[Code of Federal Regulations] [Title 12, Volume 6] [Revised as of January 1, 2001] From the U.S. Government Printing Office via GPO Access [CITE: 12CFR707.9] [Page 385-427] TITLE 12--BANKS AND BANKING CHAPTER VII--NATIONAL CREDIT UNION ADMINISTRATION PART 707--TRUTH IN SAVINGS--Table of Contents Sec. 707.9 Enforcement and record retention. (a) Administrative enforcement. Section 270 of TISA (12 U.S.C. 4309) contains the provisions relating to administrative sanctions for failure to comply with the requirements of TISA and this part. (b) Civil liability. Section 271 of TISA (12 U.S.C. 4310) contains the provisions relating to civil liability for failure to comply with the requirements of TISA and this part; Section 271 is repealed effective September 30, 2001. (c) Record retention. A credit union shall retain evidence of compliance with this regulation for a minimum of two years after the date disclosures are required to be made or action is required to be taken. (Approved by the Office of Management and Budget under control number 3133-0134) [58 FR 50445, Sept. 27, 1993, as amended at 59 FR 13436, Mar. 22, 1994; 61 FR 114, Jan. 3, 1996; 63 FR 71575, Dec. 29, 1998] Appendix A to Part 707--Annual Percentage Yield Calculation The annual percentage yield (APY) measures the total amount of dividends a credit union pays on an account based on the dividend rate and the frequency of compounding. The annual percentage yield is expressed as an annualized rate, based on a 365-day year. (Credit unions may calculate the annual percentage yield based on a 365-day or a 366- day year in a leap year.) Part I of this appendix discusses the annual percentage yield calculations for account disclosures and advertisements, while Part II discusses annual percentage yield earned calculations for statements. The annual percentage yield reflects only dividends and does not include the value of any bonus, as that term is defined in part 707, that may be provided to the member to open, maintain, increase or renew an account. Dividends, interest or other earnings are not to be included in the annual percentage yield if such amounts are determined by circumstances that may or may not occur in the future. These formulas apply to both dividend-bearing and interest- bearing accounts held by credit unions. Part I. Annual Percentage Yield for Account Disclosures and Advertising Purposes In general, the annual percentage yield for account disclosures under Secs. 707.4 and 707.5 and for advertising under Sec. 707.8 is an annualized rate that reflects the relationship between the amount of dividends that would be earned by the member for the term of the account and the amount of principal used to calculate those dividends. The amount of dividends that would be earned may be projected based on the most recent past declared rate or an anticipated future rate, whichever the credit union judges to most reasonably approximate the dividends to be earned. Special rules apply to accounts with tiered and stepped dividend rates, and to certain term share accounts with a stated maturity greater than 1 year. A. General Rules Except as provided in Part I. E. of this appendix, the annual percentage yield shall be calculated by the formula shown below. Credit unions may calculate the annual percentage yield using projected dividends based on either the rate at the last dividend declaration date or the rate anticipated at a future date. The credit union must disclose whichever option it uses to members. Credit unions shall calculate the annual percentage yield based on the actual number of days for the term of the account. For accounts without a stated maturity date (such as a typical share or share draft account), the calculation shall be based on an assumed term of 365 days. In determining the total dividends figure to be used in the formula, credit unions shall assume that all principal and dividends remain on deposit for the entire term, and that no other transactions (deposits or withdrawals) occur during the term. (This assumption shall not be used if a credit union requires, as a condition of the account, that members withdraw dividends during the term. In such a case, the dividends (and annual percentage yield calculation) shall reflect that requirement.) For term share accounts that are offered in multiples of months, credit unions may base the number [[Page 386]] of days on either the actual number of days during the applicable period, or the number of days that would occur for any actual sequence of that many calendar months. If credit unions choose to use this permissive rule, they must use the same number of days to calculate the dollar amount of dividends that will be earned on the account in the annual percentage yield formula (where ``Dividends'' are divided by ``Principal''.) The annual percentage yield is to be calculated by use of the following general formula ((``APY'') is used for convenience in the formulas): APY=100 [(1 + Dividends/Principal) (365/Days in term) -1]. ``Principal'' is the amount of funds assumed to have been deposited at the beginning of the account. ``Dividends'' is the total dollar amount of dividends earned on the Principal for the term of the account. ``Days in term'' is the actual number of days in the term of the account. When the ``days in term'' is 365 (that is, where the stated maturity is 365 days or where the account does not have a stated maturity), the APY can be calculated by use of the following simple formula: APY=100 (Dividends/Principal). Examples: (1) If a credit union would pay $61.68 in dividends for a 365-day year on $1,000 deposited into a share draft account, the APY is 6.17%: APY=100 [(1 + 61.68/1,000) (365/365) -1] APY=6.17%. Or, using the simple formula above (since the term is deemed to be 365 days): APY=100 (61.68/1,000) APY=6.17%. (2) If a credit union pays $30.37 in dividends on a $1,000 six-month term share certificate account (where the six-month period used by the credit union contains 182 days), using the general formula above, the APY is 6.18%: APY=100 [(1+30.37/1,000)(365/182)-1] APY=6.18%. The APY is affected by the frequency of compounding, i.e., the amount of dividends will be greater the more frequently dividends are compounded for a given nominal rate. When two credit unions are offering the same dividend rate on, for example, a share account, the APY disclosed may be different if the credit unions use a different frequency of compounding. Examples: (1) If a credit union pays $1,268.25 in dividends for a 365-day year on $10,000 deposited into a regular share account earning 12%, and the dividends are compounded monthly, the APY will be 12.68%. APY=100 ($1,268.25/10,000) APY=12.68% (2) However, if a credit union is compounding dividends on a quarterly basis on an account which otherwise has the same terms, the dividends will be $1,255.09 and the APY will be 12.55%. APY=100 ($1,255.09/10,000) APY=12.55% B. Stepped-Rate Accounts (Different Rates Apply in Succeeding Periods) For accounts with two or more dividend rates applied in succeeding periods (where the rates are known at the time the account is opened), a credit union shall assume each dividend rate is in effect for the length of time provided for in any share agreement. Examples: (1) If a credit union offers a $1,000 6-month term share (certificate) account on which it pays a 5% dividend rate, compounded daily, for the first three months (which contain 91 days), and a 5.5% dividend rate, compounded daily, for the next three months (which contain 92 days), the total dividends for six months is $26.68, and, using the general formula above, the APY is 5.39%: APY=100 [(1+26.68/1,000)(365/183)-1] APY=5.39%. (2) If a credit union offers a $1,000 2-year share certificate on which it pays a 6% dividend rate, compounded daily, for the first year, and a 6.5% dividend rate, compounded daily, for the next year, the total dividends for two years is $133.13, and, using the general formula above, the APY is 6.45%: APY=100 [(1+133.13/1,000)(365/730)-1] APY=6.45%. C. Variable-Rate Accounts For variable-rate accounts without an introductory premium or discounted rate, a credit union must base the calculation only on the initial dividend rate in effect when the account is opened (or advertised), and assume that this rate will not change during the year. Variable-rate accounts with an introductory premium or discount rate must be treated like stepped-rate accounts. Thus, a credit union shall assume that: (1) The introductory simple dividend rate is in effect for the length of time provided for in the account contract; and (2) the variable dividend rate that would have been in effect when the account is opened or advertised (but for the introductory rate) is in effect for the remainder of the year. If the variable rate is tied to an index, the index-based rate in effect at the time of disclosure must be used for the remainder of the year. If the rate is not tied to an index, the rate in effect for existing members holding the same account (who are not receiving the introductory dividend rate) must be used for the remainder of the year. For example, if a credit union offers an account on which it pays a 7% dividend rate, [[Page 387]] compounded daily, for the first three months (which, for example, contains 91 days), while the variable dividend rate that would have been in effect when the account was opened was 5%, the total dividends for a 365-day year for a $1,000 account balance is $56.52, (based on 91 days at 7% followed by 274 days at 5%). Using the simple formula, the APY is 5.65%: APY=100 (56.52/1,000) APY=5.65%. D. Accounts with Tiered Rates (Different Rates Apply To Specified Balance Level) For accounts in which two or more dividend rates paid on the account are applicable to specified balance levels, the credit union must calculate the annual percentage yield in accordance with the method described below that it uses to calculate dividends. In all cases, an annual percentage yield (or a range of annual percentage yields, if appropriate) must be disclosed for each balance tier. For purposes of the examples discussed below, assume the following: ------------------------------------------------------------------------ Simple dividend rate (Percent) Share balance required to earn rate ------------------------------------------------------------------------ 5.25.............................. Up to but not exceeding $2,500. 5.50.............................. Above $2,500, but not exceeding $15,000. 5.75.............................. Above $15,000. ------------------------------------------------------------------------ Tiering Method A Under this method, a credit union pays on the full balance in the account the stated dividend rate that corresponds to the applicable share balance tier. For example, if a member deposits $8,000, the credit union pays the 5.50% dividend rate on the entire $8,000. This is also known as a ``hybrid'' or ``plateau'' tiered rate account. When this method is used to determine dividends, only one annual percentage yield will apply to each tier. Within each tier, the annual percentage yield will not vary with the amount of principal assumed to have been deposited. For the dividend rates and account balances assumed above, the credit union will state three annual percentage yields--one corresponding to each balance tier. Calculation of each annual percentage yield is similar for this type of account as for accounts with a single fixed dividend rate. Thus, the calculation is based on the total amount of dividends that would be received by the member for each tier of the account for a year and the principal assumed to have been deposited to earn that amount of dividends. First tier. Assuming daily compounding, the credit union will pay $53.90 in dividends on a $1,000 account balance. Using the general formula for the first tier, the APY is 5.39%: APY=100 [(1+53.90/1,000)(365/365)-1] APY=5.39%. Using the simple formula: APY=100 (53.90/1,000) APY=5.39%. Second tier. The credit union will pay $452.29 in dividends on an $8,000 deposit. Thus, using the simple formula, the annual percentage yield for the second tier is 5.65%: APY=100 (452.29/8,000) APY=5.65%. Third tier. The credit union will pay $1,183.61 in dividends on a $20,000 account balance. Thus, using the simple formula, the annual percentage yield for the third tier is 5.92%: APY=100 (1,183.61/20,000) APY=5.92%. Tiering Method B Under this method, a credit union pays the stated dividend rate only on that portion of the balance within the specified tier. For example, if a member deposits $8,000, the credit union pays 5.25% on only $2,500 and 5.50% on $5,500 (the difference between $8,000 and the first tier cutoff of $2,500). This is also known as a ``pure'' tiered rate account. The credit union that computes dividends in this manner must provide a range that shows the lowest and the highest annual percentage yields for each tier (other than for the first tier, which, like the tiers in Method A, has the same annual percentage yield throughout). The low figure for an annual percentage yield is calculated based on the total amount of dividends earned for a year assuming the minimum principal required to earn the dividend rate for that tier. The high figure for an annual percentage yield is based on the amount of dividends the credit union would pay on the highest principal that could be deposited to earn that same dividend rate. If the account does not have a limit on the amount that can be deposited, the credit union may assume any amount. For the tiering structure assumed above, the credit union would state a total of five annual percentage yields--one figure for the first tier and two figures stated as a range for the other two tiers. First tier. Assuming daily compounding, the credit union could pay $53.90 in dividends on a $1,000 account balance. For this first tier, using the simple formula, the annual percentage yield is 5.39%: APY=100 (53.90/1,000) APY=5.39%. Second tier. For the second tier the credit union would pay between $134.75 and $841.45 in dividends, based on assumed balances of $2,500.01 and $15,000, respectively. For $2,500.01, dividends would be figured on $2,500 at 5.25% dividend rate plus dividends on $.01 at 5.50%. For the low end of the second tier, therefore, the annual percentage yield is 5.39%. Using the simple formula: [[Page 388]] APY=100 (134.75/2,500) APY=5.39%. For $15,000, dividends are figured on $2,500 at 5.25% dividend rate plus dividends on $12,500 at 5.50% dividend rate. For the high end of the second tier, the annual percentage yield, using the simple formula, is 5.61%: APY=100 (841.45/15,000) APY=5.61%. Thus, the annual percentage yield range that would be stated for the second tier is 5.39% to 5.61%. Third tier. For the third tier, the credit union would pay $841.45 and $5,871.78 in dividends on the low end of the third tier (a balance of $15,000.01). For $15,000.01, dividends would be figured on $2,500 at 5.25% dividend rate, plus dividends on $12,500 at 5.50% dividend rate, plus dividends on $.01 at 5.75% dividend rate. For the low end of the third tier, therefore, the annual percentage yield, using the simple formula, is 5.61%: APY=100 (841.45/15,000) APY=5.61%. Assuming the credit union does not limit the account balance, it may assume any maximum amount for the purposes of computing the annual percentage yield for the high end of the third tier. For an assumed maximum balance amount of $100,000, dividends would be figured on $2,500 at 5.25% dividend rate, plus dividends on $12,500 at 5.50% dividend rate, plus dividends on $85,000 at 5.75% dividend rate. For the high end of the third tier, therefore, the annual percentage yield, using the simple formula, is 5.87%: APY=100 (5,871.78/100,000) APY=5.87%. Thus, the annual percentage yield that would be stated for the third tier is 5.61% to 5.87%. If the assumed maximum balance amount is $1,000,000, credit unions would use $985,000 rather than $85,000 in the last calculation. In that case for the high end of the third tier, the annual percentage yield, using the simple formula, is 5.91%: APY=100 (59,134.22/1,000,000) APY=5.91% Thus, the annual percentage yield range that would be stated for the third tier is 5.61% to 5.91%. E. Term Share Accounts with a Stated Maturity Greater than One Year that Pay Dividends At Least Annually 1. For term share accounts with a stated maturity greater than one year, that do not compound dividends on an annual or more frequent basis, and that require the member to withdraw dividends at least annually, the annual percentage yield may be disclosed as equal to the dividend rate. Example: If a credit union offers a $1,000 two-year term share account that does not compound and that pays out dividends semi-annually by check or transfer at a 6.00% dividend rate, the annual percentage yield may be disclosed as 6.00%. 