Board of Governors of the Federal Reserve System

Article excerpt

Statement submitted by the Board of Governors of the Federal Reserve System to the Subcommittee on Consumer Affairs and Coinage of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, May 30, 1991.

Thank you for the opportunity to offer the comments of the Board of Governors of the Federal Reserve System on H.R.6 and H.R.447 dealing with Truth in Savings.

Both bills would require that depository institutions disclose rate and cost information in advertisements for their consumer deposit accounts, provide detailed rate and fee information in account schedules, and inform account holders when terms are changed. The Board (or the Federal Depository Institutions Regulatory Agency as specified in H.R.6) would be required to write rules to implement these requirements.

The Board believes that account holders should have adequate information on which to make informed savings decisions and supports disclosure of important account features. In fact, the Board's Regulation Q has for many years required disclosure of account terms in advertisements, and institutions covered by the regulation have been encouraged to make schedules of their fees available to account holders.

While the goal of the legislation is consistent with the Board's objectives, the implementation of this legislation will require a set of complex rules, increasing the already heavy regulatory burden placed on depository institutions. The cumulative effect of individual rules, each well intentioned in its purpose to address a specific concern, can be overwhelming--particularly for small institutions. Because of our experience with numerous consumer statutes for which we have rulewriting authority (for example, the Truth in Lending Act), we know firsthand that simple concepts such as "truth in savings" invariably result in complicated regulations. To encompass the diversity of industry practices and products, implementing rules are often intricate and voluminous. Moreover, we have learned that rules that are not intended to affect the variety of products offered nonetheless may have the practical effect of standardizing products and reducing the options that are available to consumers.

Consequently, if the Congress decides to go forward with legislation, the Board believes that the law should be carefully tailored to ensure that compliance costs are minimized and that regulatory burdens do not lead institutions to discontinue products or decide not to develop new products. In addition, the Board believes that there are a few disclosure requirements in the bills that may confuse consumers shopping for deposit accounts. Thus, the Board encourages the Congress to consider the following changes to the bills.

Disclosures to Existing Account Holders

H.R.447 requires that depository institutions send, within ninety days after the Board adopts final regulations, a schedule of terms and conditions to all existing account holders. Mandating such a mailing to holders of the approximately 250 million consumer accounts (including certificates of deposit, savings, negotiable order of withdrawal [NOW], checking, and other accounts) would impose significant printing and mailing costs.

Mailing disclosures to existing customers does not promote the bill's purpose to provide disclosures when consumers are shopping for an account. Moreover, many depository institutions already provide account agreements or written disclosures to their customers when an account is opened. Mailing information to existing customers would provide information to consumers after they have made their choice of savings products and would frequently duplicate information that account holders are likely to have already received.

The bills already require that disclosures be made available to any person upon request. This requirement guarantees that existing account holders who want information will receive it, without mandating that institutions distribute schedules to all account holders. …