[Federal Register Volume 68, Number 237 (Wednesday, December 10, 2003)]
[Proposed Rules]
[Pages 68799-68802]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29946]


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FEDERAL RESERVE SYSTEM

12 CFR Part 230

[Regulation DD; Docket No. R-1171]


Truth in Savings

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is proposing to amend Regulation DD, which 
implements the Truth in Savings Act, and the staff commentary to the 
regulation. Regulation DD would be revised to define more specifically 
the standard for providing ``clear and conspicuous'' disclosures, and 
to provide a more uniform standard among the Board's regulations. The 
staff commentary would be revised to include examples of how to meet 
this standard. Similar proposed revisions to Regulations B, E, M, and Z 
appear elsewhere in today's Federal Register. These revisions are 
intended to help ensure that consumers receive noticeable and 
understandable information that is required by law in connection with 
obtaining consumer financial products and services. In addition, 
consistency among the regulations should facilitate compliance by 
institutions.

DATES: Comments must be received on or before January 30, 2004.

ADDRESSES: Comments should refer to Docket No. R-1171 and should be 
mailed to Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW., 
Washington, DC 20551. However, because paper mail in the Washington 
area and at the Board

[[Page 68800]]

of Governors is subject to delay, please consider submitting your 
comments by e-mail to [email protected], or faxing them 
to the Office of the Secretary at (202) 452-3819 or 452-3102. Members 
of the public may inspect comments in Room MP-500 of the Martin 
Building between 9 a.m. and 5 p.m. on weekdays pursuant to Sec.  
261.12, except as provided in Sec.  261.14, of the Board's Rules 
Regarding Availability of Information, 12 CFR 261.12 and 261.14.

FOR FURTHER INFORMATION CONTACT: Krista P. DeLargy and Elizabeth A. 
Eurgubian, Attorneys, 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, contact (202) 263-4869.

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, principally through the disclosure of fees, 
the annual percentage yield (APY), the interest rate, and other account 
terms. The act and regulation require depository institutions to 
provide a consumer with disclosures upon request and before an account 
is opened. Institutions are not required to provide periodic 
statements; but if they do, the act and regulation require that fees, 
yields, and other information be provided on the statements. Notice 
must be given to accountholders before an adverse change in account 
terms occurs and prior to the renewal of certificates of deposit (time 
accounts). The TISA is implemented by the Board's Regulation DD (12 CFR 
part 230). An official staff commentary interprets the requirements of 
Regulation DD (12 CFR part 230 (Supp. I)).

