Bank Reform Includes ‘Truth in Savings’ Rules : Legislation: The provisions are designed to make institutions clearly state fees and rates.
Lost in the debate over last week’s banking reform legislation are “truth in savings” provisions aimed at forcing banks to clearly state rates and fees on savings and checking accounts.
The bill, passed by Congress last week and awaiting President Bush’s signature, gives the Federal Deposit Insurance Corp. the authority to borrow up to $70 billion to protect depositors of failed banks. But it also requires uniform disclosure of interest rates and fees in advertisements and in flyers distributed to consumers before they open accounts.
Consumer activists said the bill would make it easier for consumers to compare yields offered by various institutions. Advertised yields are now based on different terms and deposit amounts, making comparisons difficult.
“Right now, there is no way to compare yields without very sophisticated knowledge and a powerful calculator,” said Michelle Maier, an attorney for Consumers Union in Washington.
The bill requires banks to state prominently in their literature their methodology for determining yields in savings and checking accounts, eliminating “little tiny disclaimers and hard-to-read terms and conditions,” said a spokesman for Rep. Esteban E. Torres (D-Pico Rivera), who sponsored the provisions. In addition, the bill specifically bans use of the word “free” for checking accounts that are free only for depositors who maintain minimum balances.
The bill also mandates that banks must pay interest on the entire amount a customer has on deposit each day. Some banks have been calculating interest on only a portion of those deposits, a practice known as the “investment balance method.” According to Consumers Union, the practice was fairly common among banks in the Southeast and in Florida. Other banks calculated interest on the lowest daily balance.
The bill gives regulators up to 15 months to write and promulgate the “truth in savings” rules.
