Consumer High-End Savings: Legal and Regulatory Analysis
Consumer high-end savings products are often subject to regulations similar to other deposit accounts. These regulations include disclosure requirements on yield, interest earned, fees imposed and account balance. Besides, there are regulations to prevent unfair practices and deceptive advertising to ensure consumer protection. A World Bank Study on "Bank Regulation and Supervision Ten Years after the Global Financial Crisis" shows that there aren't any substantial differences between high income and developing countries in the adoption of regulations.
- Periodic statements of deposit products require disclosure of Annual Percentage Yield (APY), amount of interest earned, fees imposed and account balance. A higher proportion of developing countries have such disclosure requirements compared to high-income countries. For example, 42.9% of high-income countries have APY disclosure requirement as opposed to 60% of developing countries.
- According to World Bank, "there is little difference in the shares of high-income
- and developing countries that adopt a specific regulation." More than 70% of countries require such disclosure.
- In the US, Regulation DD (Truth in Savings) applies to savings accounts, including high-end savings products. It requires institutions to disclose information on APY, interest rates, minimum balance requirements, and fee schedules. The regulation intends to provide consumers with sufficient and clear information to enable comparisons of offerings by different financial institutions. The law was last amended in 2011.
- In 2015, the UK introduced measures to improve disclosure of interest rates by requiring firms to display essential information in a summary box at the point of sale and alongside account balance in all customer communication. Also, the reform necessitates banks to offer services for quick switching to a better account provided by the same bank.
UNFAIR PRACTICES & DECEPTIVE ADVERTISING
- A high proportion of countries have regulations in place to prohibit deceptive advertising, unjust selling practices, abusive collection practices, and unauthorized use of client data or breach of client confidentiality.
- 94.9% of high-income countries and 92.3% of developing countries have laws that restrict deceptive advertising.
- 92.3% of high-income and 82.7% of developing countries have laws to prevent unfair or high-pressure selling practices.
- 76.9% of high-income and 63.5% of developing countries have requirements against abusive collection practices.
- Finally, laws against unauthorized use of client data or breach of client confidentiality are present in 89.7% of high-income countries and 96.1% of developing countries.
- In particular, China introduced a regulation requiring banks to make audio and video recordings of the sale of wealth management products offering higher returns than a basic savings account.
- Limits to withdrawal: In the US, Reserve Requirements for Depository Institutions (12 C.F.R. 204, Regulation D) limits high yield savings account holders to a maximum of six online and telephone withdrawals or debits per monthly statement cycle. Any excess over the defined limit may result in a penalty by the deposit-holding bank.
- Regulating minimum rates of return: In China, the People's Bank of China (PBOC) continues to tighten reigns on structured deposits that offer higher returns on deposits. As a consequence, in 2020, PBOC decided to include interest rates on structures deposits in the macro-prudential assessment system.
To identify the regulatory and legal trends in the high-end savings segment, we searched for global reports that capture changes in the regulatory environment in the last decade; media articles that highlight recent changes, if any; and finally, government websites that publish regulations. The team found that most countries had similar rules for all savings products, i.e., there were no distinct laws to govern high-end savings products. There was no direct evidence of how regulations have changed over the past 5 - 10 years.