Truth in Savings

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 707

Truth in Savings

AGENCY: National Credit Union Administration (NCUA).

ACTION: Interim final rule with request for comments.

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SUMMARY: NCUA is amending part 707 of its regulations to implement

certain statutory changes in the Truth in Savings Act (TISA). These

amendments: modify the rules governing indoor lobby signs; eliminate

subsequent disclosure requirements for automatically renewable term

share accounts with terms of one month or less; repeal TISA's civil

liability provisions as of September 30, 2001; and permit disclosure of

an annual percentage yield (APY) equal to the contract dividend rate

for term share accounts with maturities greater than one year that do

not compound but require dividend distributions at least annually.

DATES: This rule is effective December 29, 1998. Comments must be

received on or before March 29, 1999.

ADDRESSES: Direct comments to Becky Baker, Secretary of the Board. Mail

or hand-deliver comments to: National Credit Union Administration, 1775

Duke Street, Alexandria, Virginia 22314-3428. You may fax comments to

(703) 518-6319. Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: Frank S. Kressman, Staff Attorney,

Division of Operations, Office of General Counsel, at the above address

or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Background

Part 707 of NCUA's regulations implements TISA. 12 CFR part 707.

The purpose of part 707 and TISA is to assist members in making

meaningful comparisons among share accounts offered by credit unions.

Part 707 requires disclosure of fees, dividend rates, APY, and other

terms concerning share accounts to members at account opening or

whenever a member requests this information. Fees and other information

also must be provided on any periodic statement credit unions send to

their members. TISA requires NCUA to promulgate regulations

substantially similar to those promulgated by the Board of Governors of

the Federal Reserve System (Federal Reserve). 12 U.S.C. 4311(b). In

doing so, NCUA is to take into account the unique nature of credit

unions and the limitations under which they may pay dividends on member

accounts.

The Federal Reserve has issued final rules to implement certain

statutory changes in TISA. One of these rules: expands an exemption

from certain advertising provisions for signs on the interior of a

depository institution; eliminates the requirement that depository

institutions provide disclosures in advance of maturity for

automatically renewable (rollover) accounts with a term of one month or

less; and repeals TISA's civil liability provisions, effective

September 30, 2001. 63 FR 52105 (September 29, 1998). The Federal

Reserve also has promulgated a final rule that permits depository

institutions to disclose an APY equal to the contract interest rate for

time accounts with maturities greater than one year that do not

compound but require interest distributions at least annually. 63 FR

40635 (July 30, 1998). NCUA is issuing final rules that are

substantially similar to the above rules issued by the Federal Reserve.

Interim Final Rule

The NCUA Board is issuing these rules as interim final rules

because there is a strong public interest in having in place consumer

oriented rules that are consistent with those recently promulgated by

the Federal Reserve. Additionally, as discussed above, NCUA is required

to issue rules substantively similar to those of the Federal Reserve

shortly after the Federal Reserve issues its final rules. Accordingly,

for good cause, the Board finds that, pursuant to 5 U.S.C.

553(b)(3)(B), notice and public procedures are impracticable,

unnecessary, and contrary to the public interest; and, pursuant to 5

U.S.C. 553(d)(3), the rules shall be effective immediately and without

30 days advance notice of publication. Although the rules are being

issued as interim final rules and are effective immediately, the NCUA

Board encourages interested parties to submit comments.

Section by Section Analysis

Section 707.4 Account Disclosures

A brief statement has been added to the account disclosure

requirements of Sec. 707.4(b)(6)(iii) for credit unions stating an APY

equal to the contract dividend rate for noncompounding term share

accounts that have a maturity greater than one year and that require

dividend payouts at least annually. The statement alerts members to the

fact that dividends cannot remain in the account. This is intended to

assist members in comparison shopping between accounts with annual

compounding and accounts that do not compound but require dividend

payouts during the account term.

Section 707.5 Subsequent Disclosures

Section 266(a)(3) of TISA requires depository institutions to

provide certain disclosures for rollover accounts at least 30 days

before maturity. The Federal Reserve has determined that the purposes

of TISA would not be served by requiring advance disclosures for

rollover accounts with maturities of one month or less, and has

interpreted one month to include 30 or 31 days. NCUA takes the same

approach in this context, and does not require disclosures to be

provided in advance of maturity for these accounts. Credit unions will

continue to provide disclosures when these accounts are opened.

Accordingly, Sec. 707.5(c) and the corresponding provision in Appendix

C-Official Staff Interpretations, which required disclosure, are

deleted.

