WASHINGTON - DD Day is here.

Regulation DD takes effect today, 18 months after Congress mandated it in the form of the Truth-in-Savings Act.

It has been one of the most controversial sets of banking rules to come out of Congress, and bankers complain they are among the most costly and complex.

Consumers May Foot Bill

No one argues with the objective of Truth-in-Savings, which is to provide depositors with uniform rate and fee information from banks, making comparison shopping easier. But bankers say that over time the regulation will hurt the very customers it's supposed to help.

"A regulation like this adds so much cost to the bank and does so little for the consumer," complained Michael Menzies, president and chief executive of First Bank, a $40 million-asset bank in Frederick, Md. "It really makes you wonder whether the government wants community banks."

Big banks, too, are struggling with Truth-in-Savings.

John Brittain, vice president of retail deposit product management at Meridian Bancorp, Reading, Pa., said 85 people have been working to bring the bank into compliance with the new regulation. The cost to the 11 billion-asset company: more than $200,000 so far.

"That will be made up in slightly lower interest rates or slightly higher fees," Mr. Brittain said.

The Law's Intent

The Truth-in-Savings Act was a title within the massive Federal Deposit Insurance Corp. Improvement Act, enacted in December 1991. Congress wanted to enhance economic stability, improve competition among banks, and strengthen consumers' ability to judge different deposit accounts.

Lawmakers tried to achieve this by making disclosure of deposit account terms and conditions - mainly interest rates paid and fees charged - mandatory and uniform.

The Federal Reserve Board wrote the regulations implementing the law, publishing a final Reg DD last September and some amendments in March. It was supposed to take effect on March 21, but was delayed three months to give bankers more time to get ready.

Red Tape Machine

According to Fed paperwork estimates, Truth-in-Savings is the most burdensome regulation on the books, edging out the Reg D reserve requirements and Reg Z Truth-in-Lending rules. Banks will spend 206,000 hours gearing up for Reg DD and 1.9 million hours a year after that, according to the Fed.

To handle bankers' questions about the rules, the Fed set up a toll-free telephone hot line, which has been swamped.

"We've been getting, over the last several months, thousands of calls," said Leonard Chanin, a managing counsel at the Fed who returns hot line calls. There is no most-asked question, he said, because inquiries come on "every conceivable issue."

Truth-in-Savings has already cost the banking industry millions of dollars for everything from new brochures to teller training. Computer software has been updated, periodic statements redesigned, advertisements reworked, and lobby rate boards changed.

Notices must be mailed to every bank customer in the next month announcing the availability of new information on deposit accounts. Subsequent mailings will have to be made when account terms are changed.

The regulation requires a bank or thrift to pay interest on the entire balance in a deposit account. The rate must be disclosed with the annual percentage yield, or APY. On fixed-rate accounts, banks must disclose how long the rate will be paid; on variable accounts, they must explain how the rate is determined, how frequently it may change, and any limits on the amount it can vary.

Minimum balance requirements, how interest is compounded, and maturities also must be disclosed. Finally, a bank must explain its fees and when they will be levied, such as for early withdrawal. Banks will no longer be able to advertise an account as "free" or "no cost" if any fee may be imposed on the account.

On monthly statements, banks will have to add the APY earned, or the amount of interest a customer actually earned during the month, expressed as a percentage. Some bankers are worried that this will confuse customers.

For example, if the interest rate on an account is 5%, but interest is only paid on the days that the minimum balance is $500 or more. If the account drops below that minimum on 15 of the 30 days in a month, then the APY earned would be well below 5%.

"They aren't going to understand why the rate is lower," said Nessa Feddis, senior federal counsel at the American Bankers Association. "They are going to think banks are cheating."

Needless Confusion

"All we're doing is confusing people tremendously, because nothing has changed yet we're giving them all this paper," said Kenneth C. Baker, president of Siwooganock Guaranty Savings Bank in Lancaster, N.H. "That puts them on the defensive."

Many bankers think Washington is fixing an isolated problem with a blanket solution.

"The Truth-in-Savings Act again demonstrates Congress' penchant for swatting flies with sledgehammers," said Donald G. Ogilvie, the ABA's executive vice president.

I don't understand why the entire industry has to spend an inordinate amount of money when there were a relatively few bad apples," said Mr. Brittain of Meridian Bancorp.

Ellsworth State Bank, an unautomated $25 million-asset institution that is the only bank in its Minnesota town, may have to computerize to keep up with Truth in Savings.

"If we have to buy the computer system, we're looking at a cost of $100,000," said David Houisman, president. Tack on another $30,000 for forms and an account processor.

"Our customers just don't like all this excess paper," he said. |They know they are paying for it one way or another. We pass the costs on."

Mr. Houisman said regulations ought to be tailored better.

"What works in a big city doesn't work down here," he said. "We don't offer a lot of gimmicks with our stuff. Our charges are low. They have to be. In a small town, we have to live with these people."

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