An Overview of the Consumer Financial Protection Bureau’s (CFPB) Truth in Savings (Regulation DD)

In an increasingly complex financial landscape, understanding financial rules and regulations not only gives you a competitive edge—it's the foundation of sound financial decision-making. Enter the world of regulatory compliance with the Consumer Financial Protection Bureau's (CFPB) Regulation DD.

This crucial regulation is a pinnacle example of transparency, ensuring that consumers have access to information about their deposit accounts that is clear, accurate, and easy to understand. Understanding Regulation DD is crucial as it enables consumers to make informed decisions about accounts at depository institutions.

What is Truth in Savings (Regulation DD)?

The Consumer Financial Protection Bureau's (CFPB) Regulation DD, issued to implement the Truth in Savings Act, became effective in June 1993. It is a federal regulation that requires depository institutions to provide clear and accurate information to consumers about deposit accounts through the use of uniform disclosures.

Regulation DD aims to assist consumers in making knowledgeable decisions when selecting deposit accounts by mandating financial institutions to disclose key terms and conditions related to these accounts.

The disclosures facilitate comparison shopping by educating customers on the costs, annual percentage yield, interest rate, and other bank account terms. A consumer is entitled to receive disclosures under all of the following circumstances:

• When an account is opened.
• Upon request.
• When the terms of the account are changed.
• When a periodic statement is sent.
• For most time accounts, before the account matures.

The regulation also specifies rules for interest payments, how interest is calculated on balances, how to calculate annual percentage yields, and how to advertise.

Key Definitions Under Truth in Savings (Regulation DD)

Account

A deposit account at a depository institution that is held by or offered to a consumer. It includes time, demand, savings, and negotiable order of withdrawal accounts.

Consumer

A natural person who holds an account primarily for personal, family, or household purposes or to whom such an account is offered. The term does not include a natural person who holds an account for another in a professional capacity.

Interest

Any payment to a consumer or to an account for the use of funds in an account, calculated by application of a periodic rate to the balance. The term does not include the payment of a bonus or other consideration worth $10 or less given during a year, the waiver or reduction of a fee, or the absorption of expenses.

Interest Rate

The annual rate of interest paid on an account that does not reflect compounding. For the purposes of the account disclosures, the interest rate may be referred to as the “annual percentage rate” in addition to being referred to as the “interest rate.”

Advertisement

It is a commercial message, appearing in any medium, that directly or indirectly announces the availability or terms of deposit accounts provided by a depository institution. Examples of different types of advertisements include print ads, online ads, radio and television commercials, billboards, brochures, and other forms of communication used to promote deposit accounts.

Who Does Truth in Savings (Regulation DD) Apply To?

Scope of Regulation DD

Regulation DD applies to all depository institutions, except credit unions, that offer deposit accounts to residents, including resident aliens. This coverage extends to accounts within the U.S., even if funds are periodically transferred abroad. However, accounts held in institutions located outside the U.S. are not subject to this Regulation, even if held by U.S. residents.

Applicability of Advertising Rules Under Regulation DD

Advertising rules within Regulation DD applies to anyone advertising deposit accounts offered by depository institutions. For instance, if a deposit broker advertises an account with a depository institution, the advertising rules pertain to the advertisement, whether the broker holds the account or the consumer does it directly.

Disclosure Obligations Under Truth in Savings (Regulation DD)

1. General Disclosure Requirements

a. Clarity and Conspicuous Format

Depository institutions must provide disclosures that are clear and in a conspicuous written format that consumers can retain. These disclosures can be presented electronically, but this is subject to compliance with the Electronic Signatures in Global and National Commerce Act (E-Sign Act), which governs the use of electronic signatures and records in consumer transactions.

b. Presentation of Disclosures

The disclosures for each account offered by the institution can be presented separately or combined with disclosures for the institution's other accounts as long as it is clear which disclosures apply to the consumer's specific account.

c. Accuracy of Terms and Conditions

The disclosures should accurately represent the terms and conditions of the legal agreement between the consumer and the depository institution.

d. Language Employed in Disclosures

While the primary language for disclosures is English, institutions can provide disclosures in other languages as long as English versions are available upon request.

e. Disclosure in Case of Multiple Account Holders

If an account has multiple account holders, disclosures can be provided to any one of the account holders.

f. Responding to Consumer Interest Rate Inquiries

When responding to a consumer's inquiry about interest rates on their accounts, the depository institution must state the annual percentage yield. They can also mention the interest rate, but no other rates can be provided in response to the inquiry.

g. Application of Electronic Fund Transfer Act Disclosure Requirements

Disclosures required by the Electronic Fund Transfer Act and its implementing Regulation E that overlap with the requirements of Regulation DD can be used to satisfy the disclosure requirements of Regulation DD.

