Local banks revamp procedures to comply with feds' new rules.

Los Angeles-based banks are spending millions of dollars to meet tougher new disclosure requirements required under the so-called Truth-in-Savings regulations, which are scheduled to kick in June 21.

Those new rules, stipulated under the Federal Deposit Insurance Corp. Improvement Act of 1991, require banks operating in the United States to give full disclosure of all fees, variability of rates, minimum deposits and minimum balances.

To comply, most banks must change their accounting and data-processing methods. The rules also set specific standards for advertisements, according to regulators.

Originally, banks were to have complied with the new Truth-in-Savings regulations by March 21. But in September 1992, Congress extended that mandatory compliance date to June 21.

Supporters of Truth-in-Savings said the new regulations will give depositors a more accurate picture of the interest being earned and administrative fees being charged. But some bank officials and banking industry associations called the provisions of Truth-In Savings excessive and unwarranted.

"This (regulation) is absolutely crazy," said Chris Chenoweth, spokesman and general counsel to the San Francisco-based California Bankers Association. "The concept to give account-holders more detailed information is good; but the act requires so much reporting and paper work that it will just confuse most account-holders, drive up the cost of doing business (for banks) and, as a result, drive down the interest rates the banks will pay on deposits."

Officials at First Interstate Bancorp, the $50 billion-in-assets Los Angeles-based bank, said the institution will spend more than $2.75 million meeting the June 21 deadline.

"We are in the process of standardizing our 50 different computer systems in the 13 states where we have branches. Now we have to spend money to modify all this computer equipment that will be replaced in another year," said Kathleen Hext, First Interstate's senior vice president and compliance officer.

Hext added it will take 10,000 hours of training, about one hour per employee, to teach the bank's staff how to prepare the new savings statements.

Robert Mulford, general counsel to the Federal Reserve Bank of San Francisco, said "Some of the banks are crying wolf about how much it (Truth-in-Savings) will cost and inconvenience them."

Some provisions of the rules will be particularly helpful to depositors, Mulford said. For example, under the new regulations, if a customer sees an error in the interest rate offered by a bank in an ad, the depositor can file suit against the bank.

Another provision requires banks to pay interest on an account's average daily balance, rather than its lowest daily balance, Mulford added.

"We will take a lot closer look at 'free checking' claims by banks.," Mulford said. He claimed many banks have historically advertised "free checking" and then, in small letters somewhere in the ad, snuck in the proviso, "with minimum balance." The new rules prohibits such deception, Mulford said.

Banks that do not follow the new rules can be fined up to $5,000 per day for each account not in compliance. "But as a practical matter, we are not going to do that. Our examiners will come in and show banks how to comply," Mulford said.

Truth-in-Savings compliance will be particularly harmful to smaller banks, said Gordon Lejeune, senior vice president and manager of community re-investment and compliance for $4 billion-in-assets City National Corp.

"In our case, we will pay for the added cost of operations by slightly lowering interest on deposits and slightly increasing interest on loans," Lejeune said.

Imperial Bancorp Senior Vice President and General Counsel Richard Baker said Imperial retains Little Rock, Ark.-based Systematics to handle its data processing. Imperial has $3.5 billion in assets and serves mainly business clients.

"We still haven't figured out our program for compliance. The cost will be significant, especially when compared to the corresponding benefit," Baker said.

The main logistical differences Truth-in-Savings requires is that banks must now quote annual percentage yields instead of annual percentage rates, and banks must notify depositors of any changes in rates. The changes, while relatively minor, are substantial enough to require banks to revamp their bookkeeping methods and statement forms, Baker said.

Edgar Savannah, senior vice president of operations and administration for $1.1 billion-in-assets First Los Angeles Bank, said he is just starting to look into creating a compliance program. He said he does not know how long it will take or how much money it will cost to meet the new Truth-in-Savings requirements.