Account

1. Deeming an account closed. A credit union may, subject to

state or other law, provide in account contracts the actions by

members that will be treated as closing the account and that will

result in the forfeiture of accrued but uncredited dividends. An

example is the withdrawal of all funds from the account prior to the

date dividends are credited. Credit unions are cautioned that bylaw

requirements may prevent a credit union from deeming a member's

account closed until certain time periods are extinguished if funds

remain in a member's account. NCUA Standard FCU Bylaws, Art. III,

Sec. 3 (members have at least 6 months to replenish membership share

before membership terminates and account is deemed closed). Such

bylaw requirements may not be overridden without proper agency

approval.

(b)(3) Balance Information

(b)(3)(i) Minimum Balance Requirements

1. Par value. Credit unions must disclose any minimum balance

required to open the account, to avoid the imposition of a fee, or

to obtain the annual percentage yield. Since members cannot

generally maintain any accounts until the par value of the

membership share is paid in full, this section requires that credit

unions disclose the par value of a share necessary to become a

member and maintain accounts at the credit union. The par value of a

share and the minimum balance requirement do not have to be the same

amount (e.g., a credit union may have a $5 par value for a

membership share, in order for accounts to be opened and maintained,

and a $100 minimum balance requirement, in order for the account to

earn dividends).

2. Disclosures. The explanation of minimum balance computation

methods may be combined with the balance computation method

disclosures (Sec. 707.4(b)(3)(ii)) if they are the same. If a credit

union uses different cycles for determining minimum balance

requirements for purposes of assessing fees and for paying

dividends, the credit union must disclose the specific cycle or time

period used for each purpose (e.g., use of a midmonth statement

cycle for determining dividends, and use of a calendar month cycle

for determining fees). Credit unions may assess fees by using any

method. If fees on one account are tied to the balance in another

account, such provision must be explained (e.g., if share draft fees

are tied to a minimum balance in the regular share account (or a

combination of the share draft and regular share accounts), the

share draft account must explain that fact and how the balance in

the regular share account (or both accounts) is determined). The fee

need not be disclosed in the account disclosures if the fee is not

imposed on that account.

(b)(3)(ii) Balance Computation Method

1. Methods and periods. Credit unions 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 dividends (the average daily balance for a statement

period, for example). Each method and corresponding period must be

disclosed.

(b)(3)(iii) When dividends begin to accrue

1. Additional information. Credit unions must include a

statement as to when dividends begin to accrue for noncash deposits.

Credit unions 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

dividends begin to accrue. Under the ledger balance method,

dividends begin to accrue on the day of deposit. Under the collected

balance methods, dividends begin to accrue when provisional credit

is received for the item deposited.

(b)(4) Fees

1. Types of fees. Fees related to the routine use of an account

must be disclosed. The following are types of fees that must be

disclosed in connection with an account:

i. Maintenance fees, such as monthly service fees.

ii. Fees related to share deposits or withdrawals.

iii. Fees for special services, such as stop payment fees, fees

for balance inquiries or verification of share and deposits, fees

associated with checks returned unpaid, fees for regularly sending

to members share drafts that otherwise would be held by the credit

union, and overdraft line of credit access fees (if charged against

the share account).

iv. Fees to open or to close an account.

v. Fees imposed upon dormant or inactive accounts.

2. Other fees. Credit unions need not disclose fees such as the

following:

i. Fees for services offered to members and nonmembers alike,

such as fees for certain travelers checks, for wire transfers and

automated clearinghouse (ACH) transfers, to process credit card cash

advances, or to handle U.S. Savings Bond Redemption (even if

different amounts are charged to members and nonmembers).

ii. Incidental fees, such as fees associated with state escheat

laws, garnishment or attorneys fees, to change names on an account,

to generate a midcycle periodic statement, to wrap loose coins, for

photocopying forms, for statements returned to the credit union

because of a wrong address, and locator fees.

