Faced with major opposition from consumer groups as well as bank and thrift trade associations, the National Credit Union Administration is poised to ban so-called low-balance accounts under its version of the Truth-in-Savings regulation. The NCUA has decided that it's impossible to calculate an annual percentage yield for such accounts.

Truth-in-Savings requires federally insured depositories to make that calculation for all savings accounts so that consumers yardstick for comparing rates at various institutions.

Under the low-balance method, a financial institution advertises one rate of return on a savings account (or share account for credit unions) but only pays the rate on the lowest balance in the account during the interest period (dividend period for credit unions).

Under a variation of that method called a "rollback," a depositor earns interest or dividends on money placed in the account during the first two weeks or so, as long as that money remains untouched for the rest of the month.

If any funds are withdrawn, the depositor earns no interest on the account. Money placed in the account after the two-week period also earns no interest. But institutions advertise the rate as though it applies for the entire month.

60% Use the Method

These kinds of accounts are used widely by credit unions. A recent survey by the Credit Union National Association, the industry's largest trade group, found that more than 60% of the nation's 13,900 credit unions used some variation of the low-balance account.

The Federal Reserve Board, in drafting its regulation implementing the Truth-in-Savings law, prohibited banks and thrifts from future use of these accounts. The staff of the NCUA will recommend that its three-member board also outlaw them when it votes for a final rule on Sept. 9, according to top agency officials. The board is expected to take their advice.

This will be a real problem for the 1,500 small credit unions that use these accounts exclusively. The regulators say they will assist the institutions in converting their accounts.

Mr. Roberts is editor of NCUA Watch and Credit Union Accountant, which are produced by American Banker Newsletters. For information about the newsletters, call 800-733-4371.

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