2. For term share accounts covered by this paragraph that are also stepped-rate accounts, the annual percentage yield may be disclosed as equal to the composite dividend rate. Example: (1) If a credit union offers a $1,000 three-year term share account that does not compound and that pays out dividends annually by check or transfer at a 5.00% dividend rate for the first year, 6.00% dividend rate for the second year, and 7.00% dividend rate for the third year, the credit union may compute the composite dividend rate and APY as follows: (a) Multiply each dividend rate by the number of days it will be in effect; (b) Add these figures together; and (c) Divide by the total number of days in the term. (2) Applied to the example, the products of the dividend rates and days the rates are in effect are (5.00% x 365 days) 1825, (6.00% x 365 days) 2190, and (7.00% x 365) 2555, respectively. The sum of these products, 6570, is divided by 1095, the total number of days in the term. The composite dividend rate and APY are both 6.00%. Part II. Annual Percentage Yield Earned for Statements The annual percentage yield earned for statements under Sec. 707.6 is an annualized rate that reflects the relationship between the amount of dividends actually earned (accrued or paid and credited) to the member's account during the period and the average daily balance in the account for the period over which the dividends were earned. Pursuant to Sec. 707.6(a), when dividends are paid less frequently than statements are sent, the APY Earned may reflect the number of days over which dividends were earned rather than the number of days in the statement period, e.g., if a credit union uses the average daily balance method and calculates dividends for a period other than the statement period, the annual percentage yield earned shall reflect the relationship between the amount of dividends earned and the average daily balance in the account for the other period, such as a crediting or dividend period. The annual percentage yield shall be calculated by using the following formulas (``APY Earned'' is used for convenience in the formulas): A. General Formula APY Earned=100 [(1+Dividends earned/ Balance)(365/Daysinperiod)-1]. [[Page 389]] ``Balance'' is the average daily balance in the account for the period. ``Dividends earned'' is the actual amount of dividends accrued or paid and credited to the account for the period. ``Days in period'' is the actual number of days over which the dividends disclosed on the statement were earned. Examples: (1) If a credit union calculates dividends for the statement period (and uses either the daily balance or the average daily balance method), and the account had a balance of $1,500 for 15 days and a balance of $500 for the remaining 15 days of a 30-day statement period, the average daily balance for the period is $1,000. Assume that $5.25 in dividends was earned during the period. The annual percentage yield earned (using the formula above) is 6.58%: APY Earned=100 [(1+5.25/1,000)(365/30)-1] APY Earned=6.58%. (2) Assume a credit union calculates dividends on the average daily balance for the calendar month and provides periodic statements that cover the period from the 16th of one month to the 15th of the next month. The account has a balance of $2,000 September 1 through September 15 and a balance of $1,000 for the remaining 15 days of September. The average daily balance for the month of September is $1,500, which results in $6.50 in dividends earned for the month. The annual percentage yield earned for the month of September would be shown on the periodic statement covering September 16 through October 15. The annual percentage yield earned (using the formula above) is 5.40%: APY Earned=100 [(1+6.50/1,500)(365/30)-1] APY Earned = 5.40%. (3) Assume a credit union calculates dividends on the average daily balance for a quarter (for example, the calendar months of September through November), and provides monthly periodic statements covering calendar months. The account has a balance of $1,000 throughout the 30 days of September, a balance of $2,000 throughout the 31 days of October, and a balance of $3,000 throughout the 30 days of November. The average daily balance for the quarter is $2,000, which results in $21 in dividends earned for the quarter. The annual percentage yield earned would be shown on the periodic statement for November. The annual percentage yield earned (using the formula above) is 4.28%: APY Earned=100 [(1+21/2,000)(365/91)-1] APY Earned=4.28%. B. Special formula for use where periodic statement is sent more often than the period for which dividends are compounded. Credit unions that use the daily balance method to accrue dividends and that issue periodic statements more often than the period for which dividends are compounded shall use the following special formula: [GRAPHIC] [TIFF OMITTED] TR27SE93.000 The following definition applies for use in this formula (all other terms are defined under Part II): ``Compounding'' is the number of days in each compounding period. Assume a credit union calculates dividends for the statement period using the daily balance method, pays a 5.00% dividend rate, compounded annually, and provides periodic statements for each monthly cycle. The account has a daily balance of $1000.00 for a 30-day statement period. The dividend earned of $4.11 for the period, and the annual percentage yield earned (using the special formula above) is 5.00%: [GRAPHIC] [TIFF OMITTED] TR27SE93.001 [[Page 390]] APY Earned = 5.00%. [58 FR 50445, Sept. 27, 1993, as amended at 63 FR 71575, Dec. 29, 1998] Appendix B to Part 707--Model Clauses and Sample Forms Table of Contents B-1--Model Clauses for Account Disclosures (Sec. 707.4(b)) B-2--Model Clauses for Changes in Terms (Sec. 707.5(a)) B-3--Model Clauses for Pre-Maturity Notices for Term Share Accounts (Sec. 707.5(b-d)) B-4--Sample Form (Signature Card/ Application for Membership) B-5--Sample Form (Term Share (Certificate) Account) B-6--Sample Form (Regular Share Account Disclosures) B-7--Sample Form (Share Draft Account Disclosures) B-8--Sample Form (Money Market Share Account Disclosures) B-9--Sample Form (Term Share (Certificate) Account Disclosures) B-10--Sample Form (Periodic Statement) B-11--Sample Form (Rate and Fee Schedule) General Note: Appendix B contains model clauses and sample forms intended for optional use by credit unions to aid in compliance with the disclosure requirements of Secs. 707.4 (account disclosures), 707.5 (subsequent disclosures), 707.6 (statement disclosures), and 707.8 (advertisements). Section 269(b) of TISA provides that credit unions that use these clauses and forms will be in compliance with TISA's disclosure provisions. As discussed in the supplementary information to Sec. 707.3(a), this final rule provides for flexibility in designing the format of the disclosures. Credit unions can choose to prepare a single document or brochure that incorporates disclosures for all accounts offered, or to prepare different documents for each type of account. Credit unions may also use inserts to a document, or fill in blanks to show current rates, fees and other terms. In the model clauses, words in parentheses indicate the type of disclosure a credit union should insert in the space provided (for example, a credit union might insert ``July 23, 1995'' in the blank for a ``(date)'' disclosure). Brackets and ``/'' indicate that a credit union must choose the alternative that best describes its practice (for example, ``[daily balance/ average daily balance]''). It should be noted that only in sections B-6 through B-10 of this appendix have specific examples of disclosures been given, with dates and figures. Sections B-1 through B-5, and section B-11 provide only unspecific model clauses or blank forms. The Board felt, as did the FRB in the Appendix A to Regulation DD, that a mix of blank clauses and forms and application of the model clauses to real specific situations would benefit those who must comply with TISA. Any references to NCUA Rules and Regulations, the NCUA Standard FCU Bylaws, or the NCUA Accounting Manual for FCUs, are provided for guidance and as a point of reference for credit unions. Citations to these sources does not indicate that their application is required for those credit unions who need not follow them. B-1 Model Clauses for Account Disclosures (Sec. 707.4(b)) (a) Rate Information (Sec. 707.4(b)(1)) (i) Fixed-Rate Accounts (Sec. 707.4(b)(1)(i)(A-B)) 1. Interest-bearing Accounts The interest rate on your deposit account is ______% with an annual percentage yield (APY) of ______%. [For purposes of this disclosure, this is a rate and APY that were offered within the most recent seven calendar days and were accurate as of (date). Please call (credit union telephone number) to obtain current rate information.] You will be paid this rate [for (time period)/until (date)/for at least 30 calendar days]. Note: This provision reflects an accurate statement for an interest- bearing account authorized by state law for state-chartered credit unions. While the definition of the term ``interest'' permits its substitution for the term ``dividends,'' separate disclosures should be made for interest-bearing accounts. Since account opening disclosures may be provided to potential members requesting account information before opening an account, and members opening new accounts, information is provided indicating that the rate may not be current, but that the potential member or member may call the credit union to obtain up-to- date information. When opening a new account, of course, a credit union could provide the contractual rate alone, and delete the sentences in brackets. Given the definition of fixed-rate account in Sec. 707.2(n), credit unions offering fixed-rate accounts must contract to hold rates steady for at least a 30-day period. Thus, if the 30-day option of the last sentence is not chosen, the period chosen must be longer than 30 days. 2. Dividend-bearing Term Share Accounts The dividend rate on your term share account is ______% with an annual percentage yield (APY) of ______%. [For purposes of this disclosure, this is a rate and APY that were [[Page 391]] offered within the most recent seven calendar days and were accurate as of (date). Please call (credit union telephone number) to obtain current rate information.] You will be paid this rate [for (time period)/until (date)/for at least 30 calendar days]. Note: This provision reflects an accurate statement for a fixed- rate, dividend-bearing term share account. Interest-bearing term share accounts would use the disclosure in Sec. 1, above. Since account opening disclosures may be provided to potential members requesting account information before opening an account, and members opening new accounts, information is provided indicating that the rate may not be current, but that the potential member or member may call the credit union to obtain up-to-date information. When opening a new account, of course, a credit union could provide the contractual rate alone, and delete the sentences in brackets. Given the definition of fixed-rate account in Sec. 707.2(n), credit unions offering fixed-rate accounts must contract to hold rates steady for at least a 30-day period. Thus, if the 30-day option of the last sentence is not chosen, the period chosen must be longer than 30 days. 3. Other Dividend-bearing Accounts [As of [the last dividend declaration date/ (date)], the dividend rate was ______% with an annual percentage yield (APY) of ______% on your account. /or The prospective dividend rate on your account is ______% with a prospective APY of ______% for the current dividend period.] You will be paid this rate for [(time period)/at least 30 calendar days]. or [As of [the last dividend declaration date/ (date)], the dividend rate was ______% with an annual percentage yield (APY) of ______% on your account. /or The prospective dividend rate on your account is ______% with an annual percentage yield (APY) of ______% for this dividend period.] This rate will not change unless the credit union notifies you at least 30 calendar days prior to any change. Note: Credit unions may disclose the dividend rate and annual percentage yield on accounts as of the last dividend declaration date. This necessitates inclusion of a disclosure of the actual calendar date of the last dividend declaration date. Additionally or alternatively (if the last dividend rate could be inaccurate), credit unions may disclose a prospective dividend rate and a prospective annual percentage yield. Such prospective rates and yields must be estimated in good faith, and must be declared at the proper time if it is at all possible to do so. As for the last sentence in these disclosures, this provision reflects a credit union policy to set prospective dividend rates for the next month (or at least 30 days), quarter or other period. Many credit unions, at their mid-monthly board meeting, set prospective dividend rates for the next month beginning on the 1st day of the month and continuing to the last day of the month. These rates must be formalized or ratified at the end of a dividend period. Given the timing of the board meetings, the time to prepare and mail notices and the 30 day period, it will often take credit unions 45 to 60 days to effectively change rates. For these reasons, the Board strongly suggests that credit unions do not offer fixed-rate, dividend-bearing accounts. (ii) Variable-Rate Accounts (Sec. 707.4(b)(1)(ii)) 1. Interest-bearing Accounts The interest rate on your deposit account is ______%, with an annual percentage yield (APY) of ______%. [For purposes of this disclosure, this is a rate and APY that were offered within the most recent seven calendar days and were accurate as of (date). Please call (credit union telephone number) to obtain current rate information.] The interest rate and annual percentage yield may change every (time period) based on [(name of index)/the determination of the credit union board of directors]. The interest rate for your account will [never change by more than ______% each (time period)/never be less/more than ______%/ never exceed ______% above or fall more than ______% below the initial interest rate]. Note: This disclosure combines the requirements of Sec. 707.4(b)(1)(i) with Sec. 707.4(b)(1)(ii) for interest-bearing accounts. The variable nature of a deposit account usually is based on an external index or is set at the discretion of the board. If another means of rate setting is used, that, instead of the proposed language, must be disclosed. Since account opening disclosures may be provided to potential members requesting account information before opening an account, and members opening new accounts, information is provided indicating that the rate may not be current, but that the potential member or member may call the credit union to obtain up-to-date information. When opening a new account, of course, a credit union could provide the contractual rate alone, and delete the sentences in brackets. Rarely would there be limitations on rate changes, but language is provided for this situation in the last sentence. Of course, it is only to be used if it applies to an account. 