2. Amount of fees. Credit unions are cautioned that merely

providing fee information in an account disclosure may not be

sufficient to gain the legal right to impose the fee involved under

applicable law. Credit unions must state the amount and conditions

under which a fee may be imposed. Naming and describing the fee

typically satisfies this requirement. Some examples are:

i. ``$4.00 monthly service fee''.

ii. $7.00 and up'' or ``fee depends on style of checks ordered''

for check printing fees.

3. Tied-accounts. Credit unions must state if fees that may be

assessed against an account are tied to other accounts at the credit

union. For example, if a credit union ties the fees payable on a

share draft account to balances held in the share draft account and

in a regular share account, the share draft account disclosures must

state that fact and explain how the fee is determined.

4. Regulation E statements. Some fees are required to be

disclosed under both Regulation E (12 CFR 205.7) and part 707. If

such fees, such as ATM transaction fees, are disclosed on a

Regulation E statement, they need not be disclosed again on a

periodic statement required under part 707.

(b)(5) Transaction Limitations

1. General rule. Examples limitations on the number of dollar

amount of share deposits or withdrawals that credit unions must

disclose are:

i. Limits on the number of share drafts or checks that may be

written on an account for a given time period.

ii. Limits on withdrawals or share deposits during the term of a

term share account.

iii. Limitations required by Regulation D, such as the number of

withdrawals permitted from money market share accounts by check to

third parties each month (credit unions need not disclose

reservation of right to require a notice for withdrawals from

accounts required by federal or state law).

(b)(6) Features of Term Share Accounts

(b)(6)(i) Time Requirements

1. ``Callable'' term share accounts. In addition to the maturity

date, credit unions must state the date or the circumstances under

which the credit union may redeem a term share account at the credit

union's option (a ``callable'' term share account).

(b)(6)(ii) Early Withdrawal Penalties

1. General. The term ``penalty'' may, but need not, be used to

describe the loss that may be incurred by members for early

withdrawal of funds from term share accounts.

2. Examples. Examples of early withdrawal penalties are:

i. Monetary penalties, such a specific dollar amount (e.g.,

``$10.00'') or a specific days' worth of dividends (e.g., ``seven

days' dividends plus accrued but uncredited dividends, but only if

the account is closed'').

ii. Adverse changes to terms such as the lowering of the

dividend rate, annual percentage yield, or reducing the compounding

or crediting frequency for funds remaining in shares or 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 credit unions 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 dividends'' is

permissible, whether the credit union assesses 30 days' dividends

during the month of April, or selects a time period between 28 and

31 days for calculating the dividends for all early withdrawals

regardless of when the penalty is assessed.

(b)(6)(iv) Renewal Policies

1. Rollover term share accounts. Credit unions are not required

to provide a grace period, to pay dividends during the grace period,

or to disclose whether or not dividends will be paid during the

grace period. Credit unions offering a grace period on term share

accounts must give the length of the grace period. Commentary,

Appendix B, Model Clauses, Sec. B-1(i)(iv).

2. Nonrollover term share accounts. Credit unions that pay

dividends on funds following the maturity of term share accounts

that do not renew automatically need not state the rate (or annual

percentage yield) that may be paid.

(b)(7) Bonuses

1. General. Credit unions are required to state the amount and

type of bonus, and disclose any minimum balance or time requirement

to obtain the bonus and when the bonus will be provided. If the

minimum balance or time requirement is otherwise required to be

disclosed, credit unions need not duplicate the disclosure for

purposes of this paragraph.

(b)(8) Nature of Dividends

1. General. Dividends are not payable until declared and unless

sufficient current and undivided earnings are available after

required transfers to reserves at the close of a dividend period. A

disclosure explaining dividends educates members and protects credit

unions in the event that a prospective dividend cannot be paid, or

is not properly payable. This disclosure is required for all

dividend-bearing share accounts. Term share accounts need not

include a statement regarding the nature of dividends.

2. State-chartered credit unions with interest-bearing deposit

accounts. State law controls the nature of accounts (i.e., whether

an account is a share account or a deposit account). If a member of

a state-chartered credit union is opening only an interest-bearing

deposit account, or is requesting account disclosures only for an

interest-bearing deposit account (if state law requires the

depositor to hold a share account), the disclosures must generally

include the following information on any dividend-bearing share

portion of the account (e.g., membership share): the par value of a

share; a statement that the portion of the deposit that represents

the par value of the membership share will earn dividends, and that

dividends are paid from current income and available earnings after

required transfers to reserves. Further additional disclosures, such

as a separate dividend rate and annual percentage yield for the

membership share, are not required (if the additional disclosures

would agree with the remainder of the account which is invested in

an interest-bearing deposit).

