Compliance Tips for Advertising and Marketing Deposit Products
By Blair Rugh, Executive Director, Kirchman Regulatory Service
Fortunately the AFLAC duck is not a banker. If it was, it would have to expand its vocabulary to include APY and APR. All advertising falls within the Federal Trade Commission's rule prohibiting deceptive acts or practices. That basically requires that what you say in your advertisement is true. For most industries and ducks the advertising rules stop there. For banks, however, there is a web of additional rules and regulations that must be followed. This article describes the rules for advertising deposit products.
First, let's define just what an advertisement is. Generally it is defined as a notice designed to attract public attention or patronage or promote the availability of your services or products. Your radio and television ads are certainly advertisements as is a banner outside the bank. Your bank's logo on a shirt or on a baseball hat is also an advertisement. If you put a marketing message on your periodic statement, it becomes an advertisement. If you are putting your bank's name on something and it is costing the bank to do that, the likelihood is it is an advertisement.
Now for the rules. The first rule is that the FDIC's advertising statement "Member FDIC" must be on every bank advertisement other than advertisements that are exclusively for a product or service that is not a deposit product. Any advertisement that mentions a deposit product or just advertises the existence of the bank in general must have "Member FDIC" on it. The better policy is to put the FDIC advertising statement on all bank advertising other than advertisements for nondeposit products such as mutual funds, insurance or annuities. There are limited dispensations from the requirement, primarily for situations where it is impractical to put the statement. Examples are radio and television ads of 30 seconds or less and promotional items on which the statement will not fit.
Now, to the heavy lifting. Regulation DD contains the rules for advertising consumer deposit accounts. If the account that you are advertising is a commercial account these rules do not apply. For advertising commercial accounts, the only requirement is that what you say is accurate and not misleading and that the Member FDIC advertising statement is on the advertisement. For the advertisement of consumer deposit accounts, however, there are several rules. First, an advertisement for a consumer deposit account may not refer to the account as "free" or "no-cost" or contain any similar term if a maintenance or activity fee may be imposed on the account under any circumstance. Generally that means that a fee will not be imposed on the account unless the customer violated some term of the account or requested some special service. Non-sufficient funds and overdraft fees do not count because the customer violated the terms of the account. Balance-inquiry fees, stop payment fees, account reconciliation fees and other similar fees do not count because the customer requested a special service. Check-printing fees are also excluded as a special service. Fees for electronic access to an account, such as ATM fees or home banking service fees are also excluded as special services if the electronic access is not required to obtain the account. Fees that are included are monthly maintenance charges, which may or may not be conditional, such as a fee that is imposed if a minimum monthly balance is not maintained. Also included are service charges or transaction charges such as a $.10 charge per check or a $.25 charge per withdrawal in excess of three per month.
That said, a bank may advertise a specific account service as free provided that the ad does not imply that the account is free. For example, a bank could advertise "Free internet banking with our gold checking account." If an account is free for a limited time, it may be advertised as such provided that the time period is stated. Finally, a bank may advertise an account as free if the freeness, so to speak, is conditioned on something not related to the account. For example, a bank could advertise an account as free for persons over 55 years old. The fact that I am or am not 55 years old has nothing to do with the account.
The next rule is that the advertisement may not use the word "profit" in referring to interest earned or paid on the account. With those rules in mind, a deposit advertisement may contain any information about an account that a bank wishes to include and may ignore any information that a bank withes to exclude provided that the advertisement does not state a rate of return, that is an interest rate or an annual percentage yield, or a bonus.
If an advertisement states a rate of return, it must state it as the "annual percentage yield" using that term. The advertisement may use the acronym "APY" next to the rate, provided that at least once in the ad the words annual percentage yield are used. If an advertisement states the APY it may also state the interest rate provided that the interest rate is not more prominent in the advertisement than the APY. If the account is a tiered-rate account, that is an account where the interest rate and annual percentage yield are different for different balances, if an annual percentage yield is stated for any tier, the advertisement must state the annual percentage yield and the corresponding minimum balance requirements for every tier in the account in conjunction with the tier.
