What Is the Truth in Savings Act/Regulation DD, and What Accounts Does Each Law Cover?
Just as the Truth in Lending Act improved transparency between lenders and borrowers, the Truth in Savings Act, which was passed by Congress in 1991, created new requirements for depository institutions, such as banks and credit unions. These requirements were designed to improve competitiveness between institutions by improving consumer access to information about various types of depository accounts that they could use.
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What Is the Truth in Savings Act?
The Truth in Savings Act is a piece of legislation designed to protect the rights of consumers.
A Brief History of the Truth in Savings Act
The origins of the Truth in Savings Act go back a long way, all the way to the New Deal in the 1930s. During the 1930s, Congress created Savings and Loan (S&L) institutions. These institutions were backed by the Federal Savings and Loan Insurance Corporation (FSLIC), a federal institution designed to promote confidence in S&Ls. It was similar to the Federal Deposit Insurance Corporation (FDIC) for banks.
For many decades, S&Ls provided affordable mortgages to working class people, making the dream of buying a home into a reality for many Americans. Things were going well for S&Ls until the 1980s, when these institutions were hit by a perfect storm. The end of stagflation — the economic crisis of the 1970s — meant that more Americans were taking out mortgages, using the services provided by S&Ls. However, at the same time, Congress was passing legislation that deregulated the S&L industry. Although this deregulation was intended to help S&Ls compete with regular old banks, it did not come with the same oversight that regular banks received from the FDIC. Thus, S&Ls were in a position to take on more customers than ever while, at the same time, they were not being regulated to stop them from engaging in risky behaviors.
In the mid 1980s, S&Ls began to collapse, taking the savings of their customers with them. By 1991, it was clear that Congress needed to act to give the FDIC more regulatory power over depository institutions. Thus, the Truth in Savings Act was born.
At the time of its conception, the Truth in Savings Act was implemented by the Federal Reserve. However, following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, rulemaking and enforcement authority for the Truth in Savings Act was passed on to the Consumer Financial Protection Bureau (CFPB).
What Accounts Are Covered Under the Truth in Savings Act?
For consumers, the most important parts of the Truth in Savings Act have to do with what types of depository accounts are covered. In short, accounts opened by people are covered under the act. This includes accounts opened for an individual, a household, or a family. It does not include business accounts opened for corporations, small businesses, or other non-human organizations. In more official terminology, this means that the Truth in Savings Act covers accounts for “natural persons” like you or me. This is to differentiate coverage for accounts held by “artificial persons,” or entities created for legal and financial purposes, such as a business or a nonprofit organization.
What is Regulation DD?
Regulation DD (sometimes known as simply Reg DD) is the official parlance for the rules and regulations of the Truth in Savings Act whenever they’re being deployed by the CFPB. So if someone says to you “Regulation DD requires…” they’re talking about the rules made by the Truth in Savings Act. However, there is one important exception between Regulation DD and the Truth in Savings Act.
Who Does Regulation DD Apply to?
Regulation DD applies to all depository institutions except for credit unions. This is because the CFPB does not have regulatory authority over credit unions. Instead, credit unions are overseen by the National Credit Union Administration (NCUA). In addition to depository institutions, Regulation DD also applies to anyone who is advertising a depository account, such as a broker or a marketing agency.
Truth in Savings Act Requirements
For depository institutions, the Truth in Savings Act outlines several requirements about the type of information that needs to be disclosed to consumers along with when and how that information needs to be disclosed. Under the Truth in Savings Act, institutions must disclose:
- The interest rates associated with an account, including the annual percentage yield (APY). This tells the consumer how much interest their account will accrue over the course of a year.
- Any fees that are associated with the account. This prevents banks from hiding fees until after a consumer has signed on for their account.
The above information should be disclosed in a clear and conspicuous way and in written form so that the customer may keep a copy.
The Truth in Savings Act compels depository institutions to be up front and clear with consumers about the terms of the various depository accounts that they offer. The act was intended to make banks more competitive by requiring them to offer better terms to customers as a way of improving business, rather than relying on deception to gain customers. If you believe that you are the victim of dishonest behavior from your bank, you can file a complaint with the CFPB. If your depository institution is a credit union, you should contact the NCUA.
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Nick Cesare is a writer from Boise, ID. In his free time he enjoys rock climbing and making avocado toast.