(c) Notice to Existing Accountholders

1. General. Only members who receive periodic statements

(provided regularly at least four times per year) and who hold

accounts of the type offered by the credit union as of the

compliance date of part 707 (generally January 1, 1995) must receive

the notice. If following receipt of the notice members request

disclosures, credit unions have twenty calendar days from receipt of

the request to provide the disclosures. Rate and annual percentage

yield information in such disclosures must conform to that required

for disclosures upon request. As an alternative to including the

notice in or on the periodic statement, the final rule permits

credit unions to send the account disclosures themselves, as long as

they are sent at the same time as the periodic statement (the

disclosures may be mailed either with the periodic statement or

separately).

2. Form of the notice. The notice may be included on the

periodic statement, in a member newsletter, or on a statement

stuffer or other insert, if it is clear and conspicuous. The notice

cannot be sent in a separate mailing from the periodic statement.

3. Timing. The notice may accompany the first periodic statement

after the compliance date for part 707, or the periodic statement

for the first cycle beginning after that date. For example, a credit

union's statement cycle is December 15, 1994-January 14, 1995. The

statement is mailed on January 15, The next cycle is January 15,

1995 through February 14, 1995, and the statement for that cycle is

mailed on February 15. The credit union may provide the notice

either on or with the January 15 statement or on or with the

February 15 statement, as it covers the first cycle after January 1,

1995.

4. Early compliance. Credit unions that provide the notice to

existing members prior to the compliance date of part 707, must be

prepared to provide accurate and timely disclosures when, following

receipt of the notice, members ask for account disclosures. Such

disclosures must be provided even if they are requested before the

compliance date of part 707. Credit unions who provide early notice

to existing members need to comply with other aspects of part 707,

but need not provide disclosures already provided in compliance with

part 707.

Section 707.5--Subsequent Disclosures

(a) Change in Terms

(a)(1) Advance Notice required

1. Form of notice. Credit unions may provide a change-in-term

notice on or with a regular periodic statement or in another mailing

(such as a highlighted portion of a newsletter or statement stuffer

insert). If a credit union provides notice through revised account

disclosures, the changed term must be highlighted in some manner.

For example, credit unions may state that a particular fee has been

changed (also specifying the new amount) or use an accompanying

letter that refers to the changed term. Credit unions are cautioned

that unless credit unions have reserved the right to change terms in

the account agreement or disclosures, a change-in-terms notice may

not be sufficient to amend the terms under applicable law.

2. Effective date. An example of a language for disclosing the

effective date of a change is: ``As of May 11, 1995''.

3. Terms that change upon the occurrence of an event. A credit

union offering terms that will automatically change upon the

occurrence of a stated event need not send an advance notice of the

change provided the credit union 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

member'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 employee-members for whom

account maintenance or activity fees were waived during their

employment by the credit union.

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 share drafts (or deposit and withdrawal slips)

even if the credit union adds some amount to the price charged by

the vendor.

(b) Notice Before Maturity for Term Share Accounts Longer Than One

Month That Renew Automatically.

1. Maturity dates on nonbusiness days. In determining the term

of a term share account, credit unions may disregard the fact that

the term will be extended beyond the disclosed number of days if the

maturity date falls on a nonbusiness day. For example, a holiday or

weekend may cause a ``one-year'' term share account to extend beyond

365 days (or 366, in a leap year), or a ``one-month'' term share

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 discernible, such as ``the Tuesday

prior to the maturity date stated on the notice'' or ``as of the

maturity date stated on this notice''.

3. Alternative timing rule. Under the alternative timing rule, a

credit union that offers a 10-day grace period would have to provide

the disclosures at least 10 calendar days prior to the scheduled

maturity date.

4. Club acc

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