2. Dividend-bearing Term Share Accounts The dividend rate on your term share account is ______%, with an annual percentage yield (APY) of ______%. [For purposes of this disclosure, this is a rate and APY that were offered within the most recent seven calendar days and were accurate as of (date). Please call (credit union telephone number) [[Page 392]] to obtain current rate information.] The dividend rate and annual percentage yield may change every (time period) based on [(name of index)/the determination of the credit union board of directors]. The dividend rate for your account will [never change by more than ______% each (time period)/never be less/more than ______% /never exceed ______% above or fall more than ______% below the initial dividend rate]. Note: This disclosure combines the requirements of Sec. 707.4(b)(1)(i) with Sec. 707.4(b)(1)(ii) for dividend-bearing, variable-rate term share accounts. The variable nature of a deposit account usually is based on an external index or is set at the discretion of the board. If another means of rate setting is used, that, instead of the model language, must be disclosed. Since account opening disclosures may be provided to potential members requesting account information before opening an account, and members opening new accounts, information is provided indicating that the rate may not be current, but that the potential member or member may call the credit union to obtain up-to-date information. When opening a new account, of course, a credit union could provide the contractual rate alone, and delete the sentences in brackets. Rarely would there be limitations on rate changes, but language is provided for this situation in the last sentence. Of course, it is only to be used if it applies to an account. 3. Other Dividend-bearing Accounts [As of [the last dividend declaration date/ (date)], the dividend rate was ______% with an annual percentage yield (APY) of ______% on your account. /or The prospective dividend rate on your account is ______% with an anticipated annual percentage yield (APY) of ______% for the current dividend period.] The dividend rate and annual percentage yield may change every (dividend period) as determined by the credit union board of directors. Note: This language combines the requirements of Sec. 707.4(b)(1)(i) with Sec. 707.4(b)(1)(ii). Credit unions may disclose the dividend rate and annual percentage yield on accounts as of the last dividend declaration date. This necessitates inclusion of a disclosure of the actual calendar date of the last dividend declaration date or use of the phrase ``last dividend declaration date''. Additionally or alternatively, credit unions may disclose a prospective dividend rate and a prospective annual percentage yield. Such prospective rates and yields must be estimated in good faith, and must be declared at the proper time if it is at all possible to do so. As for the last sentence in these disclosures, this provision reflects the variable nature of the account. Generally, there is only one variable-rate feature for share accounts: the frequency of dividend period rate changes (e.g., daily, weekly, monthly, quarterly, semi-annually, annually). Normally, there are no contractual limitations on share account earnings (unless imposed by a regulator), nor are earnings based on any internal or external index. If contractual limitations or an index are involved, however, those factors would need to be disclosed (unless a regulator orders otherwise). (iii) Stepped-Rate Accounts (Sec. 707.4(b)(1)(i)) 1. Interest-bearing Accounts The initial interest rate on your deposit account is ______%. You will be paid that rate [for (time period)/ until (date)]. After that time, the interest rate for your deposit account will be ______% and you will be paid that rate [for (time period)/ until (date)]. The annual percentage yield (APY) for your account is ______%. [For purposes of this disclosure, this is a rate and APY that were offered within the most recent seven calendar days and were accurate as of (date). Please call (credit union telephone number) to obtain current rate information.] You will be paid this rate [for (time period)/until (date)/for at least 30 calendar days]. 2. Dividend-bearing Term Share Accounts The initial dividend rate on your term share account is ______%. You will be paid that rate [for (time period)/ until (date)]. After that time, the dividend rate for your term share account will be ______% and you will be paid that rate [for (time period)/ until (date)]. The annual percentage yield (APY) for your account is ______%. [For purposes of this disclosure, this is a rate and APY that were offered within the most recent seven calendar days and were accurate as of (date). Please call (credit union telephone number) to obtain current rate information.] You will be paid this rate [for (time period)/until (date)/for at least 30 calendar days]. 3. Other Dividend-bearing Accounts [As of [the last dividend declaration date/ (date)], the initial dividend rate on your account was ______%. /or The prospective dividend rate on your account is ______%.] You will be paid that rate [for (time period)/ until (date)]. After that time, the prospective dividend rate for your share account will be ______% and you will be paid such rate [for (time period)/ until (date)]. The annual percentage yield (APY) for your account is ______%. You will be paid this rate for [(time period)/ at least 30 calendar days]. Note: Stepped-rate accounts are accounts with two or more rates that take effect in succeeding periods. The applicable rates and time periods are known when the account is opened. By nature these are fixed-rate accounts and are usually associated with term [[Page 393]] share (certificate) accounts. Accordingly, a contract provision (for share accounts) to change rates should be included. (iv) Tiered-Rate Accounts (Sec. 707.4(b)(1)(i)) 1. Interest-bearing Accounts Tiering Method A 1* If your [daily balance/average daily balance] is $______ or more, the interest rate paid on the entire balance in your account will be ______%, with an annual percentage yield (APY) of ______%. 2* If your [daily balance/average daily balance] is more than $______, but less than $______, the interest rate paid on the entire balance in your account will be ______%, with an APY of ______%. 3* If your [daily balance/average daily balance] is $______ or less, the interest rate paid on the entire balance will be ______% with an APY of ______%. [For purposes of this disclosure, this is a rate and APY that were offered within the most recent seven calendar days and were accurate as of (date). Please call (credit union telephone number) to obtain current rate information.] [Fixed-rate--You will be paid this rate [for (time period)/until (date)/for at least 30 calendar days]./ Variable-rate--The interest rate and APY may change every (time period) based on [(name of index)/ the determination of the credit union board of directors.] Note: Tiering Method A pays the stated interest rate that corresponds to the applicable deposit tier on the full balance in the account. This example contemplates a two-tier system. The option (1, 2 or 3) most closely matching the terms of the account should be chosen as the appropriate disclosure. For tiered-rate accounts, a disclosure may be added about the currency of the rate, as is provided in the first set of brackets. A disclosure regarding the fixed-rate or variable-rate nature of the account must be added, as is provided in the last set of brackets. Tiering Method B 1* An interest rate of ________% will be paid only on the portion of your [daily balance/average daily balance] that is greater than $________. The annual percentage yield (APY) for this tier will range from ________% to ________%, depending on the balance in the account. 2* An interest rate of ________% will be paid only on the portion of your [daily balance/average daily balance] that is greater than $________, but less than $________. The annual percentage yield (APY) for this tier will range from ________% to ________%, depending on the balance in the account. 3* If your [daily balance/average daily balance] is $________ or less, the interest rate paid on the entire balance will be ________%, with an annual percentage yield (APY) of ________%. [For purposes of this disclosure, this is a rate and APY that were offered within the most recent seven calendar days and were accurate as of (date). Please call (credit union telephone number) to obtain current rate information.] [Fixed-rate--You will be paid this rate [for (time period)/until (date)/for at least 30 calendar days]./ Variable-rate--The interest rate and APY may change every (time period) based on [(name of index)/ the determination of the credit union board of directors.] Note: Tiering Method B pays different stated interest rates corresponding to applicable deposit tiers, on the applicable balance in each tier of the account. For example, a credit union might pay 3% interest on account funds of $500 or below, and pay 4% interest on the portion of the same account that exceeds $500. The example contemplates an account with two tiers, but additional tiers are possible. The option (1, 2 or 3) most closely matching the terms of the account should be chosen as the appropriate disclosure. For tiered-rate accounts, a disclosure may be added about the currency of the rate, as is provided in the first set of brackets. Tiered-rate accounts can be either fixed-rate or variable-rate accounts. The last sentence offers an option of either fixed-rate or variable-rate disclosure. Thus, the disclosures outlined above will be made in addition to either: (i) Disclosure of the period the fixed-rates are in effect or (ii) the variable-rate disclosures. Tiered-rate accounts are also subject to the requirement for disclosure of the balance computation method, see paragraph (e) to this appendix. 2. Dividend-bearing Term Share Accounts Tiering Method A 1* If your [daily balance/average daily balance] is $________ or more, the dividend rate paid on the entire balance in your account will be ________%, with an annual percentage yield (APY) of ________%. 2* If your [daily balance/average daily balance] is more than $________, but less than $________, the dividend rate paid on the entire balance in your account will be ________%, with an APY of ________%. 3* If your [daily balance/average daily balance] is $________ or less, the dividend rate paid on the entire balance will be ________% with an APY of ________%. [For purposes of this disclosure, this is a rate and APY that were offered within the most recent seven calendar days and were accurate as of (date). Please call (credit union telephone number) to obtain current rate information.] [[Page 394]] [Fixed-rate--You will be paid this rate [for (time period)/until (date)/for at least 30 calendar days]./ Variable-rate--The interest rate and APY may change every (time period) based on [(name of index)/ the determination of the credit union board of directors.] Note: Tiering Method A pays the stated dividend rate that corresponds to the applicable account balance tier on the full balance in the account. This example contemplates a two-tier system. The option (1, 2 or 3) most closely matching the terms of the account should be chosen as the appropriate disclosure. For tiered-rate accounts, a disclosure may be added about the currency of the rate, as is provided in the first set of brackets. A disclosure regarding the fixed-rate or variable-rate nature of the account must be added, as is provided in the last set of brackets. Tiering Method B 1* A dividend rate of ________% will be paid only on the portion of your [daily balance/average daily balance] that is greater than $________. The annual percentage yield (APY) for this tier will range from ________% to ________%, depending on the balance in the account. 2* A dividend rate of ________% will be paid only on the portion of your [daily balance/average daily balance] that is greater than $________, but less than $________. The annual percentage yield (APY) for this tier will range from ________% to ________%, depending on the balance in the account. 3* If your [daily balance/average daily balance] is $________ or less, the dividend rate paid on the entire balance will be ________%, with an annual percentage yield (APY) of ________%. [For purposes of this disclosure, this is a rate and APY that were offered within the most recent seven calendar days and were accurate as of (date). Please call (credit union telephone number) to obtain current rate information.] [Fixed-rate--You will be paid this rate [for (time period)/until (date)/for at least 30 calendar days]./ Variable-rate--The interest rate and APY may change every (time period) based on [(name of index)/ the determination of the credit union board of directors.] Note: Tiering Method B pays different stated dividend rates corresponding to applicable account balance tiers, on the applicable balance in each tier of the account. For example, a credit union might pay 3% dividend on account funds of $500 or below, and pay 4% dividend on the portion of the same account that exceeds $500. The example contemplates an account with two tiers, but additional tiers are possible. The option (1, 2 or 3) most closely matching the terms of the account should be chosen as the appropriate disclosure. For tiered-rate accounts, a disclosure may be added about the currentness of the rate, as is provided in the first set of brackets. Tiered-rate accounts can be either fixed-rate or variable-rate accounts. The last sentence offers an option of either fixed-rate or variable-rate disclosure. Thus, the disclosures outlined above will be made in addition to either: (i) Disclosure of the period the fixed-rates are in effect or (ii) the variable-rate disclosures. Tiered-rate accounts are also subject to the requirement for disclosure of the balance computation method, see paragraph (e) to this appendix. 