Mon, Mar 20, 2017
The discussion boards on CUNA’s Compliance Community featured an interesting discussion last week: what is the difference between the terms “share draft” and “checking account?” Since federal credit unions pay dividends on deposit accounts, rather than interest, the correct use of each term is important.
According to the official staff commentary on the Truth in Savings Act (TISA), it is not the purpose of TISA to prohibit specific descriptive terms for accounts. Synonyms for share, share draft, money market share, and term share accounts may be used to describe various types of credit union share and deposit accounts as long as the synonym is accurate and not misleading and, for account disclosures, is used in conjunction with the correct legal term.
- The term “checking account” may be used to describe share draft accounts;
- The term “money market account” may be used to describe money market share accounts;
- The term “savings account” may be used to describe regular share and share accounts; and
- The terms “share certificate,” “certificate account,” or “certificate” may be used to describe share certificates and other dividend-bearing term share accounts.
However, under no circumstances may a federal credit union describe a share account as a deposit account. For example, the term “certificate of deposit” or “CD” may not be used to describe a dividend-bearing share certificate.
TISA also notes that “state-chartered credit unions may offer both share and deposit accounts, if permitted by their state law.”
State law, including regulations and official interpretations, will determine if returns earned on accounts in state-chartered credit unions are dividends or interest. As a result, state-chartered credit unions may be permitted to offer interest-bearing deposit term accounts (certificates of deposit), even though they are prohibited for federal credit unions.