Passage of truth-in-savings bill rewards a long and bitter fight

STAYING AHEAD

December 15, 1991|By JANE BRYANT QUINN | JANE BRYANT QUINN,1991, Washington Post Writers Group

New York -- On the Washington Mall, savers should erect a statue to Richard L. D. Morse, professor emeritus of Kansas State University. For almost 30 years, Professor Morse -- the father of truth-in-savings legislation -- has been badgering Congress to force banks to tell you, straight, how much you're earning on savings accounts. All too often, you're getting substantially less than you think.

Morse's dream has finally came to pass. When President Bush signs the new banking bill, truth-in-savings will become the law of the land. Representative Esteban E. Torres, D-Calif., fought off all the last-minute attempts to bury the proposal.

"Usually, monsters rise up in the night to devour consumer legislation," says Edward Mierzwinski, a consumer advocate for the U.S. Public Interest Research Group in Washington and a persistent lobbyist for the truth-in-savings provision. "This time the consumer won."

Truth-in-savings won't take effect for at least 15 months, while the Federal Reserve writes regulations for it. During that process, Morse will stay on the lookout for monsters.

But the principle has been won. By mid-1993, many savers will learn -- for the first time -- what their bank accounts are really yielding and how that compares with rates from other banks in the community. Even before that date, the shiftier institutions will doubtlessly clean up their acts.

At present, banking institutions are free to compute their interest rates in a variety of ways. Five banks, all advertising 5 percent, may credit you with five different amounts in dollars and cents. A bank claiming to yield 5.25 percent may actually pay less than one claiming 5 percent, because of the way the rates are figured.

Under the new law, that won't happen any more. Banking institutions will have to disclose an "annual percentage yield," uniformly computed, so that you can accurately compare one bank's yield with another's.

Furthermore, banks will have to pay interest on the full balance in your account each day. This will achieve two excellent results:

* No more low-balance accounting. Right now, institutions (many of them credit unions) pay interest only on the lowest balance in your account each month. If you have $1,000 in your account for most of the month, and withdraw $990 on the last day, you're paid only for the remaining $10. At 5 percent interest, you'll have earned 50 cents -- a minuscule 0.5 percent on your original deposit. Unfair.

* No more partial payments. Many institutions are now paying interest on less than your full deposit. A bank, for example, may advertise that it pays 5 percent -- but apply that rate only to 84 percent of your savings or checking account. So you're really earning 4.2 percent. Also unfair.

Furthermore, banks will have to give customers the data they need to check whether they're being credited with the right amount of interest. Only one out of 10,000 savers may do so -- but those intrepid loners will help keep the bankers honest.

One unresolved issue is the "tiered" account. A bank, for example, might advertise 5 percent interest for deposits up to $999 and 5.25 percent on larger amounts. If you put in $1,000, you'd expect to earn 5.25 percent on the whole amount.

And you often do. But some banks fudge. On a $1,000 deposit, they might pay 5 percent on the first $999 and 5.25 percent only on the remaining $1. So you're getting less than you expected.

How should rates on tiered accounts be advertised? "We said, 'Let the Federal Reserve decide' " when it writes regulations, says Nancy Alcalde, deputy staff director for the House subcommittee on consumer affairs. Advises Morse, "They should boil it all down to one homogenized interest rate rather than showing the yield on each tier and forcing you to figure it out."

If this law forces banks to credit more interest payments to your account, they may make up for it by adding fees. In my view that's OK, as long as everything shows.

You still can't compare rates on bank accounts with those on bonds and money-market mutual funds, because bonds and funds figure their rates differently. Harmonizing all these products ought to be the next step -- and I hope it won't take another 30 years.

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