Truth in Savings Act (TISA)

The Truth in Savings Act is a federal statute, codified at 12 U.S.C. 4301 and following, that governs how depository institutions disclose the terms of deposit accounts. It was enacted in December 1991 as a subtitle of the Federal Deposit Insurance Corporation Improvement Act of 1991. Its purpose, in section 4301(b), is "to require the clear and uniform disclosure of" the interest rates payable on deposit accounts and the fees assessable against them, "so that consumers can make a meaningful comparison between the competing claims of depository institutions with regard to deposit accounts."

The working rules are in Regulation DD, 12 CFR part 1030, which the Consumer Financial Protection Bureau writes. The Act is the statute and Regulation DD is the rule; most of what a depositor sees, such as the annual percentage yield formula, the notice periods and the advertising limits, lives in the regulation. "Truth in Savings" is the common short form, and "TISA" the acronym.

It requires disclosure, not a price. The Act and Regulation DD tell an institution what it must tell you and when, and how to calculate and label the yield. They do not cap fees or set interest rates. An overdraft or minimum balance fee can be any amount, so long as it is disclosed as the rule requires.

The disclosure map.

• At account opening and on request (1030.4). Before the account is opened or a service is provided, the institution must give the account terms, including the rate and annual percentage yield, fees, minimum balances, transaction limits and, for time accounts, maturity and early-withdrawal penalties. A customer who is not present and does not open the account online may instead get them by mail within 10 business days. The institution must also give the terms to anyone who asks.
• Before an adverse change (1030.5(a)). A change that may reduce the yield or otherwise adversely affect you needs notice mailed or delivered at least 30 calendar days before it takes effect. Rate changes on variable-rate accounts, check printing fees and time accounts of one month or less are excepted.
• Before a renewing CD matures (1030.5(b)). For a time account longer than one month that renews automatically, notice must go out at least 30 calendar days before maturity, or at least 20 calendar days before a grace period of at least five days ends.
• On periodic statements (1030.6). If the institution sends one, it must show the "annual percentage yield earned," the interest earned, the fees charged, the length of the period and, where required, total overdraft and returned-item fees for the period and the year to date.
• In how interest is paid (1030.7). Interest must be calculated on the full principal each day, by the daily balance or average daily balance method, with a daily rate of at least 1/365 of the interest rate. The rule does not require any particular compounding frequency.
• In advertising (1030.8). An ad may not be misleading, may not call an account "free" or "no cost" if a maintenance or activity fee may be imposed, and must state any rate of return as an "annual percentage yield."

Who it covers. Regulation DD "applies to depository institutions except for credit unions," though its advertising rules reach anyone who advertises a depository institution's account, including deposit brokers. For credit unions, 12 U.S.C. 4311(b) requires the National Credit Union Administration to issue a substantially similar rule, which it has done at 12 CFR part 707.

Enforcement. The Act is enforced administratively by the federal banking agencies, the NCUA and the CFPB under 12 U.S.C. 4309. The section that let account holders sue an institution for violations, 12 U.S.C. 4310, was repealed by a 1996 law, with the repeal taking effect five years later. A depositor's route under the Act today is a complaint to the institution's regulator.

Most of the Act's protection arrives as paperwork on a schedule, and reading it on time is what makes it useful.

For example: Sofia keeps $8,000 in a savings account with a $5 monthly fee, and a 12-month CD that renews automatically on September 15 with a seven-day grace period.

• A fee increase. The bank plans to raise the monthly fee to $10 starting August 1. Because the change adversely affects her, the notice must be mailed or delivered by July 2, at least 30 calendar days earlier. She has a month to move the money or meet a waiver condition before the extra $5 a month, $60 a year, begins.
• The CD renewal. The bank must send its maturity notice at least 30 days before September 15, so by August 16. Alternatively, because the grace period is at least five days, it may send it at least 20 days before the grace period ends on September 22, so by September 2. The notice tells her the new rate and term, or how to find them out, so she can decide whether to let the CD renew.
• The statement. Each periodic statement shows the annual percentage yield she actually earned, the interest in dollars and the fees charged, which is how she can check that the account is performing as disclosed.

Pros

• Makes deposit accounts comparable by requiring one standardized yield, the annual percentage yield, in disclosures and ads.
• Gives advance warning of adverse changes and of CD renewals, so depositors can act before a change takes effect.
• Bars calling an account "free" when maintenance or activity fees can apply.
• Requires interest on the full balance every day.

Cons

• It sets no limit on fees or rates; a disclosed fee can be any amount.
• The private right to sue was repealed, so enforcement depends on regulators.
• Credit unions follow a separate, parallel rule, which can confuse members reading guidance written for banks.
• Rate changes on variable-rate accounts need no advance notice.