In compliance parlance, the statement of the annual percentage yield in an advertisement is called a triggering term. That means its use "triggers" the disclosure of other terms of the account. First, if the account is a variable rate account there must be a statement that the rate may change after the account is opened. There must be a statement that the advertised rate is effective as of a certain date or will be effective until a specified date. If a maintenance or service fee may be imposed on the account then there must be a statement, "Fees may reduce the earnings on the account." If there is a minimum balance requirement to earn the annual percentage yield it must be stated, and if there is a minimum deposit required to open the account, and it is higher than the minimum balance requirement to earn the annual percentage yield, then it must be stated also. If the account is a time deposit, the term of the deposit must be stated and there must be a statement that a penalty may be imposed for early withdrawal. All of the disclosures that I have discussed in this paragraph can be put in the "mouse print" at the bottom of the ad. There is no requirement for their relative prominence; however they should be in a type size that is legible.
Now, all of that said, if the advertisement is made through a broadcast media such as television or radio, or if the advertisement is on a billboard or a telephone response machine then the only required additional statements, if the annual percentage yield is stated, are the fact that the rate is a variable rate (if that is the case), the minimum balance required to obtain the annual percentage yield, and if the deposit is a time deposit, the term of the deposit.
The final advertising rule regards bonuses. For Regulation DD purposes a bonus is anything given to a customer for opening, maintaining, renewing or increasing an account that has a value greater than $10 and is not a bank service and does not require the recipient to spend money to take advantage of the bonus. If a bank offers a free safe deposit box or free checks or a reduced interest rate on loans or waived fees for cashier's checks, those are all bank services and do not constitute a bonus regardless of their value. Also, a discount coupon at a merchant that requires the customer to purchase something from the merchant to take advantage of the discount would not constitute a bonus. On the other hand when a customer opens an account if he or she will receive merchandise valued at more than $10 or cash or a deposit to his or her account in an amount of more than $10 then that is a bonus. If a bonus is merchandise, its value is what the bank paid for it (including taxes, shipping and handling.) If an advertisement states a bonus then the advertisement must also state what the bonus is (i.e., merchandise valued at $15), what the customer must do to earn the bonus and when the bonus will be paid. Also if a bonus is advertised the annual percentage yield must also be stated, and that requires the disclosures triggered by the statement of the annual percentage yield.
Just using the word "bonus" in an advertisement in and of itself does not trigger anything unless what you are advertising really is a bonus under the Regulation DD definition. So if an advertisement states "Open an account and get a bonus" and what the customer gets is a $3 coffee mug, that would not trigger any of the bonus triggered terms. Likewise an advertisement that offers "bonus rates" is not an advertisement of a bonus.
One final thing that I recommend to all bank advertising and marketing people is get the bank's compliance person involved early in the advertising and marketing creative process. That can save a lot of embarrassment when at the last minute it is discovered an advertisement can't be run because of compliance problems. It can also save money when brochures are printed that have compliance errors that could have been easily corrected.
Metavante Regulatory Services (formerly Kirchman Regulatory Service)
Metavante Regulatory Services (formerly Kirchman Regulatory Service) has been the leader in banking compliance for over 15 years, and currently holds a strong presence in the industry today by providing comprehensive, timely and accurate advice to thousands of banks and financial institutions. Offerings include seminars and workshops throughout the country, custom presentations and speaking engagements, training media, web conferences, telephone consulting, “Regulatory Advisory Notice” e-mails, and the Regulatory Compliance Manual, the industry’s leading source for compliance information available both on the Metavante Regulatory Services website and Westlaw. Metavante Regulatory Services Premium Membership provides a full range of compliance services deigned to work together to support and provide your staff with complete up-to-date information on all the federal laws and regulations, and more importantly is the most efficient way to comply with them. To learn more about the products and services offered by Metavante Regulatory Services, call (800) 547-2462 or e-mail us at compliance@kirchman.com and visit us on the web at www.kirchman.com.
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