Truth in Savings / TISA (Reg DD) Flashcards
You have recently joined a financial institution and are asked to review the products and services for compliance. You discover that one of the lobby brochures for a deposit product does not include important required disclosures. Which of the following actions should you take FIRST?
A. Draft revisions to the notice to bring it into compliance
B. Notify management of the problem with the brochure and the risks involved with its use
C. Notify management that use of this brochure must be discontinued immediately
D. Notify management that corrected brochures need to be sent to affected customers as soon as possible
B. Notify management of the problem with the brochure and the risks involved with its use
The marketing officer requests your review of a savings account proposal. Savings accounts currently pay 1.5% interest, compounded daily. She proposes that the compounding basis be changed to quarterly. This will result in significant savings to the bank, with little customer attrition. In reviewing the current savings brochure provided to customers, you note the brochure states that the rate will compound daily. It also states that the bank reserves the right to require a 30-day notice prior to a withdrawal from a savings account. The bank has never exercised this right and there are currently no plans to do so. The brochure further states that the bank reserves the right to amend deposit contract terms by providing 21-day advance notice to the depositor. State laws are silent with respect to changes on deposit accounts. Which of the following describes the correct number of days of advance notice of an adverse change to affected deposit account holders, and the governing document or regulation, respectively?
A. 15 days, governed by Regulation D
B. 21 days, the deposit contract
C. 30 days, Regulation DD
D. 60 days, Regulation E
C. 30 days, Regulation DD
During the past several years, a bank has acquired several banks through merger. Management has decided to standardize the various deposit products into a simplified list of products, and to change all accounts accordingly. This will create beneficial changes for some customers and adverse changes for others. With regard to informing customers of the changes under Regulation DD, the BEST course of action is to:
A. Do nothing, because a disclosure need not be given when an institution acquires an account through acquisition or merger
B. Send a notice to all account holders with the first statement that reflects the changes
C. Revise the disclosures and mail them with a letter describing the changes, and stating that account holders should read about the new accounts
D. Send a message on the periodic statement that changes will occur and that account holders should request a disclosure showing the new accounts
C. Revise the disclosures and mail them with a letter describing the changes, and stating that account holders should read about the new accounts
Regulation required change-in-terms notices be provided no later than 30 days before the date of a change, when the change will adversely impact the customer. The notice must specify what the changes are. With so many changes being made in this situation, and so many products affected, the best course of action is to send a revised disclosure to all customers along with a notice of the changes, whether good or bad, as in answer C. Change-in-terms notices are indeed required even if the changes occur through mergers, so answer A is incorrect. Answer B is incorrect as the notice would be provided too late, and answer D is incorrect as the disclosure of changes must be automatically provided, not just upon request from a customer.
Which of the following disclosures must be provided in writing at the time a variable rate deposit account is opened?
A. Frequency of potential rate changes
B. Consumer’s right to withdraw funds at any time
C. Average rate paid on the account during the past 5 years
D. An example, based on a hypothetical $1,000 deposit, illustrating how the APY would have been affected by interest rate changes during the past 15 years
A. Frequency of potential rate changes
When reviewing for compliance under Regulation DD, which of the following items must be included in an advertisement for a time deposit account where a fixed interest rate is advertised?
A. Fees on the account
B. The APY
C. The basis for the interest rate
D. A description of how any early withdrawal penalty will be calculated
B. The APY
Which of the following statements describes a bank’s reporting requirements when it awards a big-screen television, valued at $800, to a customer as a grand-opening prize?
A. The prize is not reportable
B. The cost of the prize is reportable on Form 1099-INT
C. The fair market value of the prize is reportable on Form 1099-MISC
D. The fair market value of the prize is added to the interest paid on the customer’s account and reported on Form 1099-INT
C. The fair market value of the prize is reportable on Form 1099-MISC
When must new account disclosures be provided under Reg DD?
Before account opening or before a fee is assessed, whichever is earlier
If a customer is not present when an account is opened, when must new account disclosures be provided?
A. Mailed within 7 business days
B. Mailed within 10 business days
C. Cannot be opened
D. Mailed within 3 business days
B. Must be mailed within 10 business days
If a customer opens an account electronically but is not present at the institution, when must new account disclosures be provided?
Before the account is opened or services are provided.
For automatically renewing time deposits with maturities longer than 1 month, a disclosure must be sent at least __ ________ days before the renewal or at least __ ________ days before the end of the grace period.
30 calendar
20 calendar
For nonautomatically renewing time deposits with maturities longer than 1 year, the notice of maturity must be sent at least __ _______ days in advance of the scheduled maturity date.
10 calendar
A change in terms notice must be sent at least __ ______ days before the effective date if there is a change that will reduce the APY or adversely affect the consumer.
30 calendar
When is a change in terms notice not required?
For CDs with maturities of 1 month or less.
Which methods of calculating interest are permissible? Select all that apply.
