[Federal Register Volume 63, Number 249 (Tuesday, December 29, 1998)]
[Rules and Regulations]
[Pages 71573-71575]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33944]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 Prices of new books are listed in the first FEDERAL REGISTER issue of each 
 week.
 
 ========================================================================
 

  Federal Register / Vol. 63, No. 249 / Tuesday, December 29, 1998 / 
Rules and Regulations  

[[Page 71573]]


-----------------------------------------------------------------------

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.

-----------------------------------------------------------------------

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