3. Other Dividend-bearing Accounts Tiering Method A 1* [As of [the last dividend declaration date/ (date)], if your [daily balance/average daily balance] was $________ or more, the dividend rate paid on the entire balance in your account was ________%, with an annual percentage yield (APY) of ________%. /or If your [daily balance/average daily balance] is $________ or more, a prospective dividend rate of ________% will be paid on the entire balance in your account with a prospective annual percentage yield (APY) of ________% for this dividend period.] 2* [As of [the last dividend declaration date/ (date)], if your [daily balance/average daily balance] was more than $________, but was less than $________, the dividend rate paid on the entire balance in your account was ________%, with an annual percentage yield (APY) of ________%. /or If your [daily balance/average daily balance] is more than $________, but is less than $________, a prospective dividend rate of ________% will be paid on the entire balance in your account with a prospective annual percentage yield (APY) of ________% for this dividend period.] 3* [As of the last dividend declaration date/ (date)], if your [daily balance/average daily balance] was $________ or less, the dividend rate paid on the entire balance in your account will be ________% with an annual percentage yield (APY) of ________%. /or If your [daily balance/average daily balance] is $________ or less, the prospective dividend rate of ________% will be paid on the entire balance in your account with a prospective annual percentage yield (APY) of ________% for this dividend period. [Fixed-rate--You will be paid this rate for [(time period)/at least 30 calendar days]./ Variable-rate--The dividend rate and APY may change every (dividend period) as determined by the credit union board of directors.] Note: Tiering Method A pays the stated dividend rate that corresponds to the applicable deposit tier on the full balance in the account. This example contemplates a two- [[Page 395]] tier system. The option (1, 2 or 3) most closely matching the terms of the account should be chosen as the appropriate disclosure. For tiered- rate accounts, a disclosure may be added about the prospective rate. Note that the prospective rate disclosure options match the required tiered-rate disclosures based on the previous dividend declaration date. A disclosure regarding the fixed-rate or variable-rate nature of the account must be added, as is provided in the last set of brackets. Tiering Method B 1* [As of [the last dividend declaration date/ (date)], a dividend rate of ________% was paid only on the portion of your [daily balance/ average daily balance] that was greater than $________. The annual percentage yield (APY) for this tier ranged from ________% to ________%, depending on the balance in the account. /or A prospective dividend rate of ________% will be paid only on the portion of your [daily balance/ average daily balance] that is greater than $________ with a prospective annual percentage yield (APY) ranging from ________% to ________%, depending on the balance in the account, for this dividend period.] 2* [As of [the last dividend declaration date/ (date)], a dividend rate of ________% was paid only on the portion of your [daily balance/ average daily balance] that was greater than $________ but less than $________. The annual percentage yield (APY) for this tier ranged from ________% to ________%, depending on the balance in the account. /or A prospective dividend rate of ________% will be paid only on the portion of your [daily balance/average daily balance] that is greater than $________, but less than $________] with a prospective annual percentage yield (APY) ranging from ________% to ________%, depending on the balance in the account, for this dividend period.] 3* [As of [the last dividend declaration date/ (date)], if your [daily balance/average daily balance] was $________ or less, the dividend rate paid on the entire balance was ________%, with an annual percentage yield (APY) of ________%. /or If your [daily balance/average daily balance] was $______ or less, the prospective dividend rate paid on the entire balance in your account will be ______% with a prospective annual percentage yield (APY) of ______% for this dividend period. Note: Tiering Method B pays different stated dividend rates corresponding to applicable account tiers, on the applicable balance in each tier of the account. For example, a credit union might pay a 3% dividend on account funds of $500 or below, and pay a 4% dividend on the portion of the same account that exceeds $500. The example contemplates an account with two tiers, but additional tiers are possible. The option (1, 2 or 3) most closely matching the terms of the account should be chosen as the appropriate disclosure. Note that the prospective rate disclosure options match the required tiered-rate disclosures based on the previous dividend declaration date. Tiered-rate accounts can be either fixed-rate or variable-rate accounts. The last sentence offers an option of either fixed-rate or variable-rate disclosures. Thus, the disclosures outlined above must be made in addition to either: (i) Disclosure of the period the fixed-rates are in effect or (ii) the variable-rate disclosures. Tiered-rate accounts are also subject to the requirement for disclosure of the balance computation method, see paragraph (e) to this appendix. (b) Nature of Dividends (Sec. 707.4(b)(8)) Dividends are paid from current income and available earnings, after required transfers to reserves at the end of a dividend period. Note: The Board of Directors declares dividends based on current income and available earnings of the credit union after providing for the required reserves at the end of the month. The dividend rate and annual percentage yield shown may reflect either the last dividend declaration date on the account or the earnings the credit union anticipates having available for distribution. This disclosure only applies to share and share draft (as opposed to deposit) accounts and should be grouped with the Rate Information to make the disclosures more meaningful. This disclosure also does not apply to term share accounts for reasons discussed in the supplementary information regarding Secs. 707.3(e) and 707.4(b)(8). (c) Compounding and Crediting (Sec. 707.4(b)(2)) [Dividends/Interest] will be compounded (frequency) and will be credited (frequency). and, if applicable: If you close your [share/deposit] account before [dividends/ interest] [are/is] paid, you will not receive the accrued [dividends/ interest]. and, if applicable (for dividend-bearing accounts): For this account type, the dividend period is (frequency), for example, the beginning date of the first dividend period of the calendar year is (date) and the ending date of such dividend period is (date). All other dividend periods follow this same pattern of dates. The dividend declaration date follows the ending date of a dividend period, and for the example is (date). Note: Where the word ``(frequency)'' appears, time periods must be inserted to coincide with those specified in board resolutions of each credit union's board of directors. A [[Page 396]] disclosure of dividend period was added to Sec. 707.4(b)(2)(i) in the final rule to assist members in knowing when dividend rate and APY disclosures would be given by a credit union using the optional statement rule of Sec. 707.6(a). The dividend declaration date is important for purposes of Sec. 707.4(a)(2)(ii), request disclosures, Sec. 707.4(b)(2), account opening disclosures, and Sec. 707.8(c)(2), advertising disclosures. The Board believes that this is critical information for dividend-bearing accounts, but that provision by an example (whether of the first dividend period of the year, or of any randomly chosen dividend period) is favorable to providing a list of such dates for the entire year or for a period of years (although these methods would also be permissible). As noted in the supplementary information to Sec. 707.2(j), dividend declaration date, the dividend period and actual dividend distribution date may vary. Thus, it is possible for crediting periods and dividend periods not to coincide, though the Board believes that credit unions should make every effort to attempt to coordinate the two periods. (d) Minimum Balance Requirements (Sec. 707.4(b)(3)(i)) (i) To open the account The minimum balance required to open this account is $________. or, for first share account at a credit union The minimum required to open this account is the purchase of a (par value of a share) share in the credit union. (ii) To avoid imposition of fees You must maintain a minimum daily balance of $________ in your account to avoid a service fee. If, during any (time period), your account balance falls below the required minimum daily balance, your account will be subject to a service fee of $________ for that (time period). or You must maintain a minimum average daily balance of $________ in your account to avoid a service fee. If, during any (time period), your average daily balance is below the required minimum, your account will be subject to a service fee of $________ for that (time period). (iii) To obtain the annual percentage yield disclosed You must maintain a minimum daily balance of $________ in your account each day to obtain the disclosed annual percentage yield. or You must maintain a minimum average daily balance of $________ in your account to obtain the disclosed annual percentage yield. (iv) Absence of minimum balance requirements No minimum balance requirements apply to this account. (v) Par value The par value of a share in this credit union is $________. Note: Where the words ``(time period)'' appear, time periods should be inserted to coincide with those specified in board resolutions of each credit union's board of directors. As the supplementary information to Sec. 707.4(b)(3)(i) explains, the par value of a share to establish membership is a critical disclosure to be made to potential members of credit unions. The par value disclosure is required by Sec. 707.4(b)(3)(i) as being analogous to a minimum balance account opening requirement. (e) Balance Computation Method (Sec. 707.4(b)(3)(ii)) (i) Daily Balance Method [Dividends/Interest] [are/is] calculated by the daily balance method which applies a daily periodic rate to the balance in the account each day. (ii) Average Daily Balance Method [Dividends/Interest] [are/is] calculated by the average daily balance method which applies a periodic rate to the average daily balance in the account for the period. The average daily balance is calculated by adding the balance in the account for each day of the period and dividing that figure by the number of days in the period. Note: Any explanation of balance computation method must contain enough information for members to grasp the means by which dividends or interest will be calculated on their accounts. Using a shorthand form, such as ``day in/day out'' for the daily balance method or ``average balance'' for the average daily balance method, without more information, is insufficient. In addition, any disclosure based on the equivalency of the two allowable methods, such as stating that the average daily balance method was the same as the daily balance method, is impermissible and misleading. (f) Accrual of Dividends/Interest on Noncash Deposits (Sec. 704.4(b)(3)(iii)) [Dividends/Interest] will begin to accrue on the business day you [place/deposit] noncash items (e.g. checks) to your account. or [Dividends/Interest] will begin to accrue no later than the business day we receive provisional credit for the [placement/deposit] of noncash items (e.g. checks) to your account. Note: Accrual information is not included in the explanation of balance computation method required by Sec. 707.4(b)(4)(ii). In addition, the disclosures required by TISA do not affect the substantive requirements of the EFAA and Regulation CC. The EFAA and Regulation CC control, and any modifications to them should occasion [[Page 397]] credit unions to revisit this disclosure with a view to revising it to reflect current law. (g) Fees and Charges (Sec. 707.4(b)(4)) The following fees and charges may be assessed against your account: (Service/explanation)--$______. (Service/explanation)--$______. Note: Fees and charges may be disclosed in an account disclosure, or separately in a Rate and Fee Schedule (see section B-11 of this appendix). In either event, the disclosure should also specify when the fee will be assessed by using phrases such as ``per item,'' ``per month,'' or ``per inquiry.'' (h) Transaction Limitations (Sec. 707.4(b)(5)) The minimum amount you may [withdraw/write a draft for] is $________ During any statement period, you may not make more than six withdrawals or transfers to another credit union account of yours or to a third party by means of a preauthorized or automatic transfer or telephonic order or instruction. No more than three of the six transfers may be made by check, draft, debit card, if applicable, or similar order to a third party. If you exceed the transfer limitations set forth above in any statement period, your account will be subject to [closure by the credit union/a fee of $________. Note: This paragraph satisfies the requirements of Sec. 707.4(b)(6) with respect to Regulation D limitations on share accounts and money market accounts. These are some of the more common limitations applicable. The credit union reserves the right to require a member intending to make a withdrawal from any account (except a share draft account) to give written notice of such intent not less than seven days and up to 60 days before such withdrawal. Note: This disclosure is limited to federal credit unions with Bylaws containing this limitation. See Standard Federal Credit Union Bylaws, Art. III, section 5(a). Similar disclosures are required of any state-chartered credit unions having similar limitations in their bylaws, or under state law. This limitation does not directly relate to the ``number'' or ``amount'' of transactions, and accordingly, may not be necessary under Sec. 707.4(b)(5), but would, if applicable, be required by Sec. 707.3(b). (i) Disclosures Related to Term Share Accounts (Sec. 707.4(b)(6)) (i) Time requirements Your account will mature on (date). or Your account will mature after (time period). (ii) Early withdrawal penalties We [will/may] impose a penalty if you withdraw [any/all] of the [funds/principal] in your account before the maturity date. The penalty will equal [________ [days'/weeks'/months'] [dividends/interest] on your account. or We [will/may] impose a penalty of $__________ if you withdraw [any/ all] of the [funds/principal] before the maturity date. If you withdraw some of your funds before maturity, the [dividend/ interest] rate for the remaining funds in your account will be ______%, with an annual percentage yield of ______%. Note: In most cases, the dividend rate and annual percentage yield on the funds remaining in the account after early withdrawal are the same as before the withdrawal. Accordingly, the disclosure of dividend rate and annual percentage yield after withdrawal is required only if the dividend rate and APY will change. (iii) Withdrawal of Dividends/Interest Prior to Maturity The annual percentage yield is based on an assumption that [dividends/interest] will remain in the account until maturity. A withdrawal will reduce earnings. Note: This disclosure may be used if the credit union compounds dividends/interest and allows withdrawal of accrued dividends/interest before maturity. This disclosure alerts members that the annual percentage yield is based on an assumption that the dividends/interest remain on deposit until maturity. (iv) Renewal Policies 1. Automatically Renewable Term Share Accounts Your term share account will automatically renew at maturity. You will have a grace period of ________ [calendar/business] days after the maturity date to withdraw the funds in the account without being charged an early withdrawal penalty. or Your term share account will automatically renew at maturity. There is no grace period following the maturity of this account. 