Truth in Savings: Term Share Certificate Account Opening Disclosures

When it comes to term share certificates, one of the most common questions we receive is what must be included in the account opening disclosures. Fortunately, NCUA's regulations and accompanying commentary provide clear guidance and a fair amount of flexibility.

When Must Disclosures Be Provided?

Section 707.4(a) requires credit unions to provide account disclosures before an account is opened or a service is provided, whichever occurs first . If you have questions about timing or unique situations, the official commentary to this section is an excellent resource and addresses a variety of scenarios.

What Must Be Included?

Section 707.4(b) outlines the content requirements for account opening disclosures. Depending on the type of account, disclosures generally must include information such as:

• Rate information such as Annual Percentage Yield (APY) and dividend rate;
• Frequency of compounding and crediting;
• Balance information;
• Fees;
• Transaction limitations;
• Bonuses (if applicable);
• Features of term share accounts such as maturity date, early withdrawal penalties, and renewal policies.

The official commentary accompanying Section 707.4(b) also provides valuable clarification, including examples, on these disclosure requirements.

Minimum Opening Deposit Requirements

One requirement that often generates questions is the minimum opening deposit. Section 707.4(b)(3)(i) requires account opening disclosures to include any minimum balance necessary to:

• Open the account;
• Avoid the imposition of a fee; or
• Earn the disclosed Annual Percentage Yield (APY).

In other words, if a minimum balance affects any of these items, it must be disclosed to the member when the account is opened.

Maturity Date Requirements 

For term share accounts, section 707.4(b)(6)(i) requires the maturity date to be disclosed. Appendix B to Part 707 contains model clauses and sample forms that can help credit unions satisfy this requirement. For example, Sample Form B-5 includes model language such as:

Your account will mature on (date).

or

Your account will mature after (time period).

Using the model language is not mandatory, but it can be a helpful compliance tool.

Early Withdrawal Penalties, Renewal Policies, and Withdrawal of Dividends Prior to Maturity

Term share account disclosures must also explicitly outline any early withdrawal penalties and renewal requirements. 

• Early Withdrawal Penalties : If a penalty applies for withdrawing funds before maturity, you must detail how the penalty is calculated and the conditions under which it will be assessed.
• Automatic Renewal : You must state whether the account renews automatically at maturity.
  • If it renews automatically: State whether a grace period applies and specify the exact length of that period.
  • If it does not renew: State whether dividends will be paid after maturity if the member takes no action.
• Withdrawal of Dividends Prior to Maturity: If compounding occurs and dividends may be withdrawn prior to maturity, you must state that withdrawal prior to maturity will reduce earnings since the annual percentage yield assumes dividends remain in the account until maturity. This statement may vary depending on the frequency of compounding dividends. 

The official commentary also provides examples of early withdrawal penalties and clarification on renewal policies. 

Does the Format Matter?

Yes, but perhaps not as much as you might think. Section 707.3(a) establishes the general disclosure requirements. Disclosures must be:

• Clear and conspicuous;
• In writing; and
• Provided in a form the member or potential member can keep.

The regulation also permits electronic delivery, provided the applicable requirements of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) are met.

Another important point is that disclosures do not have to appear in a single document. The official commentary explains that disclosures may be:

• Presented in any order;
• Combined with other disclosures or account terms;
• Combined with disclosures for multiple account types, provided it is clear which disclosures apply;
• Spread across multiple pages;
• Delivered using inserts or completed forms; and
• Provided with more than one document, as long as all documents are delivered at the same time.

This flexibility can be particularly helpful when designing account opening packages.

What About Electronic Account Opening?

NCUA Legal Opinion Letter 04-0543 provides additional guidance for electronic membership applications and account openings. The opinion explains that credit unions may provide required Truth in Savings disclosures electronically, provided they comply with the E-Sign Act and applicable regulatory requirements. 

For online account openings, the timing requirement is satisfied if the disclosures are presented before the account is opened. For example, a credit union may provide a link to the disclosures, provided the applicant cannot bypass the disclosures before completing the account opening process, or the disclosures automatically appear on the screen.

The opinion also confirms that credit unions are not required to verify that the applicant actually read the disclosures.

Finally, electronic disclosures satisfy the retainability requirement if members can keep them by either printing or electronically storing the information.

Helpful Truth in Savings Resources

If you'd like to explore these requirements further, the following sections are a great place to start:

• Section 707.4  – Delivery requirements and initial account disclosures
• Section 707.3 – General disclosure requirements
• Appendix C  – Official commentary that clarifies regulatory requirements
• Appendix B – Model forms and sample disclosures for Truth in Savings