II. Proposed Revisions

Section 230.2--Definitions

2(w) Clear and Conspicuous
    Section 264(e) of TISA requires disclosures to be made in clear and 
plain language and presented in a format designed to allow consumers to 
readily understand the terms of the accounts offered. See 12 U.S.C. 
4303(e). This standard is implemented in Regulation DD. See Sec. Sec.  
230.3(a) and 230.8(c). Guidance on how depository institutions may 
comply with the clear and conspicuous standard is contained in the 
staff commentary. See comment 3(a)-1. The commentary states that under 
this standard, disclosures must be in a readily understandable form.
    Consumer financial services and fair lending laws and the Board 
regulations that implement them contain similar but not identical 
standards for providing disclosures that consumers will notice and 
understand. Generally, disclosures must be ``clear and conspicuous'' 
under Regulations B (Equal Credit Opportunity), M (Consumer Leasing), 
Regulation P (Privacy of Consumer Financial Information), Z (Truth in 
Lending) and DD (Truth in Savings), and ``clear and readily 
understandable'' under Regulation E (Electronic Fund Transfers). In 
interpreting the ``clear and conspicuous'' standard, the staff 
commentaries to Regulations B, M and Z provide that disclosures must be 
``in a reasonably understandable'' form; similarly, under Regulation DD 
disclosures must be in a format that allows consumers ``to readily 
understand the terms of their account.'' For purposes of the 
disclosures provided with credit card solicitations and applications, 
the commentary to Regulation Z provides more specifically that those 
disclosures must also be ``readily noticeable to the consumer.'' In 
contrast, the Board's Regulation P (Privacy of Consumer Financial 
Information) defines the ``clear and conspicuous'' standard to mean 
that a disclosure is ``reasonably understandable and designed to call 
attention to the nature and significance of the information'' in the 
disclosure. 12 CFR 216.3(b)(1). Regulation P also provides examples of 
how to satisfy the standard. 12 CFR 216.3(b)(2).
    The Board believes that the recently implemented standard in 
Regulation P (65 FR 35162, June 1, 2000), articulates with greater 
precision than the other regulations the concepts underlying the duty 
to provide disclosures that consumers will notice and understand. 
Therefore, to provide consistent guidance on the clear and conspicuous 
standard among its regulations, the Board is proposing to amend 
Regulation DD by adding a definition of clear and conspicuous in Sec.  
230.2(w), consistent with the ``clear and conspicuous'' definition in 
Regulation P. The staff commentary to Regulation DD also would be 
revised to add comments 2(w)-1 and -2, consistent with Regulation P's 
examples of how to meet the clear and conspicuous standard. Similar 
proposed revisions to Regulations B, E, M and Z appear elsewhere in 
today's Federal Register. These revisions are intended to help ensure 
that consumers receive noticeable and understandable information that 
is required by law in connection with obtaining consumer financial 
products and services. In addition, consistency among the regulations 
should facilitate compliance by institutions.
    Additional information may accompany disclosures required under 
Regulation DD. See Sec.  230.3(a), comment 6(a)-4. Proposed comment 
2(w)-3 further clarifies that the ``clear and conspicuous'' standard 
generally does not prohibit adding other terms to the federally 
required disclosures (such as contractual provisions or state-required 
disclosures); nor does it prohibit sending promotional material with 
the disclosures. Proposed comment 2(w)-3 would clarify, however, that 
the presence of other information may be a factor in determining 
whether the ``clear and conspicuous'' standard is met. Generally, 
segregating federally mandated disclosures from other information is 
more likely to satisfy the clear and conspicuous standard.
    The Board also proposes to adopt for Regulations B, E, M, Z and DD, 
guidance concerning type-sizes that are deemed to meet the ``clear and 
conspicuous'' standard and those that would likely be too small (this 
guidance currently applies only to credit card solicitations and 
applications under Regulation Z). See proposed comment 2(w)-2(ii).
    The proposal does not add special format requirements to the 
regulation where none currently exist. Accordingly, even though the 
revisions clarify that type size can be one factor to consider in 
determining whether a disclosure is conspicuous, the proposal would not 
add a specific type-size requirement.
    The Board also proposes to delete as unnecessary the guidance in 
comment 3(a)-1 and replace it with a cross-reference to Sec.  230.2(w) 
and accompanying comments. Guidance regarding the ``clear and 
conspicuous'' standard for disclosures transmitted by electronic 
communication will be considered in the context of rulemakings dealing 
specifically with electronic delivery of disclosures.

III. Form of Comment Letters

    Comment letters should refer to Docket No. R-1171 and, when 
possible, should use a standard typeface with a font size of 10 or 12; 
this will enable the Board to convert text submitted in paper form to 
machine-readable form through electronic scanning, and will facilitate 
automated retrieval of comments for review. Comments may be mailed 
electronically to [email protected].

[[Page 68801]]

IV. Solicitation of Comments Regarding the Use of ``Plain Language''

    Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the 
Board to use ``plain language'' in all proposed and final rules 
published after January 1, 2000. The Board invites comments on whether 
the proposed rules are clearly stated and effectively organized, and 
how the Board might make the proposed text easier to understand.

V. Initial Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act, 
the Board has reviewed the proposed amendments to Regulation DD. The 
proposed amendments are not expected to have any significant impact on 
small entities. A final regulatory flexibility analysis will be 
prepared and will consider comments received during the public comment 
period.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR 1320 Appendix A.1), the Board reviewed the rule under the 
authority delegated to the Board by the Office of Management and 
Budget. The Federal Reserve may not conduct or sponsor, and an 
organization is not required to respond to, this information collection 
unless it displays a currently valid OMB control number. The OMB 
control number is 7100-0271.
    The collection of information that is revised by this rulemaking is 
found in 12 CFR part 230. This collection is mandatory (15 U.S.C. 4301 
et seq.) to evidence compliance with the requirements of Regulation DD 
and the Truth in Savings Act (TISA). The respondents and recordkeepers 
are for-profit depository institutions, including small businesses. 
Institutions are required to retain records for twenty-four months. 
This regulation applies to all types of depository institutions, not 
just state member banks; however, under Paperwork Reduction Act 
regulations, the Federal Reserve accounts for the burden of the 
paperwork associated with the regulation only for state member banks. 
Other agencies account for the paperwork burden on their respective 
constituencies under this regulation.
    The proposed revisions would provide depository institutions with a 
more uniform definition for ``clear and conspicuous'' disclosures and 
provide examples of how to satisfy the clear and conspicuous standard. 
While the proposal would amend Regulation DD and the staff commentary, 
it is expected that these revisions would not increase the paperwork 
burden of depository institutions. With respect to state member banks, 
it is estimated that there are 976 respondents and recordkeepers. 
Current annual burden is estimated to be 146,644 hours.
    Because the records would be maintained at state member banks and 
the notices are not provided to the Federal Reserve, no issue of 
confidentiality arises under the Freedom of Information Act.
    Comments on the collection of information should be sent to the 
Office of Management and Budget, Paperwork Reduction Project (7100-
0271), Washington, DC 20503, with copies of such comments sent to 
Cynthia Ayouch, Federal Reserve Board Clearance Officer, Division of 
Research and Statistics, Mail Stop 41, Board of Governors of the 
Federal Reserve System, Washington, DC 20551.

