The Truth in Savings Act (“TISA”) is a federal law that was passed by Congress in 1991 as part of the Federal Deposit Insurance Corporation (“FDIC”) Improvement Act. The primary purpose of TISA is to promote competition between financial institutions by making it easier for consumers to compare interest rates, fees, and account terms when comparing banks.
In order to accomplish its primary objective, TISA established uniform guidelines that require financial institutions to make certain disclosures about their deposit accounts available to consumers. Examples of disclosures required by TISA include:
- Banks are required to be transparent regarding any fees they charge and the rates consumers pay for savings accounts, checking accounts, and other deposit accounts at the financial institution
- Importantly the requirement regarding interest rates must include information regarding whether the interest rate is fixed or variable, as well as information regarding how interest is calculated;
- Banks are required to disclose whether there are fees for financial services at the bank, such as wire transfers, returned checks, check printing, or stop payment orders; and
- Banks are required to provide other information regarding minimum balance requirements, early withdrawal penalties, and any changes to the terms of the account.
As can be seen, the Truth in Savings Act is meant to help consumers identify the “hidden fees” associated with financial institutions by requiring all of the above disclosures. Then, with the information required by the Act, a financially unsophisticated consumer will now have the information that they need to avoid being exploited as a result of high-interest or account fees.
Why Was the Truth In Savings Law Enacted?
The main reason that the Truth in Savings law was enacted was because of a financial crisis that occurred in the 1980s through the 1990s. The exact financial crisis that led to the passage of the act was known as the Savings and Loan Crisis.
Although it may seem obvious, this crisis involved the collapse of savings and loans backed by financial institutions, and led to the passage of numerous federal laws and policies in an attempt to prevent any further financial collapse. One such federal Act was the Truth in Savings Act.
The purpose of introducing new federal laws was to grant more authority and power to the Federal Deposit Insurance Corporation (“FDIC”), in response to the financial crisis of the 80s and early 90s. The Federal Deposit Insurance Corporation is a federal agency and United States government corporation that supplies deposit insurance to depositors in banks.
During the period of the Savings and Loan Crisis, there was an increase in bank failures. For instance, there were 384 FDIC-insured institution failures between 1980 and 1984, with 242 occurring in 1987 alone. Then, the following year of 1988, proved to be another record-breaking year of bank failures with the closing of 538 institutions.
With the passing of TISA came stricter regulation of savings institutions and more authority granted to the FDIC, by granting protective rules for consumers with accounts at banking institutions.
What Does the Truth In Savings Act Do?
Once again, the Truth in Savings Act requires banks to provide customers with a uniform disclosure of certain account terms and conditions. Specifically, the disclosures are required for any deposit account that was opened after December 31, 1992.
In general, the disclosures are provided through a document that contains a summary of the terms and conditions of the account, known as a Truth in Savings disclosure. The disclosure once again itemizes how much interest bank customers earn over a 12-month period, including any fees that may be assessed against their accounts, such as maintenance and transaction fees.
The disclosure also includes information about the institution’s interest rates, fees, and other terms and conditions associated with the account. Additionally, all disclosures must be clear and conspicuous in order to be effective, and the disclosures must comply with the specific rules regarding content, presentation, and format. Institutions are also required to send annual notices, in addition to the initial disclosures, which shows the actual interest earned over the previous years, as well as the fees that were assessed.
How Does The Truth In Savings Act Regulate Bank Disclosures?
As mentioned above, The Truth in Savings Act regulates bank disclosures by federally requiring financial institutions to make certain disclosures about deposit accounts that they make available to consumers.
The federal Act once again does this by requiring banks to be transparent about all of the fees and rates they charge that are connected to personal consumer accounts, such as savings accounts, checking accounts, and other personal deposit accounts.
How Does The Truth In Savings Act Manage Bank Operations And Bank Advertising?
Similar to the regulations imposed on financial institutions regarding what must be disclosed to consumers seeking to open a savings account, checking account, or personal deposit account, the Truth in Savings Act also requires the same disclosures in any advertisement materials.
What Happens When A Bank Fails To Provide A Truth In Savings Disclosure?
Once again, financial institutions have the burden and responsibility to make sure that consumers fully understand the terms and conditions of their accounts required by TISA. As such a TISA disclosure must be made to inform all customers of any potential fee charges or interest rates on the account.
As such, if a bank fails to provide a Truth In Savings disclosure, they will be subject to liability for their failure to properly disclose. The first potential consequence is the bank will be exposed to civil liability from FDIC and consumers, which can result in financial penalties, such as fines, as well as disciplinary actions, such as termination and loss of operating licenses.
Moreover, federal and state agencies can also impose criminal penalties on anyone that was involved in the violation of the federal law, which may include criminal fines or even imprisonment.
What Types Of Accounts Does The Truth In Savings Act Cover?
As mentioned above, there are numerous accounts covered by TISA, including all consumer deposit accounts. Consumer deposit accounts include savings accounts, checking accounts, certificate of deposit (“CD”) accounts, and money market deposit accounts.
Once again, the Act does not cover business or commercial banks, such as accounts held by corporations, limited liability corporations (“LLCs”), or partnerships. As such, the disclosures required for business accounts are covered by different federal and state laws outside of TISA.
What Else Should I Know About Consumer Banking In General?
It is important to note that the Department of Treasury has issued rules that implement the requirements of TISA for federal credit unions. As such, federal credit unions now have the same requirements.
The Truth In Savings Act is just one example of how federal legislators have pushed forward initiatives that protect citizens’ rights as consumers through increased transparency by financial institutions. There are also other requirements in addition to TISA that require banks to disclose additional information, especially in connection with issuing a loan to a consumer. Further, as a result of TISA, bank competition has greatly improved due mostly in part to increased consumer awareness and transparency.
Do I Need a Lawyer?
If you are having an issue as a result of bank fees or interest rates that you believe were not properly disclosed to you, then it may be in your best interests to consult with an experienced financial attorney. An experienced financial attorney will be able to help you understand your rights under the Truth In Savings Act.
Additionally, if you were misled by the financial institution and have suffered financial harm, then you may be able to initiate a civil lawsuit against the financial institution in order to recover your damages. An attorney can help you determine if that is a valid cause of action, and can initiate the civil lawsuit on your behalf. Finally, an attorney can also represent your interests in court, as needed.
