Introduction to Regulation DD
How does Regulation DD work?
Why should you understand Regulation DD?
Introduction to Regulation DD
Regulation DD is part of the Truth in Savings Act, which requires banking institutions to provide detailed disclosures about account features and changes. Consumers have the right to receive these disclosures from financial institutions – except for credit unions. Consumers are entitled to these disclosures when opening a deposit account or at various other times as a current or potential customer. Although you can request disclosures at any time, you will receive the information from your banking institution when:
- Opening an account
- Receiving a periodic statement
- Changing account terms
- Closing an account
These disclosures help in comparing accounts and choosing the account that meets your needs. Understanding the history and scope of Regulation DD can provide insight into its importance for your financial health. Understanding how banking institutions implement and distribute disclosures enables you to choose the best deposit accounts for your financial situation.
The Truth in Savings Act (TISA) was passed in 1991, and Regulation DD became effective in June 1993. The purpose of Regulation DD is to ensure transparency from financial institutions with potential and current customers regarding the features of their deposit accounts. These institutions must provide disclosures to consumers, who can then make informed decisions and shop around for accounts that suit their needs. On July 1, 2006, Regulation DD was amended to require more comprehensive information disclosure to customers when they overdraw their accounts.
Regulation DD defines the authority, purpose, coverage, and impact of state laws under the Truth in Savings Act. It also provides official definitions for features offered by banking institutions to consumers. The coverage of Regulation DD extends to banking institutions in the United States, as well as foreign banking institutions with branches operating within the country.
Note: Credit unions are exempt from Regulation DD. Instead, they are regulated under the National Credit Union Administration, Part 707 of the Rules and Regulations, which Congress expects to be “substantially similar” to Regulation DD. Therefore, credit unions must also provide accurate disclosures to consumers, but under a different regulatory body.
How does Regulation DD work?
Regulation DD defines terms for financial account features, starting with a basic explanation of what constitutes an account. For example, Regulation DD defines an account as “a deposit account at a financial institution that is maintained or offered to a consumer. It includes time accounts, demand accounts, savings accounts, and negotiable order of withdrawal accounts. Regulation DD covers interest-bearing accounts as well as non-interest-bearing accounts.”
The list of different definitions ensures that laws, attorneys, and banking institutions are on the same page regarding account features – and thus on the same page regarding the extent of disclosures required to comply with Regulation DD.
Additionally, Regulation DD ensures that advertisements produced by banking institutions to attract potential customers comply with federal law and are honest and free from misleading information. All claims made by the institution in its advertisements must be:
- Reasonable
- Reflect the legal obligations of the institution and the account holder
- Use consistent terminology
Regulation DD also requires banks to provide disclosures to individuals opening accounts. Customers are entitled to disclosures explaining fees, annual percentage yields, interest rates, and other potential features. For example, when a consumer goes to the bank to open a savings account, the bank must provide information about the interest rate on the account and how it is calculated. According to the Federal Deposit Insurance Corporation (FDIC), banking institutions must provide disclosures “in a timely and clear manner that a consumer can retain in writing and in a form that the consumer can retain.” Consumers may agree to electronic forms, but banking institutions must request this permission.
Why
Do you need to understand Regulation DD?
By understanding Regulation DD, you become a more informed consumer – and therefore more powerful. You can assert your rights as a consumer when opening or managing your savings accounts at banking institutions. You can also easily compare shopping for savings accounts, as banks are required to disclose actual interest rates and minimum balance requirements.
Regulation DD prevents exploitation and fraud by requiring banking institutions that offer deposit accounts to provide honest information about their products.
Takeaway
Regulation DD is part of the Truth in Savings Act that requires banking institutions to disclose account features to consumers so they can make informed decisions. Regulation DD governs the claims that banking institutions may make in their advertisements and requires them to be truthful and free from misleading information. A banking institution is defined as any facility that accepts deposits or holds them in a deposit account. Credit unions are also considered banking institutions, but they are regulated under Part 707 of the National Credit Union Administration’s rules and regulations, which closely resemble Regulation DD.
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Sources:
- Federal Reserve. “Regulation DD: Truth in Savings,” See “Background.” Accessed Aug. 19, 2021.
- National Credit Union Administration. “Truth in Savings Act (NCUA Rules & Regulations Part 707).” Accessed Aug. 19, 2021.
- Federal Reserve. “Regulation DD: Truth in Savings,” See “Definitions.” Accessed Aug. 19, 2021.
- FDIC. “FDIC Law, Regulations, Related Acts, 6500 – Consumer Financial Protection Bureau, Part 1030, Truth in Savings (Regulation DD),” See “§ 1030.3 General Disclosure Requirements.” Accessed Aug. 19, 2021.
Source: https://www.thebalancemoney.com/what-is-regulation-dd-5198249
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