Section 707.8 Advertising

This section requires credit unions that advertise APYs for

accounts to disclose other key account features. It requires a brief

narrative that parallels the account disclosure statement required by

Sec. 707.4(b)(6)(iii). If a credit union states an APY equal to the

contract dividend rate in advertising a noncompounding multi-year

account that requires dividend payments, the

[[Page 71574]]

fact that dividend payouts are mandatory and that dividends cannot

remain in the account must be stated. This disclosure is intended to

assist members in comparison shopping between multi-year accounts that

compound annually and multi-year accounts that do not compound but

require dividend payouts at least annually.

Section 263(a) of TISA provides that a reference to a specific

dividend rate, yield, or rate of earnings in an advertisement triggers

a duty to state certain additional information, including the APY. In

1994, Congress amended section 263(c) of the advertising rules to

provide that, if a rate is displayed on a sign, including a rate board,

designed to be viewed only from the interior of the premises, then the

disclosure requirements of section 263 do not apply. A subsequent

statutory amendment to section 263(c) expands the exemption for signs

on the interior of the premises. Specifically, all signs inside the

premises are exempt from certain advertising disclosures, including

signs that are intended to be viewed from outside the premises.

Accordingly, the reference in Sec. 707.8(e) to signs that face outside

the premises and the corresponding provision in the Appendix C--

Official Staff Interpretations are amended. Any sign posted on the

outside of the premises remains covered by the advertising provisions

unless the sign qualifies for some other exemption, such as the

exemption for electronic media.

The Federal Reserve exempts advertisements made through broadcast

or electronic media from several of the mandatory advertising

disclosures. The Federal Reserve has determined that computer or other

advertisements, such as those posted on the Internet, are not exempt

under the broadcast or electronic media provision. The rationale for

broadcast and electronic media exemptions is that these media have time

or space constraints that make it extremely burdensome to provide the

required disclosures. Advertisements posted on the Internet generally

do not have the same time and space constraints. Such advertisements,

therefore, remain subject to the general advertising rules and must

comply with the requirements of Secs. 707.8(a), (b), (c), and (d).

Section 707.9 Enforcement and Record Retention

Section 271 of TISA, which provides for civil liability for

violations of TISA, has been repealed effective September 30, 2001.

This section reflects the effective date of the repeal.

Appendix A to Part 707--Annual Percentage Yield Calculation

Paragraph E is added to Appendix A, Part I to clarify how APYs may

be determined for noncompounding term share accounts that have a

maturity greater than one year and that pay dividends at least

annually. Two examples are added, including an example calculating the

APY for a stepped-rate account.

Appendix B to Part 707--Model Clauses and Sample Forms

A new model clause is added to describe the effect of dividend

payments on earnings.

Appendix C to Part 707--Official Staff Interpretations

Appendix C has been amended in accordance with the amendments made

to Secs. 707.5 and 707.8 for the reasons discussed above.

Regulatory Procedures

Regulatory Flexibility Act

The Regulatory Flexibility Act requires NCUA to prepare an analysis

to describe any significant economic impact any proposed regulation may

have on a substantial number of small entities (primarily those under

$1 million in assets). The NCUA has determined and certifies that this

interim rule will not have a significant economic impact on a

substantial number of small credit unions. Accordingly, the NCUA has

determined that a Regulatory Flexibility Analysis is not required.

Paperwork Reduction Act

This interim rule has no net effect on the reporting requirements

in part 707.

Executive Order 12612

Executive Order 12612 requires NCUA to consider the effect of its

actions on state interests. It states that: ``Federal action limiting

the policy-making discretion of the states should be taken only where

constitutional authority for the action is clear and certain, and the

national activity is necessitated by the presence of a problem of

national scope.'' This interim rule will not have a direct effect on

the states, on the relationship between the national government and the

states, or on the distribution of power and responsibilities among the

various levels of government. NCUA has determined that this interim

rule does not constitute a significant regulatory action for purposes

of the executive order.

Small Business Regulatory Enforcement Fairness Act

The Small Business Regulatory Enforcement Fairness Act of 1996

(Pub. L. 104-121) provides generally for congressional review of agency

rules. A reporting requirement is triggered in instances where NCUA

issues a final rule as defined by Section 551 of the Administrative

Procedures Act. 5 U.S.C. 551. The Office of Management and Budget has

reviewed this rule and has determined that for purposes of the Small

Business Regulatory Enforcement Fairness Act of 1996 this is not a

major rule.

List of Subjects in 12 CFR Part 707

Advertising, Consumer protection, Credit unions, Reporting and

recordkeeping requirements, Truth in savings.

By the National Credit Union Administration Board on December

17, 1998.

Becky Baker,

Secretary of the Board.

For the reasons set forth above, 12 CFR part 707 is amended as

follows:

PART 707--TRUTH IN SAVINGS

1. The authority citation for part 707 continues to read as

follows:

Authority: 12 U.S.C. 4311.

2. Section 707.4 is amended by adding a sentence at the end of

paragraph (b)(6)(iii) to read as follows:

Sec. 707.4 Account disclosures.