2. Non-Automatically Renewable Term Share Accounts This account will not renew automatically at maturity. If you do not renew the account, your account will [continue to earn/no longer earn] [dividends/interest] after the maturity date. Note: These disclosures should agree with the necessary pre-maturity notices for term share accounts in B-3 of this appendix. [[Page 398]] (v) Required dividend distribution. This account requires the distribution of dividends and does not allow dividends to remain in the account. (j) Bonuses (Sec. 704.4(b)(7)) You will [be paid/receive] [$__________/(description of item)] as a bonus [when you open the account/on (date)]. You must maintain a minimum [daily balance/average daily balance] of $__________ to obtain the bonus. To earn the bonus, [$__________/your entire principal] must remain on deposit [for (time period)/until (date)]. Note: These disclosures follow the requirements of Sec. 707.4(b)(7) and should be used as applicable. Further information may also be added, especially if it clarifies the conditions and timing of receiving the bonus, or better informs the member about the bonus. B-2 Model Clauses for Changes in Terms (Sec. 707.5(a)) On (date), the (type of fee) will increase to $__________. On (date), the [dividend/interest] rate on your account will decrease to ______%, with an annual percentage yield (APY) of ______%. On (date), the [minimum daily balance/average daily balance] required to avoid imposition of a fee will increase to $__________. Note: These examples apply to the more common changes necessitating a change in terms notice. However, any change, amendment or modification reducing the APY or adversely affecting the members holding such accounts must be disclosed. For such changes not contemplated by the model clauses, the Board recommends the use of as simple language as possible to convey the change, along with cross-referencing to the particular sections or paragraph numbers of the account opening disclosures, when to do so will assist members in reviewing and understanding the change. B-3 Model Clauses for Pre-Maturity Notices for Term Share Accounts (Sec. 707.5(b-d)) (a) Maturity Date Your term share account will mature on __________. (b) Nonrenewal Unless your term share account is renewed, it will not accrue further [dividends/interest] after the maturity date. (c) Rate Information The [dividend/interest] rate and annual percentage yield that will apply to your term share account if it is renewed have not yet been determined. That information will be available on ________. After that date, you may call the credit union during regular business hours at (telephone number) to find out the [dividend/interest] rate and annual percentage yield (APY) that will apply to your term share account if it is renewed. Note: Pre-maturity notices should follow the requirements of Sec. 707.5(b-d) as closely as possible. Care should be taken to explain any grace periods used. See discussion of use of alternative timing in supplementary information to Sec. 707.2(o) and Sec. 707.5(b-d). B-4 Sample Form (Signature Card/Application for Membership) Application for Membership/Account Signature Card ACCOUNT NUMBER________________________________________________ __________ __________ __________ (last name) (first name) (middle name) _______________________________________________________________________ (street address) (apartment number) __________ ______ ________ (city) (state) (zip code) ____________ ____________ (home telephone number) (business telephone number) ____-____-________ __________ (Social Security # or TIN) (date of birth) ______________ ________________ (mother's maiden name) (employer, occupation) I hereby make application for membership in and agree to conform to the Bylaws, as amended, of __________ Credit Union (the ``Credit Union''). I certify that: I am within the field of membership of this Credit Union; the information provided on this application is true and correct; and my signature on this card applies to all accounts under my name at this Credit Union. I also agree to be bound to the terms and conditions of any account that I have in the Credit Union now or in the future. _______________________________________________________________________ (signature of applicant) This application approved________(date) by the (Check one) ( ) Board ( ) Exec. Committee ( ) Membership Officer Signed:_________________________________________________________________ (Secretary; Exec. Cmte. Member, or Membership Officer) Note: This form is modeled on NCUA Form FCU 150, Application for Membership, as discussed in the Accounting Manual for FCUs, Secs. 5030.1, 5150.3. It is noted that other information can also be requested on the signature card, as long as it is in accordance with [[Page 399]] federal and state laws. For example, information identifying the member, such as a state driver's license number, could be added. The types of accounts that the signature applies to could be specified. Furthermore, the Board notes that this card contains much identification information that may not be necessary for all credit unions; common sense should guide credit union boards of directors in designing their applications for membership/signature cards. However, the Board believes that the information solicited on this form is reasonable and prudent for many credit unions. Payable on death designations, joint account language required under state law, life savings beneficiary designations, and other like variations and designations may be added to the card if so desired. The proposed signature card/ application for membership form contained taxpayer certification language. One commenter noted that the IRS may always change its requirements in this area, which are beyond the authority of the Board. Therefore, the Board has deleted reference to the IRS taxpayer certification required by 26 USC 3406, but notes that such certification must be made in accordance with applicable law and IRS rules. The information may be included on the front and back of a standard size signature card, or on the front of a large size signature card. However, no account terms may be included on a signature card unless a copy of the signature card is provided to the member at the time of account opening. The Board recommends that credit unions refrain from this practice, and instead use standard account disclosures. One reason for this is that if laws, regulations or credit union policies change, discrepancies may result between them and the earlier signature card terms. Given the longevity of credit union membership, signature cards may well be in use for up to or over a century. In addition, as signature cards are relatively small, they probably will not contain enough space to make all desired and required disclosures. Fragmentation of terms, some on signature cards, some on separate disclosures, could easily lead to member confusion. As terms are usually construed against the drafter, credit unions should be very careful in their use of account terms and conditions varying from those provided as model clauses and sample forms in this appendix. B-5 Sample Form (Term Share (Certificate) Account) Term Share Certificate _______________________________________________________________________ Date Issued _______________________________________________________________________ Account Number _______________________________________________________________________ Certificate Number _______________________________________________________________________ Social Security Number This is to certify that (name(s)) __________________ [is/ are] the owner(s) of a term share certificate account in the __________ Credit Union (the ``Credit Union'') in the amount of __________ Dollars ($__________). This term share certificate account may be redeemed on (maturity date) __________ only upon presentation of the certificate to the Credit Union. The dividend rate of this certificate account is ____% with an annual percentage yield of ____%. The annual percentage yield and dividend rate assume that dividends are to be [check one] ( ) added to principal/( ) paid to regular share account number __________/ ( ) mailed to owner(s). This account is subject to all terms and conditions stated in the Term Share Certificate Account Disclosures, as they may be amended from time to time, and incorporates the same by reference into this agreement. _______________________________________________________________________ Authorized signature _______________________________________________________________________ Authorized signature Note: This form is modeled on NCUA Form FCU 107SCP, Credit Union Share Certificate, as discussed in the Accounting Manual for FCUs, Secs. 5030.1, 5150.6. It is simplified to reflect the term share (certificate) account agreement, the parties involved, the maturity term and the annual percentage yield and dividend rate. All other terms are incorporated by reference. This should allow the credit union maximum flexibility in fashioning certificate, and other term share account, products. If a credit union so desired, other terms and conditions could be incorporated into the term share certificate itself, as long as a copy is presented to the member at the account opening. Care should also be taken to ensure that the term share certificate format addresses any necessary state law concerns. As the FRB's Regulation D on reserve requirements permits all term share accounts to be represented by a transferable or nontransferable, or a negotiable or nonnegotiable, certificate, instrument, passbook, statement or otherwise, and still be considered a ``time deposit'', the Board has made no entry on this sample form regarding such terms, leaving the decision instead to each credit union's board of directors. 12 CFR 202.4(c)(2). [[Page 400]] B-6 Sample Form (Regular Share Account Disclosures) Regular Share Account Disclosures 1. Rate information. As of April 1, 1995, the dividend rate was 5.00% and the annual percentage yield (APY) was 5.13% on your regular share account. In addition, the credit union estimates a prospective dividend rate of 5.25% and a prospective APY of 5.39% on your share account for this dividend period. The dividend rate and annual percentage yield may change every quarter as determined by the credit union board of directors. 2. Compounding and crediting. Dividends will be compounded daily and will be credited quarterly. For this account type, the dividend period is quarterly, for example, the beginning date of the first dividend period of the calendar year is January 1 and the ending date of such dividend period is March 31. All other dividend periods follow this same pattern of dates. The dividend declaration date follows the ending date of a dividend period, and for the example is April 1. If you close your regular share account before dividends are credited, you will not receive accrued dividends. 3. Minimum balance requirements. The minimum balance to open this account is the purchase of a $5 share in the Credit Union. You must maintain a minimum daily balance of $500 in your account to avoid a service fee. If, during any day during a quarter, your account balance falls below the required minimum daily balance, your account will be subject to a service fee of $5 for that quarter. 4. Balance computation method. Dividends are calculated by the daily balance method which applies a daily periodic rate to the principal in your account each day. 5. Accrual of dividends. Dividends will begin to accrue on the business day you deposit noncash items (e.g., checks) to your account. 6. Fees and charges. The following fees and charges may be assessed against your account. a. Statement copies--$5.00 per statement. b. Account inquiries--$3.00 per inquiry. c. Dormant account fee--$10.00 per month. d. Wire transfers--$8.00 per transfer. e. Minimum balance service fee--$5.00 per quarter. f. Share transfer--$1.00 per transfer. g. Excessive share withdrawals $1.00 per item. 7. Transaction limitations. During any statement period, you may not make more than six withdrawals or transfers to another credit union account of yours or to a third party by means of a preauthorized or automatic transfer or telephonic order or instruction. No more than three of the six transfers may be made by check, draft, debit card, if applicable, or similar order to a third party. If you exceed the transfer limitations set forth above in any statement period, your account will be subject to closure by the credit union or to a fee of $1.00 per item. 8. Nature of dividends. Dividends are paid from current income and available earnings, after required transfers to reserves at the end of a dividend period. 9. Bylaw Requirements. A member who fails to complete payment of one share within __________ of his admission to membership, or within __________ from the increase in the par value in shares, or a member who reduces his share balance below the par value of one share and does not increase the balance to at least the par value of one share within __________ of the reduction may be terminated from membership at the end of a dividend period. [All blanks should be filled with time chosen by credit union board of directors, but must be at least 6 months.] Shares may be transferred only from one member to another, by written instrument in such form as the Credit Union may prescribe. The Credit Union reserves the right, at any time, to require members to give, in writing, not more than 60 days notice of intention to withdraw the whole or any part of the amounts so paid in by them. No member may withdraw shareholdings that are pledged as required on security on loans without the written approval of the credit committee or a loan officer, except to the extent that such shares exceed the member's total primary and contingent liability to the Credit Union. No member may withdraw any shareholdings below the amount of his/her primary or contingent liability to the Credit Union if he/she is delinquent as a borrower, or if borrowers for whom he/she is comaker, endorser, or guarantor are delinquent, without the written approval of the credit committee or loan officer. 