acquiring information, and greater difficulty comparing what information is available from competing institutions. The result is an inefficient market that fails to reward providers of the best values, fails to penalize deceptive behavior and fails to allow consumers to influence market behavior through rational purchasing decisions. There are two general types of disclosure needed to allow consumers to compare account offerings: First, accurate and uniform disclosure of interest income on deposit accounts, and, second, full disclosure of all the potential costs of consumer accounts. Legislation such as H.R. 2282 must be drawn to provide consumers with the full picture about these accounts; accurate, concise, and comparable information on the cost and benefits of deposit accounts. The yield and income disclosures must take into account a number of methods designed to market deposit accounts which have made these disclosures more complicated, confusing and more susceptible to misleading advertisements.

We see in the market rates for time deposits of less than 1 year where a yield disclosure has to assume the deposit will be rolled over at the same rate. Accounts with variable interest rates linked to market indices, or, as we have been told by industry representatives, vary according to the judgment of bank managers. Introductory rates, tiered rate accounts on which different rates of interests are paid on different balances, and a variety of different combinations of different factors make comparison of the different yields on different accounts virtually impossible for most consumers.

But even full disclosure of interest yield no longer gives consumers a complete picture. That is because it is not net income to consumers. In recent years, disclosure of account fees has become important in evaluating accounts. The Federal Reserve Board has documented a doubling in the cost to consumers of bank fees in the period from 1979 to 1983. The Consumer Federation of America's annual surveys of accounts fees have revealed these increases are continuing, and we have submitted a copy for the record of our most recent survey which was released early this week which, among other things, indicated an increase in the cost to a consumer for moderate usage of small NOW accounts, increasing 13 percent from 1984 to 1985 and an additional 12 percent between 1985 and 1986.

In addition, there is one critical deposit account factor where variations in the factor cannot be handled simply through disclosure. When different balance calculation methods are used to determine interest payments, comparison between accounts becomes impossible. Unless consumers can predict their patterns of deposits and withdrawals, they cannot determine the effects.

We believe the only clear solution to this important problem is a legal requirement mandating the use of a single method for calculating all balances used to determine interest payments on deposit accounts. If balance calculation methods are not standardized, consumers will not be able to use the information disclosures to compare accounts.

We believe this solution is particularly appropriate now that all interest rate restrictions have been removed from consumer accounts. Many of these differences in balance calculation methods and other methods developed over the past years grew out of finan

cial institutions' attempts to compete on the basis of price while they were limited by interest rate caps. Any observer of the market will say these attempts to get around caps were inefficient and distorted the market.

Now that these caps are no longer in force, it is time for banks and other financial institutions to compete, to the extent they will compete by price, on the basis of differences in rates rather than on artificial, distorted, and difficult-to-understand conditions, such as various balance methods. Standardizing methods will not limit competition, it will make competition meaningful because it will allow consumers to compare rates. We do not allow retailers to define weights and measures any way they wish, and we recognize variations in weights and measures do not promote but impede true competition. Balance calculation standardization would serve as the true weights and measures law of financial services.

Finally, we have been asked to say a few words about the Depository Institution Examination Improvement Act. Our concern in the consideration of this bill is that Congress not overlook elements of the examination system involving factors other than traditional safety and soundness concerns. Examinations for community reinvestment and consumer compliance are often short-changed by the regulatory agencies. Cutbacks in these examinations in some agencies predate cutbacks forced by the Gramm-Rudman-Hollings Act. We believe these elements of examination are every bit as important to consumers as safety and soundness examinations. If Congress is to make improvements in the examination process, it must ensure those improvements are reflected in the Agency's consumer compliance and community investment responsibilities, as well as reflected in their safety and soundness responsibilities.

We would like to make two specific recommendations. First, section 6 concerning the minimum requirements for State examinations should clearly require State examinations to include, to the extent required by Federal law and regulation, examination of financial institutions community investment and consumer compliance performance.

State examinations must not be substituted for Federal examinations unless these factors are included.