2. Initial Account Disclosure

Depository institutions are required to furnish account disclosures to consumers before they open an account or receive a service, whichever comes first, with specific rules for those not physically present:

• If the consumer is not physically present at the institution during account opening or service provision and has not already received the disclosures, the institution must mail or deliver the disclosures within 10 business days after the account is opened or the service is provided.
• If a consumer who is not present at the institution uses electronic means to open an account or request a service, the required disclosures must be provided before the account is opened or the service is provided.

Account disclosures must include various aspects of the account, including:

• Rate information (the annual percentage yield, interest rate, and duration for fixed-rate accounts).
• Details on variable rates, compounding, and crediting policies.
• Minimum balance requirements.
• Balance computation methods.
• Information about when interest begins accruing on non-cash deposits.

These disclosures inform consumers about:

• Any associated fees and transaction limitations (including the number and amount of withdrawals or deposits allowed).
• The features of time accounts (including maturity dates, early withdrawal penalties, interest withdrawal before maturity, and renewal policies).
• Any offered bonuses, including the amount, timing, and related requirements.

3. Subsequent Disclosures

Regulation DD outlines the requirements for subsequent disclosures by depository institutions, especially when there are changes in the terms of accounts or when time accounts are approaching maturity.

In the case of a change in terms that might negatively impact consumers:

• The depository institution must provide advance notice, ensuring consumers receive this notice at least 30 days before the change takes effect.
• It is to be noted that certain changes, like those related to variable rates, check printing fees, and very short-term time accounts, are exempt from this notice requirement.

Regarding time accounts that renew automatically at maturity, the institutions need to provide disclosures prior to the maturity date. For accounts with maturities longer than a year:

• The depository institutions should furnish account disclosures, including the new maturity date.
• If the interest rate and annual percentage yield are undetermined at the time of disclosure, this should be mentioned, along with the date they will be available and contact information for consumers to obtain these rates.

When dealing with accounts having maturities of one year or less but longer than one month:

• The depository institutions can opt to provide either the same disclosures as previously described or reveal the maturity date of the existing account, the new maturity date if renewed, known interest rates, details about rates that are yet to be determined, and any variations in terms compared to the existing account.

For time accounts with a maturity longer than a year that do not renew automatically at maturity, the depository institutions should disclose:

• The maturity date.
• Whether interest will be paid after maturity at least 10 calendar days before the existing account's maturity date.

4. Periodic Statement Disclosures

In compliance with Regulation DD, depository institutions are required to include specific disclosures in periodic statements provided to their account holders. This includes:

• The "annual percentage yield earned" for the statement period, calculated in accordance with the Regulations.
• The dollar amount of interest earned by the account holder during the statement period.
• An itemized list of fees debited to the account during the statement period. If there are multiple fees of the same type within a statement period, the deposit institution has the flexibility to either list them individually or combine them into a total amount for that fee type.
• The length of the statement period, which can be conveyed as either the total number of days in the statement period or by specifying the starting and ending dates of that period. If applicable, the statement should also mention the total amount of overdraft and returned item fees.
• For institutions employing the average daily balance method and calculating interest for a different period than the statement period, the disclosures for annual percentage yield earned, interest earned, and the length of the period should be based on that different period, in addition to the statement period.

5. Additional Disclosure Requirements for Overdraft Services

a. Disclosure of Total Fees on Periodic Statements

On each periodic statement, the depository institution must provide clear information on:

• The total dollar amount of fees incurred for overdrawing the account.
• The total dollar amount of fees for returning items unpaid.

These disclosures are required for both the statement period and the calendar year-to-date.

b. Advertising Disclosures for Overdraft Services

In advertisements promoting overdraft services,  institutions must prominently display the following:

• The fee for each overdraft.
• Categories of transactions where overdraft fees may apply.
• The timeframe for repaying overdrafts.
• The circumstances under which the institution would not pay an overdraft.

c. Communications Not Subject to Advertising Disclosures

Certain overdraft-related communications are exempt from additional advertising disclosures, which include:

• Advertisement for services where overdraft payments are agreed upon in writing and subject to Regulation Z.
• Responses to specific consumer inquiries, excluding automated responses.
• Advertisements via broadcast or electronic media, billboards, ATM receipts, in-person discussions, or disclosures required by federal or other applicable law.
• Disclosures mandated by federal or other laws.
• Information on periodic statements or specific overdraft notifications.
• Deposit account agreements discussing the institution's right to pay overdrafts.
• Notices to consumers that completing a transaction may trigger an overdraft fee.
• Informational or educational materials that do not specifically describe the institution's overdraft service.
• Opt-out or opt-in notices concerning the institution's payment of overdrafts.
• ATM receipts.
• In-person discussions.