A. Ending balance method
B. Low balance method
C. Daily balance method
D. Investable balance method
E. Average daily balance method
C and E
Interest is calculated using either the daily balance method or the average daily balance method; where the daily balance method applies the daily periodic rate to the full account balance each day, while the average daily balance method calculates interest based on the average of all daily balances within a period.
Average daily balance method
How frequently must institutions compound and credit interest?
Institutions are not required to compound or credit interest in any particular frequency.
For electronic advertising, what two things must appear in the same location so they may be viewed simultaneously?
Interest rate & APY
What is the record retention requirement for Reg DD?
2 years after the disclosures are made
ABC Bank’s Internet Web site has the following statement on the home page: “You won’t believe our sky-high CD rates. Rates start at 1.5 percent.” This statement has a link next to it that takes the viewer to another page with the following information:
* Minimum to open the account: $25,000
* Substantial penalty for early withdrawal
* Principal compounded monthly
* APY = 1.65 percent One of these pieces of information must appear on the home page.
Which one must be on the same page as the advertisement?
A. Minimum to open the account: $25,000
B. Substantial penalty for early withdrawal
C. Principal compounded monthly
D. APY = 1.65 percent
D. APY = 1.65 percent
The other required disclosures may be linked to the triggering term without being in the same location. However, the consumer must be able to view the APY and interest rate simultaneously.
Which of the following does NOT require a Truth-in-Savings Act disclosure?
A. An individual holding the account for personal, family, or household purposes
B. Holders of IRA and SEP accounts when invested in covered accounts
C. Holders of accounts under the Uniform Transfer to Minors Act
D. Accounts established for unincorporated, nonbusiness associations
D. Accounts established for unincorporated, nonbusiness associations
First National Bank is giving away gifts with all new certificates of deposit over $5,000. How must a portable stereo worth $250 be treated on the account disclosure?
A. It is a bonus and, therefore, is considered to be interest and does not have to be disclosed on the account disclosure.
B. It is interest and must be included in the simple interest rate on the account disclosure.
C. It is neither a bonus nor interest and does not have to be disclosed on the account disclosure.
D. It is a bonus, and not interest, and must be disclosed on the account disclosure.
D. It is a bonus, and not interest, and must be disclosed on the account disclosure.
Gifts are bonuses, not interest. The amount or type of bonus, when the bonus is provided for any minimum balance or time requirement, must be disclosed in account disclosure statements.
First National Bank offers a money market account that has a $500 minimum balance and offers tiered interest rates that begin at .75 percent and progress to 1.5 percent, depending on the minimum balance each month. The account has a transaction fee of $5 per month, charged only if the average balance drops below the $500 minimum during the month. If the balance stays above this amount, the customer pays no fee. Which of the following is permissible in an advertisement for the account?
A. Interest rate: 1.25%; annual percentage yield: 1.5%
B. $500 minimum balance required
C. Free money market checking
D. 1.25% interest
B. $500 minimum balance required
The tiered rates must be disclosed. The bank cannot simply disclose the rate available for the highest balances. The account cannot be described as free because a transaction fee applies to it. The rate cannot be expressed solely as an interest rate. The annual percentage yield must be disclosed.
When an advertisement states the APY, what other disclosure does Regulation DD require?
A. Interest rate, using that terminology
B. Index for variable rate transactions
C. Minimum balance to obtain the stated APY
D. Advertisement inviting the reader to inquire about other features of the account
C. Minimum balance to obtain the stated APY
Of the following statements that describe the requirements of Regulation DD, which statement is true?
A. The act requires the bank to begin accruing interest on interest-bearing accounts no later than the second business day following the day of deposit.
B. The act requires the bank to compound interest no less than monthly.
C. The act requires the bank to send periodic statements on all accounts no less than quarterly.
D. The act requires the disclosure of all fees imposed during the statement period in connection with the account on any periodic statement.
D. The act requires the disclosure of all fees imposed during the statement period in connection with the account on any periodic statement.
This is the only true statement. TISA does not prescribe a particular frequency of compounding interest, nor does it mandate that periodic statements be sent. Interest must begin to accrue no later than prescribed by the Expedited Funds Availability Act.
To which of the following potential customers would First National Bank have to make available a Regulation DD account disclosure?
a. National Lumber Company (a local corporation)
b. Rogers and Rogers (a law firm in the form of a partnership)
c. John Jones, DBA Jones Consulting Company (a sole proprietorship)
d. Eva Gilcrest, POD (payable on death) to Jane Gilcrest
d. Eva Gilcrest, POD (payable on death) to Jane Gilcrest
The Truth in Savings Act (and therefore Regulation DD) applies only to natural persons who open an account for other than business purposes. In this case, because both the party opening the account and the beneficiary of the funds are consumers, the account is covered.
Which of the following rate disclosure formats would be acceptable in an advertisement of First National Bank’s consumer certificate of deposit?
A. 1 percent annual percentage rate
B. 1.15 percent
C. 1.15 percent annual percentage yield
D. 1 percent interest rate
C. 1.15 percent annual percentage yield
If an advertisement states a rate, it must be the annual percentage yield, using that term. The interest rate may also be disclosed, but not more conspicuously than the APY.
