Introduction: Truth in Savings

This section will describe what you must do at the time you open an account to comply with the federal Truth-in-Savings Act (TISA).

TISA was enacted in December of 1991 as part of the Federal Deposit Insurance Corporation Improvement Act of 1991. Its purpose was to enable people to compare the terms and conditions of different deposit accounts and make better choices when depositing money with financial institutions. [12 USC 4301(b)] TISA requires institutions to disclose key aspects of the deposit accounts they offer, such as the interest rate, the annual percentage yield (reflecting compounding), and the fees that could be imposed on the account. These disclosures must be given before the depositor opens the account and upon request. The thought was that depositors would be able to compare and shop for accounts more effectively if they knew and understood these key aspects.

However, Congress also recognized that two institutions could disclose identical interest rates, and yet provide significantly different returns by manipulating the principal balance to which the interest rate is applied. Institutions could also manipulate the length of time between when a deposit is made and when it is credited to the principal balance for purposes of interest calculation. Therefore, TISA also includes rules on how the principal balance is calculated and how quickly deposits must be credited for interest-calculation purposes.

People also rely on advertising when shopping for a deposit account. Therefore, TISA regulates what institutions may say in their advertisements. To help depositors monitor accounts after they have been opened, TISA requires that institutions send depositors advance notice of changes in the terms, include certain disclosures on periodic statements, and send holders of time deposits advance notice of maturity along with disclosures in some circumstances.

TISA authorized the Federal Reserve Board (FRB) and the National Credit Union Administration (NCUA) to issue regulations implementing TISA. The FRB regulation [12 CFR 1030.1 et seq.], known as Regulation DD, had a mandatory compliance date of June 21, 1993, and applies to banks and savings associations. The NCUA regulation [12 CFR 707.1 et seq.], known as Part 707, had a mandatory compliance date of January 1, 1995, and applies to credit unions.

(The NCUA has exempted from coverage two types of credit unions: corporate credit unions and small, nonautomated credit unions. [12 CFR 707.1(c)] A corporate credit union is one that operates primarily to serve other credit unions. [12 CFR. 704.2] A small, nonautomated credit union is one with an asset size of $2 million or less (after subtracting nonmember deposits) without sufficient data processing capability to maintain a software system to adequately process account transactions. [12 CFR 707.1(c)] The NCUA will review the credit union’s annual 5300 report (if the credit union files one) and other information to determine asset size and nonautomated status. Credit unions may contact the NCUA’s Regional Offices to verify exempt status. A credit union’s exempt status depends on its size and automation level as of each December 31. If exempt, the exemption applies for the following calendar year. If not, and the credit union had been exempt up to December 31, the credit union will have the next calendar year to prepare to comply and will be subject to the requirements on the January 1 following the preparation year. [Commentary, 12 CFR 707.1(c)-1])

TISA requires that Part 707 be substantially similar to Regulation DD. As it turned out, the two regulations are largely identical. However, there are some differences and we point them out in the appropriate places in this section. Since Regulation DD came first, we will use the terminology of and refer to Regulation DD, except where a difference between the regulations exists and it is necessary to use the Part 707 terminology. (For example, Regulation DD uses the terms “interest” and “interest rate.” Most credit unions pay “dividends” calculated by applying a “dividend rate.” We will refer to “interest” and “interest rate” only, except where describing unique Part 707 rules which apply to dividends, but not interest. In other words, read “interest” to also mean “dividends” unless the text says otherwise.)

We will also cite Regulation DD rather than Part 707. This should not present a difficulty for those interested in the Part 707 rules, since the numbering scheme of the two regulations is virtually identical. For example, 12 CFR 1030.2(c) is the definition of “annual percentage yield” in Regulation DD. The definition of this term in Part 707 is found at 12 CFR 707.2(c). The reader need only look to the numbers to the right of the decimal point in the citation to find the cited provision. There are, however, a few differences in the numbering systems, and we will include both citations when the numbers to the right of the decimal point differ.

TISA, and the regulations implementing TISA, are federal law, not state law. This means the requirements we spell out in this section may preempt (i.e., make ineffective) some state law affecting deposit accounts. TISA itself says it preempts any state law requirements that are “inconsistent” with the provisions of TISA. Regulation DD (in Supplementary Material) goes on to say that a state law provision will be considered inconsistent if it contradicts a federal requirement. A state law is also inconsistent if it requires use of a federal term (e.g., “annual percentage yield”) to describe an amount different from that required by the federal regulations. (For example, a state law would be preempted if it required institutions to disclose the “annual percentage yield,” which Regulation DD also does, but required that the annual percentage yield be calculated differently than the Regulation DD calculation.) Conversely, state law is also inconsistent if it requires use of a term different from the federally required term to describe the same item or amount. (For example, a state law would be preempted if it requires disclosure of an amount labeled “account yield” if the account yield is calculated exactly like the Regulation DD “annual percentage yield.”) [12 CFR 1030, Appendix C; 12 CFR 707.1(d); and Commentary, 12 CFR 707.1(d)]

In short, remember that not all state law requirements that affect deposit accounts and disclosures will be preempted. Some will survive and some will not. The FRB and NCUA will issue preemption determinations in the future when asked to do so. Until they deal with your state, you will have to consult your own counsel about the impact of TISA on your state law, keeping in mind the standards spelled out in the previous paragraph.

As we said at the beginning, this section deals with your obligations under TISA at the time you open a new account. We have a section in the second part of this manual that deals with your ongoing duties under TISA after account opening. That section deals with providing account disclosures on request, the rules that affect interest paid on accounts, advance notice of changes in terms and maturity notices on time deposits, disclosures on periodic statements, restrictions on advertising deposit accounts, and notice to existing account holders.

There are three sections in this section. The first spells out the types of institutions and accounts to which TISA applies. The second spells out the account opening disclosures required by TISA. And, the third spells out the potential liability that institutions face for violating TISA.