Question & Answer

Question: We are considering making some changes in our passbook accounts. Along with requiring a certain balance before we pay interest, we'd like to lower the rate of interest we are now paying. Do we have to notify our customers before we do that? Is there any federal law that covers this?

Answer: There is no federal law on the books at the present time requiring you to notify your customers of a reduction in rate of interest. But there are several other places you need to look before you take such action.

First check your own contract with your customer-printed either in your passbook (and remember you may have old, old passbooks out there with different facts than you are presently using), on your signature card, or some other printed agreement you may have distributed that refers to interest rates-(by-laws, resolutions, disclosures, etc.) Determine whether any of them indicate any requirement set forth when you established the account.

You also want to be sure your state banking laws do not have a notification requirement.

And you will want to take "reasonable" action-described by one attorney we checked with as action "fair and not deceptive." (The "fair and not deceptive" comes from advertising regulations.)

Important addendum: The Truth-in-Savings Act being considered by Congress will change all of the above response. Several of our information sources estimate that this legislation will pass this fall, and will be implemented in the early part of 1992. One of the requirements contained in the proposal is that thirty (30) day notice must be given of any action "adverse to the consumer." All of us agreed that a lowering of interest rate or an increase of service charge are typical of actions "adverse to the consumer".

Editor's Note: BH thanks all who helped research this response, and special thanks to Nessa Feddis,Esq, ABA; Charlotte Bahin,Esq., NCSI; and Maria Floria, Esq., NJSL.

Copyright © 1991 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 2, No. 7, 8/91