Second, Congress should use this opportunity to instruct the regulators to give full attention to ensuring depository institutions meet their current reinvestment consumer compliance obligations. These obligations must no longer receive only the leftovers of the agencies' resources, and they must no longer be dropped from sight when safety and soundness problems grow. The agencies must be told, having been given all the tools they need to do their jobs, they must do the entire job, and we believe Congress should make such a statement in this legislation.

Thank you.

[The prepared statement of Mr. Fox on behalf of the Consumer Federation of America (CFA), Consumers Union (CU), and the U.S. Public Interest Research Group (US PIRG), can be found in the appendix.]

Chairman ST GERMAIN. Thank you.

Now we will hear from Mr. Jack Guildroy, appearing on behalf of the American Association of Retired Persons.

I

STATEMENT OF JACK GUILDROY, MEMBER, NATIONAL LEGISLATIVE COUNCIL, AMERICAN ASSOCIATION OF RETIRED PERSONS [AARP]

Mr. GUILDROY. The American Association of Retired Persons (AARP) is the Nation's largest membership organization, representing the interests of over 22 million members age 50 and over. The association appreciates this opportunity to express its support for H.R. 2282, the Truth in Savings Act, and to recommend improvements in this important legislation.

H.R. 2282 represents an important step toward maintaining consumer confidence in the banking system and ensuring that financial institutions are responsive to the needs of all consumers. The mandated disclosures constitute an essential tool to enable consumers to make effective choices among various financial services and providers.

AARP's interest in financial services issues comes about as a direct response to the deregulation of the financial services industry. While deregulation has increased competition, it has also created a great deal of confusion. Consumers lack the basic information they need to make prudent choices.

In order for deregulation to improve the efficiency of the financial services marketplace through enhanced competition, it requires informed consumers who can act rationally. Therefore, there is critical need for the ready availability of accurate, complete, upto-date, and uniform information.

DISCLOSURE OF INTEREST RATES

We concur in H.R. 2282's requirement that the annual percentage yield [APY] and annual percentage rate [APR] must both be disclosed in advertisements, announcements and solicitations of deposit accounts. Each of these rates is important to different groups of consumers. For consumers whose balances remain constant for the entire year, the APY is important. For consumers whose account balances vary during a year, the APR, with frequency of compounding duly noted, is more meaningful.

In addition, H.R. 2282 should be amended to require that interest rate disclosures be contained in the schedule of fees, charges, terms and conditions. Such disclosure of interest rates on the mandated schedule is essential to meaningful consumer choice.

DISCLOSURE OF SERVICE CHARGES, FEES AND OTHER DEPOSIT ACCOUNT DATA

AARP supports the bill's provision mandating the ready availability in a written schedule of all other terms, fees and hidden costs. Such disclosures will be directly responsive to the needs of consumers for accurate and complete information. We urge the committee to specifically require that the information from the schedule also be made readily available to the public via telephone. In addition to those fees, penalties and practices already included in the bill's required schedule, we urge the committee to include the following: interest rates [APY and APR]; frequency and method of compounding; check hold schedules

Chairman ST GERMAIN. Excuse me, Mr. Guildroy. You are aware of the fact we reported that out of this committee, the check hold schedule, and it is now pending in the Senate. So rather than tell us about that, I hope your powerful organization is descending upon the Senate and informing them of the fact it is important to have the legislation which passed the House by such an overwhelming margin, adopted by the Senate, so it then becomes law.

Mr. GUILDROY. We understand, and we are working on that this minute, this afternoon, if at all possible.

Charges for automatic teller machine transactions; charges for personalized service, including teller service; costs of checks and per-check debits; charges for cashing checks for noncustomers; charges for money orders, cashiers checks, and wire transfers; availability of direct deposit and its impact upon fees.

AARP, in conjunction with other major consumer organizations, has developed a standardized disclosure form which should be used as a model for the type of disclosures required. A copy of this form is attached to our testimony as appendix A.

