The Competitive Equality Banking Act of 1987 was signed into law last fall. But many of the provisions just recently went into effect, and some take effect later this year. Here are some some facets of the law:
- Confidence for depositorsSafety of deposits has become an increasing concern as more financial institutions have gone broke in recent months. Deposits at banks and thrift institutions have been insured by two separate federal agencies since the 1930s. The amounts in the insurance funds are limited; however, the new law reaffirms that the insured deposits are backed by "the full faith and credit of the United States."
This means that if for some reason the insurance funds cannot pay legitimate claims, the U.S. government will. The bill provides up to $10.8 billion in new capital to strengthen the Federal Savings and Loan Insurance Corporation.
As of March 31 of this year, you can also ask for a financial statement from any bank that will give you an indication of its financial soundness.
- For home buyers
The bill requires that all adjustable rate mortgages include a limit or cap on how much the rate can increase during the life of the loan. No particular cap is specified, however. So, be sure to check when you shop for a mortgage.
- Government checks
A limit of one year from date of issue has been placed on the time you have to cash government checks. The Treasury is still required to issue replacements for checks that have been lost, stolen or canceled.
Because of complaints from some sections about the difficulty in cashing government checks, the General Accounting Office will survey the situation to see if requirements are needed.
- Waiting period for check deposits to clear
In recent years, more and more people have been complaining about how long they are required to wait before they can write checks against deposits. The requirement varies considerably by institution and type of check, sometimes ranging between three and 10 days.
The new bills sets up a specific schedule. As of Sept. 1, 1988, you will be able to write checks the next day on your deposits of U.S. government checks, certified checks, tellers' checks, checks on accounts in the same institution and on the first $100 of a day's deposits.
By the same date, you can draw on local checks (those written on institutions in the same Federal Reserve processing region) after a maximum of two intervening business days from the date of deposit. For non-local checks, the wait can be no longer than six intervening business days.
By Sept. 1, 1990, a new schedule will go into effect. Local checks must be available within one intervening business day after date of deposit; non-local checks must be available within four intervening business days or less. The requirements will not apply to new accounts for the first 30 days, to deposits of $5,000 or more, to accounts that have been repeatedly overdrawn and certain other circumstances.
- Truth in Savings
The 1987 bill did not address the question of Truth in Savings - or requiring financial institutions to standardize how interest is computed and reported. But legislation is moving though the current Congress that deals with this important consumer issue.
The House passed a bill last June; the Senate passed one on March 30 of this year. The two bills are now in committee, to resolve difference. But when the final bill might pass is anyone's guess, says Richard L.D. Morse, professor of family economics at Kansas State University and a man whom many consider the father of both Truth in Lending and Truth in Savings.
Legislation as it is now progressing will require banks and other financial institutions to disclose an annual yield figure for interest, but there are a couple of loopholes, says Morse.
For one thing, the definition of annual is vague. And his research has uncovered myriad ways annual is defined at various institutions - everything from 336 days to 364, 364.97, 365, 365 1/4, 366 and 372. Those variations could still remain.
The second flaw, he says, is that there is no provision for reporting to consumers so they can verify that their accounts are receiving the specified percentages.
But standardized reporting is a move in the right direction, says Morse. The Senate bill has, in fact, been expanded to include Truth in Savings and Investments. At the same time, the Securities and Exchange Commission has established requirements that became effective as of May 1 governing disclosures of annual yield figures. Unfortunately, says Morse, they are requiring a different formula for yield than banks and other financial institutions, so comparison shopping will still be hard. But at least we are seeing more reliable yield figures than ever before, he says.
What will eventually come out in the name of Truth in Savings remains to be seen. It is, says Morse, just a small part of the big battle over giving banks expanded powers - specifically the ability to handle investments and insurance.