[Federal Register Volume 61, Number 103 (Tuesday, May 28, 1996)]
[Proposed Rules]
[Pages 26470-26471]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13226]



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FEDERAL RESERVE SYSTEM

12 CFR Part 230

[Regulation DD; Docket No. R-0904]


Truth in Savings

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Withdrawal of proposed official staff interpretation.

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SUMMARY: The Board is withdrawing proposed revisions to the official 
staff commentary to Regulation DD (Truth in Savings) concerning 
guidance on issues of general interest, based on considerations of 
regulatory burden which was published in the Federal Register on 
December 6, 1995.

DATES: The proposal is withdrawn May 21, 1996.

FOR FURTHER INFORMATION CONTACT: Jane Ahrens, Senior Attorney, or 
Michael L. Hentrel, Staff Attorney, Division of Consumer and Community 
Affairs, Board of Governors of the Federal Reserve System, at (202) 
452-3667 or 452-2412. For users of Telecommunications Device for the 
Deaf (TDD) only, please contact Dorothea Thompson, at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

    The purpose of the Truth in Savings Act (TISA), 12 U.S.C. 4301 et 
seq., is to assist consumers in comparing deposit accounts offered by 
depository institutions. The TISA requires institutions to disclose 
fees, the interest rate, the annual percentage yield (APY), and other 
account terms whenever a consumer requests the information and before 
an account is opened. Fees and other information also must be provided 
on any periodic statement the

[[Page 26471]]

institution sends to the consumer. Rules are set forth for deposit 
account advertisements and advance notices to account holders of 
adverse changes in terms. The act restricts how institutions must 
determine the account balance on which interest is calculated. The TISA 
is implemented by the Board's Regulation DD (12 CFR part 230). The 
regulation authorizes the issuance of official staff interpretations.
    On December 6, 1995 (60 FR 62349), the Board published for comment 
proposed amendments to the commentary to Regulation DD. Mainly, the 
proposed revisions provided guidance on technical matters such as the 
effect of a leap year on the calculation of interest, the APY and the 
annual percentage yield earned (APYE). Comments addressing other 
technical issues concerning the definition of bonuses and time accounts 
were also proposed.
    The Board received nearly 50 comments on its proposal. About 90 
percent of the comments were from financial institutions. By far, 
commenters focused on the proposals addressing leap-year calculations 
and compounding and crediting policies. Overall, comments were mixed. 
Some supported the proposals as helpful clarifications. Others opposed 
the proposals--particularly the revisions concerning calculations in a 
leap year and crediting interest--as being unduly technical and 
unnecessary. Based on the comments received and upon further analysis, 
the Board is withdrawing all proposed commentary revisions, due to 
considerations of regulatory burden and the narrow scope of the 
proposals.

II. Discussion

Leap-Year Calculations

    Regulation DD requires institutions to pay interest on the full 
amount of principal in an interest-bearing account each day. 
Institutions may apply a daily rate of 1/365 or 1/366 of the interest 
rate during a leap year. On August 8, 1994, the Board issued a final 
staff commentary for Regulation DD (59 FR 40217). Comment 7(a) (1)-4 
clarified that institutions may apply a daily rate of 1/365 or 1/366 of 
the interest rate for 366 days during a leap year, if the account will 
earn interest for February 29.
    The Board published on December 6, 1995 proposed revisions to the 
commentary that further discussed leap-year calculations of interest, 
as well as the APY and the APYE. Numerous commenters opposed the 
proposed revisions (60 FR 62349). Many believed the regulation 
sufficiently addresses the rule, and that highly technical 
interpretations were neither necessary nor desirable. Other commenters 
opposed the Board's existing rule that permits institutions sometimes 
to use a daily factor of 1/366 or 1/365 during a leap year--although 
these commenters represent both ends of the spectrum. Some believe a 
daily factor of 1/366 should never be used; others would expand its 
use, for example to all accounts during a calendar leap year. Not all 
commenters opposed the proposal. Some supported the revisions, and 
sought further elaboration about calculations for a variety of specific 
accounts. After reviewing the concerns raised and upon further 
analysis, the Board has decided not to adopt the proposed comments 
addressing leap-year calculations. The Board believes that for some 
institutions, a variety of specific examples would be helpful; overall, 
however, the Board believes the level of technical guidance proposed is 
not necessary. The regulation and commentary provide general guidance 
on leap-year calculations, which, on balance, the Board believes is the 
appropriate level of interpretive detail at this time.

Compounding and Crediting Policies

    Institutions must pay interest on the full amount of principal in 
the account each day, but may compound or credit interest at any 
frequency. Neither the TISA nor the regulation define ``compounding,'' 
``crediting,'' or ``principal.'' Proposed comment 7 (b)-4 would have 
provided that once interest is credited to an account it becomes part 
of the principal, and if interest remains in the account, interest must 
accrue on those funds.
    Many commenters addressing the issue favored the proposal as a 
clarification of current banking practice. However, many others were 
opposed to the proposal. Commenters raised several related concerns 
arising out of the proposal about the definition of terms such as 
``posting,'' ``crediting,'' and ``principal.'' Those commenters argued 
that the Board's proposal raised issues that should properly be 
addressed after further notice and opportunity for public comment. 
Others were concerned about the effect of the proposal on time accounts 
that permit consumers to withdraw credited interest during the account 
term without penalty. They argued that if this interest were to be 
considered part of the principal, early withdrawal penalties could be 
triggered under some account agreements. Some commenters also stated 
that the TISA and Regulation DD do not require such a reading of the 
rules regarding the payment of interest. Many stated that the proposal 
would result in a reduction of account choices or interest rates 
available to consumers for those institutions wishing to avoid accruing 
interest on interest credited to and remaining in the account.
    The Board believes a number of valid concerns were raised about 
issues that were not addressed in the proposal. Accordingly, the Board 
is withdrawing the comment and will consider whether further guidance 
is needed in the future on these matters.

Other Proposed Revisions

    The proposed commentary update also addressed rounding rules for 
the APYE and the definitions of time account and bonuses. Given the 
technical nature and narrow application of these remaining proposals, 
the Board believes the cost and regulatory burden of reviewing and 
implementing changes associated with these provisions outweighs the 
benefits of additional official guidance, and is therefore withdrawing 
all proposed comments.

    By order of the Board of Governors of the Federal Reserve 
System, acting through the Secretary of the Board under delegated 
authority, May 21, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-13226 Filed 5-24-96; 8:45 am]
BILLING CODE 6210-01-P