ROANOKE TIMES
Copyright (c) 1995, Roanoke Times
DATE: Tuesday, December 12, 1995 TAG: 9512120065
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
A new study by opponents of a Republican-sponsored bank overhaul bill said Monday it could cost consumers more than $300 million in reduced interest earnings on their savings accounts next year.
The Consumers Union is concerned that Congress will repeal requirements that banks use a uniform formula to disclose their interest rates for savings accounts and interest-bearing checking accounts. If that happens, ``banks and other financial institutions are likely to revert to the same tricks and gimmicks that they used in the past,'' the group said in its study.
The American Bankers Association and GOP staff called the Consumers Union analysis a misleading scare tactic based on an incorrect reading of a House bill, which would rewrite parts of the Truth in Savings Act.
``We never went after the heart of the Truth in Savings Act,'' said Charlotte Birch, an ABA spokeswoman. ``The bill still prohibits use of false or misleading ads.''
The Truth in Savings Act requires banks, savings and loans and credit unions to calculate their advertised interest rate on the consumer's full daily balance in a uniform manner. The aim is to help consumers shop for the best rates by comparing what's offered by various banks.
Consumers Union bases its $300 million estimate on an assumption that upon passage of a House bill, banks would calculate interest through other ways, such as the ``investable balance'' and ``low balance'' methods. Both methods result in consumers receiving a lower interest rate than the currently required daily balance calculation.
Under the investable balance method, banks would pay interest on only a percentage of a consumer's account balance, usually 88 percent. About 20 percent of the nation's big banks used such a calculation before the law went into effect in 1993.
Banks justified this practice by noting that regulators require them to set aside a percentage of their deposits with the Federal Reserve, known as reserve requirements, which don't earn interest.
Under the low balance calculation, banks would pay interest on the lowest balance in a consumer's account during the month.
A spokeswoman for the bill's sponsor, Rep. Douglas Bereuter, R-Neb., said the bill doesn't remove the investable balance prohibition.
ABA spokeswoman Birch agreed.
``I think it's kind of appalling they would mislead consumers this way.''
She said banks have spent an estimated $400 million to comply with the new law and they wouldn't necessarily go back to the old calculations.
Michelle Meier, government affairs counsel at Consumers Union and a veteran analyst of the banking industry, defended the study as sound. She said the Bereuter bill doesn't specifically mention retaining the investable balance prohibitions.
Even if it was outlawed, the House bill eliminates a standardized formula for calculating interest, opening the door to creative calculations, she said.
``If banks can use all sorts of terminology, then you're right back to where you were before,'' she said. ``Then they can say anything they want.''
LENGTH: Medium: 63 linesby CNB