* * * * *

(b) * * *

(6) * * *

(iii) * * * For accounts with a stated maturity greater than one

year that do not compound dividends on an annual or more frequent

basis, that require dividend payouts at least annually, and that

disclose an APY determined in accordance with section E of appendix A

of this part, a statement that dividends cannot remain on account and

that payout of dividends is mandatory.

* * * * *

Sec. 707.5 [Amended]

3. Section 707.5 is amended by removing paragraph (c) and

redesignating paragraph (d) as new paragraph (c).

4. Section 707.8 is amended as follows:

a. Add a new paragraph (c)(6)(iii) to read as set forth below; and

b. Revise paragraph (e)(2)(i) to read as set forth below.

Sec. 707.8 Advertising.

* * * * *

[[Page 71575]]

(c) * * *

(6) * * *

(iii) Required dividend payouts. For noncompounding term share

accounts with a stated maturity greater than one year that do not

compound dividends on an annual or more frequent basis, that require

dividend payouts at least annually, and that disclose an APY determined

in accordance with section E of appendix A of this part, a statement

that dividends cannot remain on account and that payout of dividends is

mandatory.

* * * * *

(e) Exemption for certain advertisements. * * *

(2) Indoors signs. (i) Signs inside the premises of a credit union

(or the premises of a share or deposit broker) are not subject to

paragraphs (b), (c), (d) or (e)(1) of this section.

* * * * *

5. Section 707.9 is amended by revising paragraph (b) to read as

follows:

Sec. 707.9 Enforcement and record retention.

* * * * *

(b) Civil liability. Section 271 of TISA (12 U.S.C. 4310) contains

the provisions relating to civil liability for failure to comply with

the requirements of TISA and this part; Section 271 is repealed

effective September 30, 2001.

* * * * *

6. Appendix A to part 707 is amended as follows:

a. Revise the third sentence in the introductory text to Part I to

read as set forth below;

b. Revise the first sentence of the introductory text to Part I, A.

General Rules to read as set forth below; and

c. A new section E is added to Part I and reads as set forth below.

Appendix A to Part 707--Annual Percentage Yield Calculation

* * * * *

Part I. Annual Percentage Yield for Account Disclosures and Advertising

Purposes

* * * Special rules apply to accounts with tiered and stepped

dividend rates, and to certain term share accounts with a stated

maturity greater than one year.

A. General Rules

Except as provided in Part I. E. of this appendix, the annual

percentage yield shall be calculated by the formula shown below. * *

*

* * * * *

E. Term Share Accounts with a Stated Maturity Greater than One Year

that Pay Dividends At Least Annually

1. For term share accounts with a stated maturity greater than

one year, that do not compound dividends on an annual or more

frequent basis, and that require the member to withdraw dividends at

least annually, the annual percentage yield may be disclosed as

equal to the dividend rate.

Example

If a credit union offers a $1,000 two-year term share account

that does not compound and that pays out dividends semi-annually by

check or transfer at a 6.00% dividend rate, the annual percentage

yield may be disclosed as 6.00%.

2. For term share accounts covered by this paragraph that are

also stepped-rate accounts, the annual percentage yield may be

disclosed as equal to the composite dividend rate.

Example

(1) If a credit union offers a $1,000 three-year term share

account that does not compound and that pays out dividends annually

by check or transfer at a 5.00% dividend rate for the first year,

6.00% dividend rate for the second year, and 7.00% dividend rate for

the third year, the credit union may compute the composite dividend

rate and APY as follows:

(a) Multiply each dividend rate by the number of days it will be

in effect;

(b) Add these figures together; and

(c) Divide by the total number of days in the term.

(2) Applied to the example, the products of the dividend rates

and days the rates are in effect are (5.00% x 365 days) 1825,

(6.00% x 365 days) 2190, and (7.00% x 365) 2555, respectively. The

sum of these products, 6570, is divided by 1095, the total number of

days in the term. The composite dividend rate and APY are both

6.00%.

* * * * *

7. Appendix B to part 707 is amended by adding a new paragraph

(I)(v) under B-1 Model Clauses For Account Disclosures and reads as

follows:

Appendix B to Part 707--Model Clauses and Sample Forms

* * * * *

B-1 Model Clauses for Account Disclosures

* * * * *

(I) * * *

(V) Required dividend distribution.

This account requires the distribution of dividends and does not

allow dividends to remain in the account.

* * * * *

Appendix C to Part 707 [Amended]

8. Appendix C to part 707 is amended as follows:

a. Remove paragraph (c)1. under Section 707.5 and redesignate

paragraph (d)1. under Section 707.5 as new paragraph (c)1.

b. Remove paragraph (e)(2)(i)2. under Section 707.8.

[FR Doc. 98-33944 Filed 12-28-98; 8:45 am]

BILLING CODE 7535-01-P