In addition, we wholeheartedly concur in H.R. 2282's requirements that such fee schedules: One, be distributed to all account holders within 60 days of the effective date; two, report any changes in such schedule to customers at least 30 days before the effective date of such change; three, be given to potential customers before an account is opened; and, four, be given to the public upon request.

It is our firm belief that all material terms and conditions must be uniformly defined since they do not significantly affect the earnings of an account. To this end, the Federal Reserve Board should be required to provide uniform definitions and terminology as well as uniform methods for calculating interest.

In conclusion, AARP is pleased to comment upon H.R. 2282 and stands ready to work with the subcommittee toward markup of this important legislation.

Thank you.

[The prepared statement of Mr. Guildray on behalf of the American Association of Retired Persons [AARP] can be found in the appendix.]

Chairman ST GERMAIN. Next we hear from Ken McEldowney, director of San Francisco Consumer Action.

STATEMENT OF KEN MCELDOWNEY, EXECUTIVE DIRECTOR, SAN FRANCISCO CONSUMER ACTION

Mr. MCELDOWNEY. My name is Ken McEldowney, executive director of San Francisco Consumer Action. Consumer Action is a 15year old consumer advocacy organization. We are a nonprofit membership organization, with 2,000 members throughout California. Our primary concerns are the consumer services of the telecommunications and financial services industries. We appreciate this opportunity to address the problem of disclosure practices in the financial services industry.

For more than a decade, Consumer Action has specialized in the production of comparative pricing surveys. The philosophy behind consumer pricing surveys is remarkably simple. We believe that

the optimum functioning of the marketplace depends upon fully informed consumers who carefully and knowledgeably weigh choices. But marketplaces have ways of veiling, even hiding, real costs: the goal of the shopping survey is to cut through marketing slogans and pretty images to present clear comparisons of costs and benefits.

We conduct our surveys for two reasons: One, to provide consumers with the detailed information that they need to choose those accounts which will best meet their needs at the lowest cost, but, second, and equally important, to gather the data we need to spot problems with the industry. Today I want to focus on one of the major problems that we have uncovered, that of wholly inadequate disclosure of fee and interest information on the part of banks and savings and loans.

Chairman ST GERMAIN. Let me interrupt. I would like to ask a question of you and Mr. Fox. Yesterday I questioned the regulators about the surveys that they have conducted or the surveys they have not conducted. By the way, I would like to point out that it is so disappointing that yesterday the press table was jammed because the regulators were here, and today, the ABA must feel badly as well as the consumer people, because the press is prominent by its absence. I am amazed, because this legislation affects them and their families, and yet there isn't anybody there. There are two press people here, but yesterday that table was jammed. It is most disappointing.

Let me ask you, Mr. McEldowney and Mr. Fox, you conducted a survey that I quoted from yesterday from the press release that was put out where it says Consumer Action, as well as Consumer Federation, conducted this survey-your funding is rather minimal, isn't it, Mr. McEldowney and Mr. Fox?

Mr. McELDOWNEY. Most of our funding comes from membership dues.

Mr. Fox. The survey, in fact, was conducted by approximately 20 organizations like Consumer Action of San Franciso, most of which have even less funding than Consumer Action. Most of the work was done by volunteer organizations.

Chairman ST GERMAIN. Did you find that this presented an enormous burden of paperwork? Were you overwhelmed by the paperwork involved in this survey, Mr. Fox and Mr. McEldowney?

Mr. Fox. Only to the extent that we were overwhelmed by the complex ways different institutions assess fees, some of which we didn't anticipate and, therefore, were not equipped to tell our members to look for.

Mr. McELDOWNEY. We put out four major banking surveys a year. Each survey includes 80 to 90 different institutions. We cover credit cards, savings accounts, money markets, and we are able to put out that information, and we released the survey in April of 80 banks and savings and loans on money market and time deposits and were able to put out very weak information on 80 institutions in an 8-page tabloid.

Chairman ST GERMAIN. I think the Comptroller's Office and other regulators ought to hear you people. You know what they told me after the hearing? You got to realize we can't conduct these surveys because of the Paper Reduction Act.