The Truth in Savings Act is a governmental decision that provides greater transparency for consumers working with banks. Specifically, the act requires banks to disclose fees, provide annual percentage yields and other information. This act is a direct result of a large federal restructuring in 1991. The act is also limited to only certain bank customers and has resulted in a few unexpected paperwork drawbacks.
The roots of the Truth in Savings Act stem from the Federal Deposit Insurance corporation (FDIC) Improvement Act of 1991. In an effort to strengthen the FDIC, this act mainly allowed it to borrow from the United States Treasury Department. Along with this major change, the government passed many other pieces of legislation aimed at improving the savings and loan stability of the country.
One such piece of legislation was the Truth in Savings Act, which required that banks and loaning institutions follow four basic rules. The first is that lending institutions must disclose the annual percentage yield for savings accounts to customers in order for them to better understand how much interest will be earned in a year. Secondly, banking institutions must honor an entire deposit, instead of a portion. The third requires lending institutions to list fees for bounced checks, wire transfers, and other services. Finally, the Act says banks cannot advertise free checking accounts if there are, in fact, fees associated with the account.
The purpose of the Act is to provide banking customers with enough data to make a sound savings decision. With this added information, people are able to collect information from different banks and compare rates to find the best fit. Another effect is to keep banks from taking advantage of clients by forcing lenders to be completely transparent.
This act, however, does not apply to everyone. The Truth in Savings Act only applies to a natural person, meaning an individual customer. Businesses and organizations are not subject to these rules. Another unexpected result of this act is the increase in paperwork when opening an account. Due to lenders being required to provide this depth of information, there are often large stacks of paperwork that must be signed or initialed when opening an account. These papers signify that the customer has received the documents the bank is legally required to provide.