Truth-in-Savings Act Seen as No Monster

Consumer protection provisions that were tucked into the final version of the banking bill turned out to be a boon for bank customers - and not nearly as onerous as some bankers had feared.

The principal consumer amendment is the Truth in Savings Act, which requires banks to disclose in uniform manner the interest rates, yields, and fee schedules on interest-bearing deposit accounts.

It also requires banks to pay interest on the full amount of deposits in retail accounts, a provision that will affect a dozen or so banks, most of them in the Southeast. However, the act does not mandate any particular method of compounding or crediting of interest.

Bankers rejoiced that the most troublesome proposals - such as mandatory basic banking, government check-cashing requirements, and credit card interest rate caps - were dropped from the final bill.

"Our felling was that sooner or later [the Truth in Savings Act] was very likely to pass," said Joseph Belew, president of the Consumer Bankers Association, who noted that Congress had been threatening such legislation for years. "This one is doable."

Regulations Still to Come

Nevertheless, bankers are carefully watching for the regulations that will be written by the Federal Reserve Board to conform with the act. Bankers are fearful that troublesome provisions could be included.

They also are grousing over the fact that banks were singled out for the disclosure requirements, while companies that offer mutual funds are not covered. "It's terribly unfair," said Mr. Belew.

Consumer groups applauded the disclosure rules, saying that depositors will now be able to comparison shop among banks. The rules mean that banks will have to reprint brochures and change their account advertisements.

Many bankers noted, however, that they frequently update these brochures anyway to reflect interest-rate changes.

|Reserve Penalties' Ended

The most far-reaching consequence of the new law for some big retail banks is the requirement that they pay interest on full balances.

It is aimed at eliminating investable balance policies that several large banks, primarily in the Southeast, instituted in recent years.

These companies have been paying interest on only 88% of consumer deposits on the premise that the Federal Reserve requires banks to set aside 12% of their deposits in noninterest-bearing accounts to fulfill reserve requirements.

The reserve rule has existed for many years. But it was only recently, as banks struggled to cut costs and maintain profitability, that some have passed along the reserve "penalty" to depositors.

About 12 banks, including units of NCNB Corp., Barnett Banks Inc., and C&S/Sovran Corp., currently withhold full interest payments.

John Perkner, director of product management at Jacksonville-based Barnett, said the bank last year started using the investable balance practice for the $3.8 billion in its NOW accounts. The bank is considering lowering its interest rates on those accounts, he said.

"I think it's reasonable to expect that banks will adjust the nominal level of rates as opposed to paying more in interest expense," said Richard Shaffner, vice president of marketing at Charlotte-based NCNB Corp.

NCNB pays interest on only 88% of deposits in North Carolina, South Carolina, and Florida. Its merger partner, C&S/Sovran Corp. of Atlanta, uses the practice in all states where it has branches except Tennessee.

Praise for the Law

Here are some of the specific requirements that the Truth in Savings Act requires of banks, credit unions, and thrifts:

* Disclosure in an understandable format of the annual percentage yield on accounts, the period the yield covers, minimum account balances required to receive an advertised yield, and minimum balance requirements to open the account.

* Daily calculation of interest on interest-bearing accounts.

* Disclosure of fees that affect the yield and a clear articulation of penalties imposed for early withdrawals.

* Inclusion in account statements of yield earned, the amount of interest paid, fees charged, and the number of days in the reporting period.

* A prohibition on advertising accounts as free if there are minimum balance requirements, transactions fees, or a limit on the number of transactions.

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