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Truth-in-Savings Law Still in Jeopardy

By Jane Bryant Quinn
Tuesday, September 24, 1996


NEW YORK -- Attention all Truth-in-Savings Irregulars. Last April, I told you that this splendid law had come under attack, by a Congress that wanted to end part or all of it. I urged you to write to your senator and representative, and say "no way."

You did. Staffers all over the Hill say they heard from you. Key parts of truth-in-savings appear to be safe, for now.

But two important sections remain at serious risk and may be voted on at any moment. So please, gang -- let's do it again. Fax or phone, and tell all your friends to do the same. For phone calls, the Congressional switchboard is 202-224-3121. Holler at the White House, too (202-456-1111). President Clinton is treating this issue as too small to worry about.

One endangered section of truth-in-savings lets you check up on whether you actually got the rate of interest that your banker advertised. The other makes it tough to sue if you're misled. "Everybody wants to get rid of the policemen," says Richard L.D. Morse, father of the Truth-in-Savings Act and professor emeritus at Kansas State University.

Truth-in-savings, passed in 1991, is the only law that gives you an honest accounting of the interest you earn.

Prior to passage, you couldn't tell which institution had the better deal. A bank with a 4.8 percent certificate of deposit might have been paying more than a bank with a 5 percent CD, because of the many different ways of calculating yield.

Truth-in-savings created a standard interest-rate calculation known as the annual percentage yield (APY). All institutions have to use it when advertising their rates to the public.

The APY is a straightforward concept that anyone can grasp. It's the amount of money you'd earn on $100, kept in the bank for a 365-day year, expressed as a percentage. For example, if the advertised APY is 5.09 percent, you'd earn $5.09 annually for every $100 on deposit.

That makes it a cinch to tell who's promising the most on savings deposits. The winner is the account with the highest APY.

Last spring, a House bill proposed to wipe out the APY. A Senate bill kept it. Without going into the current political machinations, it appears that the Senate side will prevail.

But there's also something in the law called the "APY Earned," which the Senate (cheered by the bankers) wants to eliminate. The APY Earned tells you what rate your banker actually paid, as opposed to the rate that was promised in the ad.

The rate often changes on money-market deposit accounts and interest-paying checking accounts. So the APY Earned is your only reality check -- appearing on every periodic statement you get.

At present, your statements also show how much interest you earned, in dollars and cents, and how much you paid in fees. If you're paying more than you earn, you need to handle your account in a different way. The bankers and the Senate, however, want to wipe out this disclosure, too.

Perhaps you can stop them. Tell your senator and representative: "don't touch truth-in-savings," including the APY Earned, all other disclosures on the periodic statement, and your right to sue. And tell them fast.

While you're at it, tell them not to exclude small credit unions from the law. Some 1,000 credit unions may be exempted from truth-in-savings, if they have less than $2 million in assets and aren't automated enough.

But better to help them automate. Credit unions have a hallowed tradition of overstating interest rates on savings deposits. Why is it OK for little guys to mislead their customers?

Consumers Union, an advocacy group, is deeply concerned about your right to sue. The bill relieves the banks of civil liability under the law. There couldn't be class-action lawsuits or even individual suits, if you discovered a fudge that the bank didn't fix.

Nedda Feddis, senior federal counsel for the American Bankers Association, says not to worry, the banking regulators would enforce the law. But, says Morse, "We know from the S&L scandal how ineffective government agencies are in protecting consumers."

Feddis adds that banks want to prevent class-actions over honest errors of judgment. But eliminating lawsuits clears the banks of calculated or aggressive "errors," too.

Most banks won't willfully mislead. But some did in the past, which created the climate for passing truth-in-savings in the first place. Without law-enforcement, those old deceptions will return.

Jane Bryant Quinn welcomes letters on money issues and problems but cannot offer individual financial advice.

© Copyright 1996 Washington Post Writer's Group

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