It is to be noted that ATM screens and telephone response machines are not subject to these disclosures. Moreover, Certain indoor signs are exempted, provided they include clear statements about potential fees and advise consumers to contact an employee for more information (excluding ATM screens).

d. Disclosure of Account Balance

When disclosing account balances through an automated system, depository institutions should not include additional amounts provided to cover insufficient funds. These additional amounts can be optionally disclosed, but the institution must clarify that they are not available for all transactions.

Advertising Requirements

a. Transparency and Accuracy

The advertisements must not be misleading, inaccurate, or misrepresenting the terms of the deposit contracts.  The use of terms like "free" or "no cost" to describe an account is prohibited if there is a possibility of maintenance or activity fees being imposed. Moreover, the term "profit" cannot be used in relation to interest paid on an account.

b. Annual Percentage Yield (APY)

Advertisements featuring a rate of return should use "annual percentage yield" (APY) to represent it. The abbreviation "APY" is allowed, but "annual percentage yield" must be mentioned at least once in the advertisement. If an interest rate is included, the corresponding APY should be prominently displayed. When an advertisement includes the annual percentage yield, it should also state the following information if applicable:

• For variable-rate accounts, the advertisement should clearly state that the rate may change after the account is opened.
• The period during which the annual percentage yield is valid should be indicated, or an exact date of accuracy should be specified.
• Prominently display minimum balance requirements for advertised annual percentage yields, particularly in tiered-rate accounts, where each tier's minimum balance should be equally prominent.
• If there is a minimum deposit required to open the account and this amount exceeds the minimum balance needed to earn the advertised annual percentage yield, this requirement must be disclosed to consumers.
• Advertisements should also inform consumers about the potential impact of fees, emphasizing that these fees could reduce the earnings on the account.
• Advertisements should include details such as the term of the account, any associated early withdrawal penalties, and, for specific non-compounding time accounts, it should mention that interest cannot remain on deposit and that payouts are mandatory.

When a bonus is mentioned in an advertisement, the following information should be clearly and conspicuously provided:

• The annual percentage yield.
• The time requirement for customers to qualify for the bonus.
• The minimum balance needed to obtain this bonus.
• If there is a minimum deposit required to open the account, and this deposit exceeds the minimum balance necessary to secure the bonus, this should be disclosed.
• Specify when the bonus will be provided.

c. Exemptions

Certain disclosures may be exempt from inclusion. If an advertisement is conveyed through particular media, it is not obligated to contain specific information as outlined in this section. These exemptions apply to broadcast or electronic media like television or radio, outdoor media such as billboards, and telephone response machines.

Record Retention Requirements

a. Minimum Retention Period

Depository institutions are mandated to retain records of their compliance with Regulation DD for a minimum of two years from the date when required disclosures or actions should occur. However, regulatory agencies responsible for enforcing this regulation have the authority to extend record retention periods if such an extension is deemed necessary to effectively carry out their enforcement duties as per law.

b. Compliance Requirements

To demonstrate compliance with Regulation DD, depository institutions must adhere to certain requirements. This involves:

•  The establishment and maintenance of procedures for the timely payment of interest and the provision of necessary disclosures as stipulated in the regulation.
• To retain sample disclosures for all types of accounts offered to consumers. This includes records such as account-opening disclosures, copies of advertisements, change-in-term notices, and information related to the offered interest rates and annual percentage yields.
• To retain sufficient information related to interest rates and balances to facilitate the verification of interest payments on an account, including interest paid on the full principal balance.
• In terms of retaining evidence, institutions are not obligated to keep physical hard copies of these records. They have the flexibility to maintain records using alternative methods, including microfilm, microfiche, or digital files, as long as these methods accurately reproduce the required records and ensure compliance with the regulation.

How Can Depository Institutions Comply with Regulation DD (Truth in Savings)

Depository institutions must take several actions to comply with Regulation DD (Truth in Savings). The following is a general rundown of the important steps that must be taken:

• Understand the comprehensive regulation and monitor revision and adjustment in the text.
• Provide clear and accurate disclosures for all deposit accounts covering essential details.
• Offer initial account disclosure when an account is opened.
• Issue change-in-terms notice to account holders 30 days prior to deposit account changes, allowing consumers to decide whether to accept the new terms.
• Issue periodic statements with transparent account information.
• Properly disclose rates and terms in advertisements.
• Train staff on the Regulation DD requirements.
• Maintain records of account disclosures and compliance actions.
• Establish procedures for handling consumer complaints.
• Continuously monitor and adapt to stay in compliance and build consumer trust.