By Hannah F. G. Singerman, Esq.
“Regulation DD” of the Truth in Savings Act is issued by the board of governors of the Federal Reserve. 12 U.S.C. section 4311 excludes credit unions from regulation under Regulation DD, however, the National Credit Union Administration under 12 CFR 707 enacted substantially similar standards for credit unions also under the Truth in Savings Act. NCUA recently updated 12 CFR Part 707, effective January 1, 2010.
Both Regulation DD and 12 CFR 707 regulate certain advertising activities by depository institutions. For credit unions, 12 CFR 707.8 governs advertising. Under that rule, advertising must not be misleading or inaccurate, describe an account as free if there is a maintenance fee associated with it or use the word profit when referring to dividends or interest on an account. Rates on return must be stated as annual percentage yield (“APY”).
Additionally, several other disclosures are required under the rule. The disclosures, though slightly different depending on the account advertised typically include fees, minimums (balances and amounts needed to obtain special features), APY, and timing rules. Specifically, disclosures include variable rates, time annual percentage yield is offered, the minimum balance required to earn the annual percentage yield, the minimum opening deposit, and effect of fees on the account, i.e. that such would reduce earnings. Term share accounts most disclosure certain features including time requirements, early withdrawal penalties, and required dividend payouts. Further, if an advertisements discusses a bonus, the bonus must include the APY, the time requirements to obtain the bonus, the minimum balance required to obtain the bonus, the minimum required to open the account, and the timing for the bonus.
Advertisements which include payment of overdrafts are also regulated by 12 CFR 707.11.
The most important section of the regulation is the section regarding what advertisements are exempt from the disclosure requirements. There are three categories of advertisements that have the greatest number of exemptions, television or radio, outdoor media such as billboards, or telephone response machines. Signs inside the premises of credit unions also are exempt from certain requirements, provided the APY is used and that such signs tell members to contact the credit union for more details. Credit Union newsletter advertisements also are exempt from a great deal of the disclosures provided that the fees and APY are disclosed.
Interestingly, electronic media, specifically, internet advertisements are not treated the same as television or radio advertisements under the comments to the regulation. The disclosures are mandatory for such advertisements. However, one has to wonder if such applies to advertisements accompanying television or radio programs broadcast on the internet such as radio podcasts, YouTube, or Hulu, for example. The technical language of the rules discusses advertisements “posted” on the internet. Is there a difference between advertisements broadcast on the internet and if such a difference exists, is a Twitter “broadcast” more similar to a YouTube broadcast of a “post” to a blog or a Facebook Fan page? As more and more of our media is watched from computers, iPhones, Blackberries or other media devices, is the distinction between the different types of media so clear and which rules will apply? These are questions with answer that are unclear from the current relations despite their late dates and need to be explored.
The most conservative practice in an uncertain environment would be to follow the regulations without the exemptions for every single advertisement made, especially as things can be broadcast on the internet without one’s permission. Such a conservative approach would most likely cost more initially but may save legal fees involving questions and unresolved issues in the law itself. Internet advertisement is not something to opt out of all together as it is so crucial to today’s market place, a conservative regulatory approach to it however may be a best practice. Nevertheless, more attention needs to be brought to new media and technology so that the guidelines will be better defined. Such should be an important step for the regulators so that the technology does not out-pace them.
Hannah F.G. Singerman is an associate practicing in Commercial Collections, is a member of the Commercial Banking, Commercial Business, Special Collections and Commercial/Agency Services Groups, and is based in the Cleveland office of Weltman, Weinberg & Reis Co., LPA. She can be reached at 216.685.1162 or firstname.lastname@example.org.