Using The Word "Free" In Advertising
by Mary Beth Guard, BOL Guru
Question: Our marketing folks want to place an advertisement that would offer employees of companies that obtain a commercial loan free checking with direct deposit. In other words, with direct deposit, the checking account would be free. Would this violate 230.8(a), or could it be interpreted to fall within the exception noted in the Reg DD Commentary for conditions not related to deposit accounts?
Answer:Reg DD Section 230.8 prohibits false or misleading advertising and places certain restrictions on the use of the word "free" in advertisements for deposit accounts. Generally, an account may be advertised as free if no maintenance or activity fee will be imposed in connection with the account. The Reg DD Commentary to Section 230.8 (the advertising section of the regulation) states, in pertinent part:
6. Specific account services. Institutions may advertise a specific
account service or feature as free if no fee is imposed for that service
or feature. For example, institutions offering an account that is free
of deposit or withdrawal fees could advertise that fact, as long as the
advertisement does not mislead consumers by implying that the account is
free and that no other fee (a monthly service fee, for example) may be
charged.
7. Free for limited time. If an account (or a specific account
service) is free only for a limited period of time--for example, for one
year following the account opening--the account (or service) may be
advertised as free if the time period is also stated.
8. Conditions not related to deposit accounts. Institutions may
advertise accounts as ``free'' for consumers meeting conditions not
related to deposit accounts, such as the consumer's age. For example,
institutions may advertise a NOW account as ``free for persons over 65
years old,'' even though a maintenance or activity fee is assessed on
accounts held by consumers 65 or younger.
It appears that you are not going to charge a maintenance or activity fee, and the period of time for which the account would be free is not limited. There are two conditions for obtaining the free account, however. 1) the consumer must be an employee of a company that has obtained a commercial loan from your institution; and 2) the customer must agree to direct deposit. These two factors would make this difficult to advertise as a "free" account. It would be hard to argue that the free nature of the account is tied to a condition that is unrelated to deposit accounts.
Rather than promoting this as a "free" account, I would urge you to instead consider advertising it as "No monthly service charge if your company has a commercial loan with us and you use direct deposit for your paychecks." Although your marketing department could undoubtedly word it more artfully, a description of this sort avoids a potential violation of the provisions relating to calling an account free and it makes the conditions clear to the consumer.
One more thing to think about - At what point is the commercial loan relevant? Is the service charge on employee accounts waived for any employee who opens an account while a commercial loan is outstanding to the employer? Or is the service charge waived only during that period when the employer has a loan, so that an account could start out having no service charge, but face a change beginning when the employer's loan is repaid or charged off? Make your decision about how you'll handle it, and disclose it clearly.
The original version appeared in the January/February 2003 edition of the Oklahoma Bankers Association Compliance Informer.
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