On our disclosures for IRA savings accounts we state under Determination of Rate: The interest rate on your account is based on the average 91-day Treasury Bill rate plus one-half of one percent (.50). Since these accounts are variable do we have to notify our customers if we change how the rate will be determined?

TISA requires that you state (in the initial disclosure) variable rate info like:
The fact that the interest rate and APY may change;
How the interest rate is determined;
The frequency with which the interest rate may change; and
Any limitation on the amount the interest rate may change.

Have you provided this information in your initial disclosure? If so, then this is a variable rate account and you don't need to notify the customers. If not, this is a fixed rate account and you will need to provide a change in terms to change the rate.

If you're changing the index on which the rate is based,you must give the consumer notice. The regulation states if it adversely affects the customer, it must be 30 days in advance of the change. Even though you may be selecting an index similar to the current index a customer may perceive the new index as adverse. I would recommend you mail the index change notice 30 days prior.

Yes, we do disclose all the information that would make these accounts variable. Under Section 230.5-Subsequent Disclosures (a) (2) states No notice under this section is required for--(i) Variable rate changes. Changes in the interest rate and corresponding changes in the annual percentage yield in variable rate accounts. This really doesn't mention how the interest rate is determined, but if you think because we treat the account as variable, we don't have to notify them....then I agree with you.

With respect to David, I disagree with his statement that a change in terms notice would not be required.

The change you have asked about is not the routine variable rate change resulting from a change in the index. Nor is this account one that has been disclosed as allowing for changes in rate "at any time in our sole discretion" (the classic non-indexed variable rate account). You told people the way that the interest rate used to be determined (T-bill plus 50 BPs). And now you're going to change that to some other index or some other margin. Unless you're planning to increase the margin you use, which would clearly not be something you'd need to disclose, you probably have a change that will affect the customer adversely, and I think you have to tell them about it 30 days in advance.

Apparently, this is not a question that Fed Staff has opined upon in the Commentary.

I'm going to have to slow down. My first reading of the original post didn't reveal:
if we change how the rate will be determined? After reading John's posting, I realized that the scenario is different than I originally thought.

If you change a term of the account (how the rate is determined) you must provide a 30 day advance notice. Sorry for the misunderstanding (that is 2 today and it is not noon yet!).

Oh, No, don't tell me I'm going to have to choose between David and you John. I'm not sure I can take that pressure. Just kidding!!! We probably will end up notifying the customers, just to be on the safe side. Thanks for your input.

Especially now that David has had his second cup of coffee! Or are you still recovering from NO, David?

Unfortunately I was unable to go to NO this year, but it must be obvious that I haven't had enough caffeine (or something).

When we notify our customers of the change in the determination of rate, can we say in our notice and on future TISA disclosures "Rates are determined at our discretion"?

TISA requires that you state (in the initial disclosure) variable rate info like:
The fact that the interest rate and APY may change;
How the interest rate is determined;
The frequency with which the interest rate may change; and
Any limitation on the amount the interest rate may change.

I do NOT believe that "Rates are determined at our discretion" is sufficient to describe how the interest rate is determined.

Actually, "at our discretion" is good enough if your account is not indexed. A lot of banks have rates that fluctuate strictly according to the laws of supply, demand, and whimsy. In fact one of the model phrases from Appendix B reads: "At our discretion, we may change the interest rate on your account."

But if a published index is used, you need to disclose that fact.

How about subsequent disclosures for a change in tier levels? If we change the dollar level of tiers (or change the number of tiers) on an account that has been properly disclosed as variable rate, does the change qualify as a change in terms triggering a 30 day notice?

If you lower tiers, I don't believe that this is adverse, but if you raise the tiers, I believe advance notification is required. Changing the number of tiers will probably adversely affect somebody. This would require advance notification.