10. Par value of shares; Dividend period. The par value of a regular share in this Credit Union is $5. The dividend period of the Credit Union is quarterly. 11. National Credit Union Share Insurance Fund. Member accounts in this Credit Union are federally insured by the National Credit Union Share Insurance Fund. 12. Other Terms and Conditions. [In this item, which may be titled or subdivided in any manner by each credit union, NCUA suggests that the following issues be covered or handled: Statutory lien or setoff; expenses (garnishments and bankruptcy orders and holds on account); joint ownership accounts; trust accounts; payable-on-death accounts; retirement accounts; Uniform Transfer to Minor Act accounts; sole proprietorship accounts; escrow and custodial accounts; corporation accounts; not-for-profit corporation accounts; voluntary association accounts; partnership accounts; public unit accounts; powers of attorney (guardianship orders); tax [[Page 401]] disclosures and certifications; Uniform Commercial Code variances; amendments; reliance on signature card; change of address; incorporations of other documents by reference, such as expedited funds availability policies, service charges schedules or electronic banking disclosures; ability to suspend services; and operational matters (stop payment orders--verbal and written, satisfactory identification, refusal of deposits not in proper form, wire transfers, stale check deposits, availability of periodic statements or passbook feature.)] Note: This form is modeled on the share account disclosures in the Accounting Manual for FCUs, Sec. 5150.7. The disclosures are for a variable-rate, daily balance method dividend calculation regular share account in an FCU with a $500 minimum balance to avoid service fees. For the example, the account was opened on May 1, 1995. Other terms are self-explanatory. The dividend rate paid and annual percentage yield disclosures will reflect the prospective dividend rate for a given dividend period. Item nos. 1-8 reflect standard TISA and part 707 disclosures discussed in sections B-1 through B-3 of this appendix. Note that if the credit union limits the maximum amount of shares which may be held by one member under NCUA Standard FCU Bylaws, Art. III, section 2, that this should be stated in item no. 7, transaction limitations. Item no. 9 reflects various terms provided in Art. III, sections 3-6 of the NCUA Standard FCU Bylaws. If this were a passbook account, then the requirements of Art. IV, Receipting for Money--Passbooks, in the NCUA Standard FCU Bylaws would also be included in item no. 9. Item no. 10 reflects the par value amount of regular shares in a federal credit union, pursuant to section 117 of the FCU Act, 12 U.S.C. 117, and Art. XIV, section 3 of the NCUA Standard FCU Bylaws. It also states the dividend period of the credit union, which is set by the board of directors. Item no. 11 addresses the requirements of 12 CFR part 740. Nonfederally insured credit unions (NICUs) would be expected to disclose information required by section 151 of the Federal Deposit Insurance Corporation Improvement Act of 1991. 12 USC 1831t. By December 19, 1992, all NICUs were required to include conspicuously on all periodic statements of account, signature cards, passbooks, share certificates and other similar instruments of deposit and in all advertising a notice that the credit union is not federally insured. Additional disclosures will be required of NICUs by June 19, 1994. Item no. 12 is inserted to ensure that credit unions add other account terms and conditions not covered by the proposed regulation. These sorts of terms are contemplated by proposed Sec. 707.3(b), requiring that the disclosures reflect the terms of the legal obligation between the member and the credit union. This list is not meant to be exhaustive, but to give a general idea of other topics often covered in share account contracts. Item no. 12 is not expressly required by either TISA or part 707, but any of these terms that are disclosed must be accurate and not misleading. Also the Board strongly recommends that such terms are included in account opening disclosures to inform the membership and to clearly set forth the legal relationship between the members and their credit union. B-7 Sample Form (Share Draft Account Disclosures) Share Draft Account Disclosures 1. Rate information. As of January 1, 1995, the dividend rate was 3.00% and the annual percentage yield (APY) was 3.04% on your share account. In addition, the prospective dividend rate on your account is 3.15% with a prospective annual percentage yield (APY) of 3.20% for the current dividend period. The dividend rate and APY may change every dividend period as determined by the credit union board of directors. 2. Compounding and crediting. Dividends will be compounded monthly and will be credited monthly. For this account type, the dividend period is monthly, for example, the beginning date of the first dividend period of the calendar year is January 1 and the ending date of such dividend period is January 31. All other dividend periods follow this same pattern of dates. The dividend declaration date follows the ending date of a dividend period, and for the example above is February 1. If you close your share draft account before dividends are credited, you will not receive accrued dividends. 3. No Minimum balance requirements apply to this account. 4. Balance computation method. Dividends are calculated by the average daily balance method which applies a periodic rate to the average daily balance in the account for the period. The average daily balance is calculated by adding the balance in the account for each day of the period and dividing that figure by the number of days in the period. 5. Accrual of dividends. Dividends will begin to accrue no later than the business day we receive provisional credit for the placement of noncash items (e.g. checks) to your account. 6. Fees and charges. The following fees and charges may be assessed against your account. a. Statement copies--$5.00 per statement. b. Account inquiries--$3.00 per inquiry. c. Dormant account fee--$10.00 per month. d. Wire transfers--$8.00 per transfer. e. Overdrafts/Returned Items--$5.00 per draft. f. Share transfer--$1.00 per transfer. g. Excessive share withdrawals--$1.00 per item. [[Page 402]] h. Certified checks--$5.00 per check. i. Stop Payment Order--$5.00 per order. j. Check Printing Fee--$12.00 per 200 checks (varies depending on style of check ordered). 7. No transaction limitations apply to this account. 8. Nature of dividends. Dividends are paid from current income and available earnings, after required transfers to reserves at the end of a dividend period. 9. Bylaw Requirements. A member who fails to complete payment of one share within __________ of his admission to membership, or within __________ from the increase in the par value in shares, or a member who reduces his share balance below the par value of one share and does not increase the balance to at least the par value of one share within __________ of the reduction may be terminated from membership at the end of a dividend period. [All blanks should be filled with time chosen by credit union board of directors, but must be at least 6 months.] Shares may be transferred only from one member to another, by written instrument in such form as the Credit Union may prescribe. The Credit Union reserves the right, at any time, to require members to give, in writing, not more than 60 days notice of intention to withdraw the whole or any part of the amounts so paid in by them. Shares paid in under an accumulated payroll deduction plan may not be withdrawn until credited to a member's account. No member may withdraw shareholdings that are pledged as required on security on loans without the written approval of the credit committee or a loan officer, except to the extent that such shares exceed the member's total primary and contingent liability to the Credit Union. No member may withdraw any shareholdings below the amount of his/her primary or contingent liability to the Credit Union if he/she is delinquent as a borrower, or if borrowers for whom he/she is comaker, endorser, or guarantor are delinquent, without the written approval of the credit committee or loan officer. 10. Par value of shares; Dividend period. The par value of a regular share in this Credit Union is $5. The dividend period of the Credit Union is monthly, beginning on the first of a month and ending on the last day of the month. 11. National Credit Union Share Insurance Fund. Member accounts in this Credit Union are federally insured by the National Credit Union Share Insurance Fund. 12. Other Terms and Conditions. [See section B-6, item 12, of this appendix]. Note: This form is modeled on the share account disclosures in the Accounting Manual for FCUs, Sec. 5150.7. The disclosures are for a variable-rate, average daily balance method dividend calculation share draft account in an FCU with no minimum balance requirement. For purposes of this example, the account was opened on January 15, 1995. The Credit Union has monthly dividend periods. Other terms are self- explanatory. The dividend rate paid and annual percentage yield disclosures will reflect the prospective dividend rate for a given dividend period. The disclosures are very similar to the ones in section B-6 of appendix B, except for the rollback and par value disclosures, which have been removed from the final rule and appendices. B-8 Sample Form (Money Market Share Account Disclosures) Money Market Share Account Disclosures 1. Rate information. As of January 1, 1995, if your average daily balance was $500 or more, the dividend rate paid on the entire balance in your account was 4.75%, with an annual percentage yield (APY) of 4.85%. If your average daily balance is $500 or more, a prospective dividend rate of 4.95% will be paid on the entire balance in your account with a prospective APY of 5.00% for this dividend period on your account. The dividend rate and APY may change every dividend period as determined by the credit union board of directors. 2. Compounding and crediting. Dividends will be compounded monthly and will be credited quarterly. If you close your share money market account before dividends are credited, you will not receive accrued dividends. 3. Minimum balance requirements. The minimum balance required to open this account is $500. You must maintain a minimum daily balance of $500 in your account to avoid a service fee. If, during any (time period), your account falls below the required minimum daily balance, your account will be subject to a service fee of $5 for that (time period). 4. Balance computation method. Dividends are calculated by the average daily balance method which applies a periodic rate to the average daily balance in your account for the period. The average daily balance is calculated by adding the principal in the account for each day of the period and dividing that figure by the number of days in the period. 5. Accrual of dividends. Dividends will begin to accrue on the business day you deposit noncash items (e.g., checks) to your account. 6. Fees and charges. The following fees and charges may be assessed against your account. a. Statement copies--$5.00 per statement. b. Account inquiries--$3.00 per inquiry. c. Dormant account fee--$10.00 per month. d. Wire transfers--$8.00 per transfer. e. Minimum balance service fee--$5.00 per (time period). f. Share transfer--$1.00 per transfer. [[Page 403]] g. Excessive share withdrawals--$1.00 per item. h. Certified checks--$5.00 per check. i. Stop Payment Order--$5.00 per order. j. Check Printing Fee--$12.00 per 200 checks (varies depending on style of check ordered). 7. Transaction limitations. During any statement period, you may not make more than six withdrawals or transfers to another credit union account of yours or to a third party by means of a preauthorized or automatic transfer or telephonic order or instruction. No more than three of the six transfers may be made by check, draft, debit card, if applicable, or similar order to a third party. If you exceed the transfer limitations set forth above in any statement period, your account will be subject to closure by the credit union or to a fee of $1.00 per item. 8. Nature of dividends. Dividends are paid from current income and available earnings, after required transfers to reserves at the end of a dividend period. 9. Bylaw Requirements. [This section should reflect any requirements concerning share accounts in the FISCU's bylaws or charter.] 10. Par value of shares; Dividend period. The par value of a regular share in this Credit Union is $50. The dividend period of the Credit Union is monthly, beginning on the first of a month and ending on the last day of the month. 11. National Credit Union Share Insurance Fund. Member accounts in this Credit Union are federally insured by the National Credit Union Share Insurance Fund. 12. Other Terms and Conditions. [See section B-6, item 12, of this appendix.] Note: This form is modeled on the share account disclosures in the Accounting Manual for FCUs, Sec. 5150.7 and on the share draft account disclosures in section B-7 of this appendix. The disclosures are for a variable-rate, tiered-rate (method A, option 1), average daily balance method dividend calculation, money market share account in a FISCU with a $500 minimum balance to open the account and to avoid service fees. For purposes of this example, the account was opened on January 29, 1995. Other terms are self-explanatory. The dividend rate paid and annual percentage yield disclosures will reflect the prospective dividend rate for a given dividend period. Note that the contents of Item 9, Bylaw requirements, must be tailored to the specific bylaws of a FISCU or NICU. Also note the high par value amount in Item 10. B-9 Sample Form (Term Share (Certificate) Account Disclosures) Term Share (Certificate) Account Disclosures 1. Rate information. [Repeat rates disclosed on face of term share certificate, see Sec. B-5, Sample Form (Term Share (Certificate) Account)]. 2. Compounding and crediting. Dividends will be compounded monthly and will be credited annually. If you close your certificate account before dividends are credited, you will not receive accrued dividends. 3. Minimum balance requirements. The minium balance required to open this account is $500. 4. Balance computation method. Dividends are calculated by the daily balance method, which applies a daily periodic rate to the principal in your account each day. 5. Accrual of dividends. Dividends will begin to accrue on the business day you deposit noncash items (e.g., checks) to your account. 