OLYMPIA, Wash. – Credit unions need to make sure they’re being paid ‘interest’ when they mean ‘dividends’ when selling products and services, the state Division of CUs warned.
Interest, according to the state regulator, is fixed by agreement and is generally enforceable by contract; as opposed to dividends, which are discretionary and distributed upon the approval of the board of directors.
When referring to CDs, the payment to members is interest, and therefore a contractual right. Otherwise, a savings product is actually a "share certificate," and not a CD, and a credit union must disclose that the share certificate pays a dividend and not interest, said Linda Jekel, director of CUs, in the state’s Department of Financial Institutions, in a new interpretative letter.
"Unfortunately, many credit unions, and the general public, use the terms "interest" and "dividends" interchangeably, but they are technically two different things," said Jekel. "Federal Truth In Savings laws require financial institutions to be clear in their advertising, and avoid statements that may be misleading, inaccurate or untrue."
She advised credit unions to review all forms and advertising, including the information on their websites to make sure they are not misleading members.
