Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, June 26, 1995                   TAG: 9506260084
SECTION: BUSINESS                    PAGE: 6   EDITION: METRO 
SOURCE: JANE BRYANT QUINN WASHINGTON POST WRITERS GROUP
DATELINE: NEW YORK                                 LENGTH: Medium

CONSUMER WILL BE THE LOSER IN APY REPEAL

In the years before Truth-in-Savings, there was no way of telling which CD was the better deal. That's because there are so many different ways of calculating interest. Two banks advertising 5 percent could pay different amounts, in dollars and cents. Worse, a 5 percent CD could pay less than one at 4.9 percent - and how could you possibly know? Worse yet, a five-year CD claiming 5.5 percent simple interest could actually yield just 4.98 percent annually, a big drop from what you thought you were earning.

Truth-in-Savings cleaned up this mess, by creating a standard calculation known as the annual percentage yield (APY). No matter how banks handle their interest rate internally, they all have to translate that rate into an APY - for CDs, interest-paying checking accounts and any other savings deposits. You can no longer be bamboozled into picking a CD that pays less than you thought.

The banks have hated this law from the start. They say its disclosures require too much paperwork, and have ginned up some numbers to try to show that it's costing unnecessary millions of dollars. These numbers are unverifiable, of course. Nor do they adjust for the loss to savers who are misled into choosing CDs that pay less than another bank offers.

Bills in both the House and the Senate would repeal the APY calculation, taking you back to the jungle that existed before. Sen. Richard Shelby, R-Ala., author of the Senate bill, says Truth-in-Savings was unnecessary when passed because there was ``no outcry from consumers that they were being misled.''

But people don't know what they don't know, says Richard Morse, professor emeritus of Kansas State University. How could they possibly complain, since there was no way of telling that the 4.9 percent CD was a better deal than the one at 5 percent?

If these bills pass, you'd lose several other provisions of Truth-in-Savings:

Banks would once again be able to advertise as ``free,'' checking accounts that impose some fees.

There would be no federal requirement that banks notify you in advance when your CDs are coming due or when they add a new fee to your account.

You'd no longer find out what your interest-paying checking actually earned as opposed to what it could have earned. This enlightened provision alerts you to how well you handle a minimum-balance account. Typically, you earn less or no interest on the days that your account falls below the required minimum. Under Truth-in-Savings, the bank reports - on your monthly statement -what you actually earned that month, adjusted for any non-earning days. If your account consistently earns less than it should, you should switch to one requiring a lower minimum balance.

Both bills retain one critical provision of Truth-in-Savings: the requirement that banking institutions pay interest on the entire balance in the account. Formerly, banks could advertise 5 percent interest but pay that rate only on a portion of your account. So your true yield was less than you thought. Other institutions - especially credit unions - advertised a high rate but paid it only on the lowest amount in your account. For example, if you started the month with $1,000 on deposit but ended the month with $10, the credit union paid interest only on the $10.

Bankers support this portion of the bill. But the National Association of Federal Credit Unions argues that credit unions should be exempt - permitting them to return to the deceptive low-balance calculation. Another trade group, the Credit Union National Association, is requesting this exemption only for small, non-automated credit unions - although I don't see why any credit union should be free to advertise a rate it doesn't actually pay.

The plan to repeal most of Truth-in-Savings won't help the free market work, as the bankers contend. Markets work only when buyers have full information about their options - and without APY, financial consumers will be in the dark. Any consumer who wants this law should write to Congress now.