6. Fees and charges. The following fees and charges may be assessed against your account. a. Statement copies--$5.00 per statement. b. Account inquiries--$3.00 per inquiry. c. Share transfer-- $1.00 per transfer. 7. Transaction limitations. After the account is opened, you may not make deposits into the account until the maturity date stated on the certificate. 8. Maturity date. Your account will mature on January 1, 1996. 9. Early withdrawal penalties. We may impose a penalty if you withdraw any of the funds before the maturity date. The penalty will equal three months' dividends on your deposit. 10. Renewal policies. Your certificate account will automatically renew at maturity. You will have a grace period of 10 business days after the maturity date to withdraw the funds in the account without being charged an early withdrawal penalty. 11. Bonus. You will receive a new (insert brand name) toaster-oven as a bonus when you open the account after December 31, 1994, and before June 30, 1995. You must maintain your entire principal on deposit until the maturity date of your certificate account to obtain the bonus. 12. [Reserved] 13. Bylaw Requirements. [This section should reflect any requirements concerning share accounts in the FISCU's bylaws or charter.] 14. Par value of shares; Dividend period. The par value of a regular share in this Credit Union is $25. The dividend period of the Credit Union on this type of account is annual, beginning on the date the account is opened, and ending on the stated maturity date, unless renewed. 15. National Credit Union Share Insurance Fund. Member accounts in this Credit Union are federally insured by the National Credit Union Share Insurance Fund. 16. Other Terms and Conditions. [See section B-6, item 12, of this appendix.] [[Page 404]] Note: Even though this disclosure if for an account at a FISCU, this form is modeled on the share account disclosures in the Accounting Manual for FCUs, Sec. 5150.7 and upon the regular share account disclosures in section B-6 of this appendix. The disclosures are for a fixed-rate, daily balance method dividend calculation, automatically renewing term share certificate account in a FISCU with a $500 minimum balance to open the account and a ten day grace period. For the example, the account is opened on January 1, 1995 and matures on January 1, 1996. Other terms are self-explanatory. The dividend rate paid and annual percentage yield disclosures reflect the contracted, prospective dividend rate for a given dividend period. Note the special disclosures for term share certificate accounts, items nos. 8-10. Note also the bonus disclosure, item no. 11. B-10 Sample Form (Periodic Statement) Periodic Statement _______________________________________________________________________ Member Name _______________________________________________________________________ Account Number [Transaction account activity by date.] [Average daily balance of $1,500 for the month, daily compounding.] Your account earned $6.72, with an annual percentage yield earned of 5.40%, for the statement period from May 1 through and including May 31. In addition, your account earned $15 in extraordinary dividends for this period. Any fees assessed against your account are shown in the body of the periodic statement and are identified by the code at the bottom margin of this statement. Service Charge Codes SC-1 Stop Payment Order Fee SC-2 Statement Copy Fee SC-3 Draft Return Fee SC-4 Transfer from Shares SC-5 Microfilm Copy SC-6 Share Draft Printing Fee SC-7 Dormant Account Fee SC-8 Wire Transfer Fee SC-9 Excessive Share Withdrawal Fee SC-10 ______________________ Other Transactions D Dividends EC Error Correction OR Overdraft Returned OL Overdraft Loan OS Overdraft Share Transfer Note: This form is modeled on the share draft statement of account, Form FCU 107G-SD, in the Accounting Manual for FCUs, Sec. 5150.4. All information is self-explanatory. Codes of transactions are not required, but are a common credit union practice. The information regarding fees could also be included on the line of the periodic statement showing when the fees were debited from the account. Alternatively, a credit union could show all fees debited against the account for the statement period in a special area of the periodic statement. Clarity to the member of the required information--annual percentage yield earned; amount of dividends; fees imposed and length of period--is the important goal. An additional disclosure regarding the dollar value of any extraordinary dividends earned must be added to those statements showing the payment of such extraordinary dividends to the member. B-11 Sample Form (Rate and Fee Schedule) Rate and Fee Schedule This Rate and Fee Schedule for all Accounts sets forth certain conditions, rates, fees and charges applicable to your regular share, share draft, and money market accounts at the __________ Federal Credit Union as of __________ [insert date of delivery to member]. This schedule is incorporated as part of your account agreement with the __________ Federal Credit Union. Regular Share Dividend Rate as of Last Dividend Declaration Date ______%. Annual Percentage Yield as of Last Dividend Declaration Date ______%. Prospective Dividend Rate ______%. Prospective Annual Percentage Yield ______%. Dividends Compounded [Annually, Semiannually, Quarterly, Monthly, Weekly, Daily]. Dividends Credited--At close of a dividend period. Dividend Period [Annually, Semiannually, Quarterly, Monthly, Weekly, Daily]. Minimum Opening Deposit $5.00 par value share. Minimum Monthly Balance [None, $ amount]. Share Draft Dividend Rate as of Last Dividend Declaration Date ______%. Annual Percentage Yield as of Last Dividend Declaration Date ______%. Prospective Dividend Rate ______%. Prospective Annual Percentage Yield ______%. Dividends Compounded [Annually, Semiannually, Quarterly, Monthly, Weekly, Daily]. Dividends Credited--At close of a dividend period. Dividend Period [Annually, Semiannually, Quarterly, Monthly, Weekly, Daily]. [[Page 405]] Minimum Opening Deposit [None, $ amount]. Minimum Monthly Balance [None, $ amount]. Money Market Dividend Rate as of Last Dividend Declaration Date ______%. Annual Percentage Yield as of Last Dividend Declaration Date ______%. Prospective Dividend Rate ______%. Prospective Annual Percentage Yield ______%. Dividends Compounded [Annually, Semiannually, Quarterly, Monthly, Weekly, Daily]. Dividends Credited--At close of a dividend period. Dividend Period [Annually, Semiannually, Quarterly, Monthly, Weekly, Daily]. Minimum Opening Deposit [None, $ amount]. Minimum Monthly Balance [None, $ amount]. The following fees may be assessed in connection with your accounts: Fees Applicable to All Accounts Returned item fee--$____.00 per item. Account reconciliation fee--$____.00 per hour. Statement copies fee--$____.00 per statement. Certified draft fee--$____.00 per draft. Wire transfer fee--$____.00 per transfer. Account inquiry fee--$____.00 per inquiry. Dormant account fee--$____.00 per month. Minimum balance service fee--$____.00 per day. Share transfer fee--$____.00 per transfer. Excessive share withdrawals fee--$____.00 per item. Share Draft Account Fees Monthly service fee--$____.00 per month. Overdraft transfers fee--$____.00 per overdraft. Drafts returned insufficient funds fee--$____.00 per draft. Stop payment order fee--$____.00 per order. Draft copy fee--$____.00 per copy. Check printing fee--$____.00 per 200 drafts. Money Market Share Account Fees Monthly service fee--$____.00 per month. Check printing fee--$____.00 per 200 drafts. Note: This illustration is for use of an FCU. The information provided on a Rate and Fee Schedule can be presented in any format. To ensure that it is a part of the account agreement, if used, it should be incorporated by reference into the appropriate share account disclosures. The figures used are illustrative only, except for the overdraft transfer fee of $1.00 per overdraft and the excessive share transfer fee of $1.00 per item, which are set in the NCUA Standard FCU Bylaws, Art. III, sections 4 and 5(f), respectively. [58 FR 50445, Sept. 27, 1993, as amended at 59 FR 13436, 13437, Mar. 22, 1994; 63 FR 71575, Dec. 29, 1998] Appendix C to Part 707--Official Staff Interpretations Introduction 1. Official status. This commentary is the means by which the staff of the Office of General Counsel of the National Credit Union Administration issues official staff interpretations of Part 707 of the NCUA Rules and Regulations. Good faith compliance with this commentary affords protection from liability under section 271(f) of the Truth in Savings Act (TISA), 12 U.S.C. 4311. Section 707.1--Authority, Purpose, Coverage, and Effect on State Laws (c) Coverage 1. Foreign applicability. Part 707 applies to all credit unions that offer share and deposit accounts to residents (including resident aliens) of any state as defined in Sec. 707.2(v) and that offer accounts insurable by the National Credit Union Share Insurance Fund (NCUSIF) whether or not such accounts are insured by the NCUSIF. Corporate credit unions designated as such by NCUA under 12 CFR 704.2 (definition of ``corporate credit union'') are exempt from part 707. 2. Persons who advertise accounts. Persons who advertise accounts are subject to the advertising rules. This includes agent and agented accounts, such as a member who subdivides interests in a jumbo term share certificate account for sale to other parties or among members who form a certificate account investment club. For example, if an agent places an advertisement that offers members an interest in an account at a credit union, the advertising rules apply to the advertisement, whether the account is held by the agent or directly by the member. 3. Nonautomated credit unions. Nonautomated credit unions with an asset size of $2 million or less, after subtracting any nonmember deposits, are exempt from TISA and part 707. NCUA defines a ``nonautomated credit union'' as a credit union without sufficient data processing capability and capacity to establish, operate and maintain a share and loan software system to timely and accurately process all account transactions of all members. The nonautomated credit union exemption is available to all credit unions meeting the asset size and automation standards of this comment, including newly chartered credit unions. If any of the credit unions eligible for this exemption [[Page 406]] grow to have more than $2 million in assets as of December 31 of any year, the NCUA Board will require such credit unions to comply with TISA and part 707 on January 1 of one year after such credit union loses its exemption eligibility. Similarly, if a credit union becomes sufficiently automated to operate a complete share and loan system, such credit union will be entitled to the same compliance phase-in period. (d) Effect on State Laws 1. Preemption of state laws/Inconsistent requirements. State law requirements that are inconsistent with the requirements of TISA and part 707 are preempted to the extent of the inconsistency. A state law is inconsistent if it requires a credit union to make disclosures or take actions that contradict the requirements of the federal law. A state law is also contradictory if it requires the use of the same term to represent a different amount or a different meaning than the federal law, requires the use of a term different from that required in the federal law to describe the same item, or permits a method of calculating dividends or interest on an account different from that required in the federal law. 2. Preemption determinations. A credit union, state, or other interested party may request the Board to determine whether a state law requirement is inconsistent with the federal requirements. A request for a determination should be addressed to NCUA's Office of General Counsel, 1775 Duke Street, Alexandria, VA 22314. Written preemption requests should cite (or include a copy of) the allegedly inconsistent state law, demonstrate the inconsistency with TISA and part 707 and the burden on credit unions, and formally request a preemption determination. The Office of General Counsel may provide other interested parties, particularly affected states, an informal opportunity to comment on any request for a preemption determination, unless it finds that such notice and opportunity for comment would be impracticable, unnecessary, or contrary to the public interest. NCUA will publicize any preemption determinations using any means readily at its disposal. 3. Effect of preemption determinations. After the Board, through its Office of General Counsel, determines that a state law is inconsistent, a credit union may not make disclosures using the inconsistent term or take actions relying on the inconsistent law. 4. Reversal of determination. The Board reserves the right to reverse a determination for any reason bearing on the coverage or effect of state or federal law. Section 707.2--Definitions (a) Account 1. Covered accounts. Examples of accounts subject to the regulation are: i. Dividend-bearing and interest-bearing accounts. ii. Non-dividend-bearing and non-interest-bearing accounts. iii. Accounts opened as a condition of obtaining a credit card. iv. Escrow accounts with a consumer purpose, such as an account established by a member to escrow rental payments, pending resolution of a dispute with the member's landlord. v. Accounts held by a parent or custodian for a minor under a state's Uniform Gift to Minors Act (or Uniform Transfers to Minors Act). vi. Individual retirement accounts (IRAs) and simplified employee pension (SEP) accounts. vii. Payable-on-Death (POD) or ``Totten trust'' accounts. 2. Other accounts. Examples of accounts not subject to the regulation are: i. Mortgage escrow accounts for collecting taxes and property insurance premiums. ii. Accounts established to make periodic disbursements on construction loans. iii. Trust accounts opened by a trustee pursuant to a formal written trust agreement (not merely declarations of trust on a signature card such as a ``Totten trust,'' or an IRA or SEP account). iv. Accounts opened by an executor in the name of decedent's estate. v. Accounts of individuals operating businesses as sole proprietors. vi. Certificates of indebtedness. Some credit unions borrow funds from their members through a certificate of indebtedness that sets forth the terms and conditions of the repayment of the borrowing, such as federal credit unions do through 12 CFR 701.38. Such an account does not represent an account in a credit union and is not covered by part 707. vii. Unincorporated nonbusiness association accounts. 3. Other investments. The term ``account'' does not apply to these products. Examples of products not covered are: i. Government securities. ii. Mutual funds. iii. Annuities. iv. Securities or obligations of a credit union. v. Contractual arrangements such as repurchase agreements, interest rate swaps, and bankers acceptances. vi. Purchases of U.S. Savings Bonds through a credit union. vii. Services offered through a group purchasing plan or a credit union service organization (CUSO). [[Page 407]] 4. Options. All dividend-bearing and interest-bearing accounts are either fixed-rate or variable-rate accounts. 