The Truth In Savings Act or TISA, is a law that was created with the goal of increasing competition and transparency for consumers to make it easier to compare banks.
The Truth in Savings Act requires all depository institutions – including credit unions – to disclose any fees and interest rates associated with their accounts. A bank or any depository institution must also disclose their terms and penalties for accounts and services.
The main idea behind this law is so that consumers can make informed decisions about which financial institution will better suit their needs and become aware of what was known in the industry as “hidden fees.”
This law is also designed to protect those who are financially unsophisticated from being exploited by high-interest lenders.
Why Was The Truth In Savings Law Enacted?
Unfortunately, the U.S. economy is not immune to financial crises. One crisis that occurred in the 1980s through 90s was the Savings and Loan collapse, which led to the passage of several new federal policies, including the Truth in Savings Act.
During the period of the savings and loan crisis, there was an increase in bank failures. For example, there were 384 FDIC-insured institution failures between 1980 and 1984, with 242 occurring in 1987 alone. The following year, 1988, proved to be another record-breaking year of bank failures with the closing of 538 institutions.
With this act came stricter regulation of savings institutions and more authority granted to the FDIC. This new law gave protective rules for consumers with accounts at banking institutions.
The Truth In Savings Act may have been passed over 25 years ago, but it continues to have a positive impact on the US banking system today.
What Does The Truth In Savings Act Do?
The Truth In Savings Act requires federally insured financial institutions to provide customers with a uniform disclosure of account terms and conditions.
The Truth in Savings Act (TISA) was originally passed by Congress in 1991 and required that financial institutions provide customers with a “Truth-in-Savings” (TIS) disclosure document for any deposit account opened after December 31, 1992.
This disclosure itemized how much interest customers would earn over a 12-month period, including fees assessed against their accounts such as maintenance and transaction fees.
The disclosure must include information about the institution’s interest rates, fees, and other terms and conditions associated with the account. This is done through a summary of the terms and conditions of an account within the Truth in Savings disclosure.
All disclosures must be clear and conspicuous in order to be effective. Each type of disclosure is subject to specific rules regarding its content, presentation and format.
These requirements were designed with a focus on ensuring consumers are able to easily understand both the terms and conditions of an account as well as their rights under federal law.
The TISA law also requires that federally insured institutions follow certain procedures when changing the terms of an account such as increasing required minimum balances, lowering interest rates, or imposing fees.
These requirements were enacted to allow consumers time to change their behavior before accruing significant harm, such as an increased burden of maintaining the account.
The Act mandates that these changes cannot take effect until after the institution has provided notice to affected customers and given them at least thirty days to withdraw funds without penalty.
Institutions are also required to send an annual notice that shows the actual interest earned over the previous year as well as the fee assessed against such accounts.
What Happens When A Bank Fails To Provide A Truth In Savings Disclosure?
It is a bank’s responsibility to make sure that consumers fully understand the terms and conditions of their accounts, including all potential fees that could be incurred.
As previously mentioned, in order for this information to be complete and accurate, banks must provide a Truth In Savings disclosure to inform customers of any potential fee changes or interest calculation methods.
This gives consumers time to switch from one financial institution to another if they don’t agree with the changes being implemented.
However, if a bank fails to provide a Truth In Savings disclosure, there are repercussions. The first potential consequence is civil liability – both on behalf of the bank as well as on behalf of any individuals who were involved in its violation – which can result in financial penalties as well as disciplinary actions such as termination and loss of licenses.
Moreover, federal and state agencies can impose criminal penalties on anyone involved in the violation of this law, which may include fines or even imprisonment.
The Truth In Savings disclosure was made into law through the Truth In Savings Act (TISA), along with amendments to Regulation DD and Reg Z.
TISA was designed to ensure banks disclose all fees and terms associated with deposit accounts so consumers can make informed decisions about choosing an appropriate financial institution for their needs.
Banks must provide a truth in savings disclosure disclosing all potential fees at least 45 days before they will take effect; otherwise, they are liable to civil liability as well as federal and state agencies with criminal penalties.
Customers who do not agree with the truth in savings disclosure may choose to close their account with no negative impact to their credit score.
While some banks may still attempt to take advantage of unknowing individuals by doing things such as enrolling people in programs without full disclosure, it is far less likely to happen today.
While not all financial institutions respect consumers’ rights in this regard, TISA has been successful in making it more difficult for banks to charge unfair fees and rates.
What Types Of Accounts Does The Truth In Savings Act Cover?
The TISA law applies to all types of consumer deposit accounts. These include savings accounts, checking accounts, certain time deposits such as CDs and money market deposit accounts.
However, the TISA does not cover business or commercial accounts such as corporations, LLC’s, and partnerships. The Department of Treasury has issued rules to implement the TISA for federal credit unions.
Since 1991 when the US Congress first addressed the need for transparency between banks and consumers, significant progress has been made in improving consumer awareness of financial products offered by commercial banks.
The Truth In Savings Act is one example of how federal legislators have pushed forward initiatives to protect citizens’ rights as consumers through increased transparency by financial service companies offering banking services.
As a result, bank competition has greatly improved due mostly in part because of increased consumer awareness and transparency.
Do I Need A Lawyer?
If you lost money because bank fees or interest rates were not disclosed to you, then it may be time to take steps now by talking with a financial attorney about your rights under the Truth In Savings Act.
Additionally, if a bank gave you bad advice or misled you regarding saving or investing money, you may be able to seek damages especially if you were not given a disclosure or had to pay a penalty for closing your account within the allotted time period.
Speak with an attorney to see if you may be entitled to receive a reimbursement of fees and costs.