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
revisions. New language is shown inside bold-faced arrows while 
language that would be deleted is set off with bold-faced brackets.

List of Subjects in 12 CFR Part 230

    Advertising, Banks, banking, Consumer Protection, Federal Reserve 
System, Reporting and record keeping requirements, Truth in Savings.

    For the reasons set forth in the preamble, the Board proposes to 
amend Regulation DD, 12 CFR part 230, as set forth below:

PART 230--TRUTH IN SAVINGS (REGULATION DD)

    1. The authority citation for part 230 continues to read as 
follows:

    Authority: 12 U.S.C. 4301 et seq.

    2. Section 230.2 is amended by adding a new paragraph (w) to read 
as follows:
Sec.  230.2 Definitions.
    For the purposes of this regulation the following definitions 
apply:
* * * * *
    (w) Clear and conspicuous means that a disclosure is reasonably 
understandable and designed to call attention to the nature and 
significance of the information in the disclosure.
    3. In Supplement I to Part 230:
    a. Under Section 230.2 Definitions, a new paragraph title (w) Clear 
and conspicuous is added, and new paragraphs (w) 1. through (w) 3. are 
added.
    b. Under Section 230.3 General disclosure requirements, under (a) 
Form, paragraph 1. is revised.

Supplement I to Part 230--Official Staff Interpretations

* * * * *

Section 230.2 Definitions

* * * * *
    (w) Clear and conspicuous
    1. Reasonably understandable. Examples of disclosures that are 
reasonably understandable include disclosures that:
    i. Present the information in the disclosure in clear, concise 
sentences, paragraphs, and sections;
    ii. Use short explanatory sentences or bullet lists whenever 
possible;
    iii. Use definite, concrete, everyday words and active voice 
whenever possible;
    iv. Avoid multiple negatives;
    v. Avoid legal and highly technical business terminology 
whenever possible; and
    vi. Avoid explanations that are imprecise and readily subject to 
different interpretations.
    2. Designed to call attention. Examples of disclosures that are 
designed to call attention to the nature and significance of the 
information include disclosures that:
    i. Use a plain-language heading to call attention to the 
disclosure;
    ii. Use a typeface and type size that are easy to read. 
Disclosures in 12-point type generally meet this standard. 
Disclosures printed in less than 12-point type do not automatically 
violate the standard; however, disclosures in less than 8-point type 
would likely be too small to satisfy the standard;
    iii. Provide wide margins and ample line spacing;
    iv. Use boldface or italics for key words; and
    v. In a document that combines disclosures with other 
information, use distinctive type size, style, and graphic devices, 
such as shading or sidebars, to call attention to the disclosures.
    3. Other information. Except as otherwise provided, the clear 
and conspicuous standard does not prohibit adding to the required 
disclosures such items as contractual provisions, explanations of 
contract terms, state disclosures, and translations; or sending 
promotional material with the required disclosures. However, the 
presence of this other information may be a factor in determining 
whether the clear and conspicuous standard is met.

Section 230.3 General disclosure requirements

    (a) Form
    1. Clear and conspicuous. See Sec.  230.2(w) and accompanying 
comments. [Design Requirements. Disclosures must be presented in a 
format that allows consumers to readily understand the terms of 
their account. Institutions are not required to use a particular 
type size or typeface, nor are institutions required to state any 
term more conspicuously than any other term. Disclosures may be 
made:
    i. In any order
    ii. In combination with other disclosures or account terms

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    iii. In combination with disclosures for other types of 
accounts, as long as it is clear to consumers which disclosures 
apply to their account
    iv. On more than one page and on the front and reverse sides
    v. By using inserts to a document or filling in blanks
    vi. On more than one document, as long as the documents are 
provided at the same time.]
* * * * *

    By order of the Board of Governors of the Federal Reserve System

    Dated: November 25, 2003.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 03-29946 Filed 12-9-03; 8:45 am]
BILLING CODE 6210-01-P