5. Use of synonyms. Generally, it is not the purpose of part 707 to prohibit specific descriptive terms for accounts. For example, credit unions can use adjectives and trade names to describe accounts such as ``Best Share Draft Account,'' or ``Ultra Money Market Share Account.'' Synonyms for share, share draft, money market share, and term share accounts may be used to describe various types of credit union share and deposit accounts as long as the synonym is accurate and not misleading and, for account disclosures, is used in conjunction with the correct legal term. For example, the following synonyms may be used: i. The term ``checking account'' may be used to describe share draft accounts. ii. The term ``money market account'' may be used to describe money market share accounts. iii. The term ``savings account'' may be used to describe regular share and share accounts. iv. The terms ``share certificate,'' ``certificate account,'' or ``certificate'' may be used to describe share certificates and other dividend-bearing term share accounts. v. However, under no circumstances may a credit union describe a share account as a deposit account, or vice versa. For example, the term ``certificate of deposit'' or ``CD'' may not be used to describe share certificates and other dividend-bearing term share accounts. Similarly, the terms ``time account'' (used in Regulation DD, 12 CFR 230.2(u)) and ``time deposit'' (used in Regulation D, 12 CFR 204.2(c)) may not be used to describe term share accounts. (b) Advertisement 1. Covered messages. Advertisements include commercial messages in visual, oral, or print media that invite, offer, or otherwise announce generally to members and potential members the availability of member accounts such as: i. Telephone solicitations. ii. Messages on automated teller machine (ATM) screens (including any printout). iii. Messages on a computer screen in a credit union's lobby (including any printout) other than a screen viewed solely by the credit union's employee. iv. Messages in a newspaper, magazine, or promotional flyer or on radio or television. v. Messages promoting an account that are provided along with information about the member's existing account at a credit union and that promote another account at the credit union (such as account promotional messages on the periodic statement). 2. Other messages. Examples of messages that are not advertisements are: i. Rate sheets published in newspapers, periodicals, or trade journals (unless the credit union or share and deposit broker that offers accounts at the credit union pays a fee to have the information included or otherwise controls publication). ii. Telephone conversations initiated by a member or potential member about an account. iii. An in-person discussion with a member about the terms for a specific account. iv. Information provided to members about their existing accounts, such as on IRA disbursements, notices for automatically renewable term share accounts sent before renewal, or current rates recorded on a voice response machine. (c) Annual Percentage Yield. 1. General. The annual percentage yield (APY) is required for disclosures for new accounts, oral responses to inquiries about rates; disclosures provided upon request; initial disclosures (if the credit union chooses to provide full disclosures instead of the abbreviated notice); notices prior to the renewal of a term share account, if known at the time the notice is sent, and in advertising. The annual percentage yield shows the total amount of dividends for a 365 day period (or a 366 day period for a leap year) on an assumed principal amount based on the dividend rate and frequency of compounding as a percentage of the assumed principal (for accounts such as share or share draft accounts) or for the total amount of dividends over the term of the account for term share accounts. The annual percentage yield assumes the principal amount remains in the account for 365 days (366 days for leap year) or for the term of the account. 2. How Annual Percentage Yield Differs from Annual Percentage Yield Earned. The annual percentage yield (APY) differs from the annual percentage yield earned (APYE). The annual percentage yield earned is required for periodic statements only. The annual percentage yield earned shows the total amount of dividends earned for the dividend or statement period as a percent of the actual average daily balance in the member's account. Unlike the annual percentage yield, the annual percentage yield earned is affected by additions and withdrawals during the period. The annual percentage yield and the annual percentage yield earned must be calculated according to the formulas provided in Appendix A to this rule. (d) Average Daily Balance Method 1. General. One of the two required methods (the daily balance is the other) of determining the balance upon which dividends must be accrued and paid. The average daily balance method requires the application of a periodic rate to the average daily balance in [[Page 408]] the account for the average daily balance calculation period. The average daily balance is determined by adding the full amount of principal in the account for each day of the period and dividing that figure by the number of days in the period. (e) Board. 1. General. The NCUA Board. (f) Bonus 1. General. Bonuses include items of value offered as incentives to members, such as an offer to pay the final installment deposit for a holiday club account if the final installment is over $10. Bonuses do not include the payment of dividends (including extraordinary dividends), the waiver or reduction of a fee, the absorption of expenses, non-dividend membership benefits, or other consideration aggregating $10 or less per year. 2. Examples. The following are examples of bonuses. i. A credit union offers $25 to potential members for becoming a member and opening an account. The $25 could be provided by check, cash, or direct deposit. ii. A credit union offers $25 to a member with only a regular share account to open a share draft account. The $25 could be provided by check, cash, or direct deposit. iii. A credit union offers a portable radio with a value of $20 to members and potential members for opening a share draft account. iv. A credit union pays the final installment deposit for a holiday club account if over $10. 3. Examples not comprising bonuses. The following are examples of items that are not bonuses: i. Discount coupons distributed by credit unions for use at restaurants or stores. ii. A credit union offers $20 to any member if the member is responsible for encouraging a potential member to open an account. The $20 is not a bonus because the $20 is not paid to the individual opening the account. Any item, including cash, given or offered to a third party (that is not a joint member or joint owner in an account being opened) in exchange for a member or potential member opening (or a member renewing or adding to) an account is not a bonus. iii. A credit union offers $25 to a member if the member can locate his name in the body of a newsletter. iv. Life savings benefits. Many credit unions offer life savings benefits to beneficiaries of deceased members. Because the benefit accrues to a third party, such life savings plans offered are not bonuses. v. A credit union offers to pay annual membership dues in a benevolent organization for a class of members. 4. De minimis rule. Items with a de minimis value of $10 or less are not bonuses. Credit unions may rely on the valuation standard used by the Internal Revenue Service (IRS) to determine if the value of the item is de minimis. Items required to be reported by the credit union under IRS rules are bonuses under this regulation. Examples of items of de minimis values are: i. Disability insurance premiums on a share account valued at an amount of $10 or less per year. ii. Coffee mugs, T-shirts or other merchandise with a market value of $10 or less per year. 5. Aggregation. In determining if an item valued at $10 or less is a bonus, credit unions must aggregate per account per calendar year items that may be given to members. In making this determination, credit unions aggregate per account only the market value of items that may be given for a specific promotion. To illustrate, assume a credit union offers in January to give members an item valued at $7 for each calendar quarter during the year that the average account balance in a share draft account exceeds $10,000. The bonus rules are triggered, since members are eligible under the promotion to receive up to $28 during the year. However, the bonus rules are not triggered if an item valued at $7 is offered to members opening a share draft account during the month of January, even though in November the credit union introduces a new promotion that includes, for example, an offer to existing share draft accountholders for an item valued at $8 for maintaining an average balance of $5,000 for the month. 6. Waiver or reduction of a fee or absorption of expenses. Bonuses do not include value received by members through the waiver or reduction of fees for credit union-related services (even if the fees waived exceed $10), such as the following: i. Waiving a safe deposit box rental fee for one year for members who open a new account. ii. Waiving fees for travelers checks for members, and waiving check and share draft printing fees. iii. Nondiscriminatorily waiving all fees for a particular class of members, such as seniors or minors. iv. Discounts on interest rates charged for loans at the credit union. v. Rebates of loan interest already paid by a member. vi. Discounts on application fees charged for loans at the credit union. vii. Packaged, linked, or tied-account services. 7. Non-dividend membership benefits. Such benefits are not bonuses because they are sporadic in nature, often difficult to value, and providing non-dividend membership benefits is a long-standing unique credit union practice. (See commentary to Sec. 707.2(r) for examples of such benefits.) [[Page 409]] (g) Credit Union 1. General. Includes credit unions in the United States, Puerto Rico, Guam, U.S. Virgin Islands, and U.S. territories. Applies to credit unions whether or not the accounts in the credit union are federally, state, privately insured, or uninsured. (h) Daily Balance Method 1. General. One of the two required methods (the average daily balance is the other) of determining the balance upon which dividends must be accrued and paid. The daily balance method requires the application of a daily periodic rate to the full amount of principal in the account each day. (i) Dividend and Dividends 1. General. Member savings placed in share accounts are equity investments, and the returns earned on these accounts are dividends. Federal credit unions may only offer dividend-bearing and non-dividend- bearing share accounts. State-chartered credit unions may offer both share and deposit accounts if permitted by state law. State law, including without limitation regulations and official interpretations, will determine if returns earned in accounts in state-chartered credit unions are dividends. Dividends exclude the payment of a bonus or other consideration worth $10 or less given during a year, the waiver or reduction of a fee, the absorption of expenses, non-dividend membership benefits and extraordinary dividends. Dividend-bearing accounts must be either fixed-rate or variable-rate accounts. 2. Procedure. Credit unions must follow appropriate law (state law for state-chartered credit unions and federal law for federal credit unions) in determining dividend policies and declaring dividends. Generally, dividends may be viewed as a portion of the available account and undivided earnings of the credit union which is set apart, after required transfer to reserves, by valid act of the board of directors, for distribution among the members. As a matter of legal procedure, members are usually not entitled to dividends until the following steps are completed: (1) The board of the credit union develops a nondiscriminatory dividend policy, by establishing dividend periods, dividend credit determination dates dividend distribution dates, any associated penalties (if applicable), and the method of dividend computation for each type of share account; (2) the provisions for required transfers to reserves are made; (3) sufficient and available prior and/or current earnings are available at the end of the dividend period; (4) the board formally makes a dividend declaration in accordance with the credit union's dividend policy; and (5) dividends must be paid to members by a credit to the appropriate share account, payment by check or share draft, or by a combination of the two methods. 3. When available. Credit unions must follow the law of their primary chartering authority to determine when dividends are available. Generally, it is the declaration of the dividend itself which creates the dividend and the member has no right to receive a dividend until it is so declared. The decision of when to declare dividends lies within the official discretion of each credit union's board of directors and cannot be abrogated by contract. An agreement to pay dividends on a share account is generally interpreted not as an obligation to pay the stipulated dividends absolutely and unconditionally, but as an undertaking to pay them out of the earnings when sufficiently accumulated from which dividends in general are properly payable. Generally, ``prospective rates'' are rates set in good faith in advance of the close of a dividend period, that may be altered if sufficient funds are not available, or in the event of a superseding event, such as a strike, plant closure, significant fluctuation in market rates and/or a significant change in financial structure, natural disaster or emergency that alters the assumptions under which the ``prospective rates'' were made. It is the intent of TISA that all disclosure be accurate when made, and credit unions are urged to make every effort to ratify disclosed ``prospective rates.'' ``Prospective rates'' may also be referred to as ``projected rates'' or similar wording, but not as ``estimated rates.'' (See comment 3(b)-2, prohibiting use of estimates). 4. Sample dividend resolutions. (i) The following resolution may be used where the dividend rates are set after the close of a dividend period. Resolution of Board of Directors for the Declaration of Dividends A. I, ________________, certify that I am Secretary of ________________ Credit Union Board of Directors, and that the following is a correct copy of the resolution for declaring dividend adopted by the ________________ Credit Union at a meeting of the Board of Directors duly and properly held on ____________, 19______. This resolution appears in the minutes of this meeting and has not been rescinded or modified. B. Resolved, that (1) The Board of Directors has developed a nondiscriminatory dividend policy, by establishing dividend periods, dividend credit determination dates, dividend distribution dates, any associated penalties (if applicable), and the method of dividend computation for each type of share account; (2) The required transfers to rese