Written by André B. Cotten, Regulatory Compliance Counsel
Greetings, compliance comrades! As we head towards the start of a new year, we have noticed an uptick in advertising related questions. Before we get into the details of the advertising requirements, it is useful to remember that the type of products or services and the definition of terms have impact on the scope of regulatory requirements.
In regards to the Truth in Savings Act, an advertisement is defined by section 707.2 as a commercial message that appears in any medium and that promotes directly or indirectly the availability of, or a deposit in, a share account. This is a very broad definition. However, the official commentary provides additional guidance.
Similarly, a key to understanding Regulation Z’s advertising rule is determining which rules apply to your proposed advertisement. Regulation Z has different rules depending on whether the product is open-end or closed-end. There are also special regulatory provisions for HELOCs and promotion rate advertisements. In order to know which rules apply you will need to determine what product you are advertising.
This blog covers some of the more frequently asked questions on advertisements.
If a credit union offers deferred interest on credit cards for an introductory period, should it be concerned about advertising requirements under Regulation Z?
Regulation Z contains advertising requirements specific to deferred interest programs. The term deferred interest is defined as “finance charges, accrued on balances or transactions, that a consumer is not obligated to pay or that will be waived or refunded to a consumer if those balances or transactions are paid in full by a specified date.” See, 12 C.F.R. § 1026.16(h)(2). If a deferred interest offer is advertised for a credit card (or other non-home-secured open-end loan), Regulation Z requires the credit union to state the deferred interest period in a clear and conspicuous manner in the advertisement, and include information about the terms that would apply when the transaction is not paid in full within the deferred interest period or if the account is in default before the end of the deferred interest period. These disclosures must be stated in a prominent location closely proximate to the first statement of “no interest,” “no payments,” “deferred interest,” “same as cash” or similar term. The language must be similar to that provided in Sample G-24 in Appendix G to Regulation Z.
Are there different requirements for advertisements that are inside the credit union, versus those that exist outside of a branch?
Truth in Savings has some different requirements for advertisements in these situations, but Regulation Z does not. Truth in Savings carves out advertisement-related exceptions for certain types of advertisements. Specifically, the regulation eases advertising requirements for broadcast or electronic media such as TV or radio (but not credit union websites), outdoor media (such as billboards), telephone response machines, and signs inside the premises of a credit union. See, 12 C.F.R. § 707.8(e).
Regulation Z regulates advertisements for both open and closed-end loans. See, 12 C.F.R. §§ 1026.16, 1026.24. If a credit union plans to advertise its loan products, it must comply with all of Regulation Z’s requirements regardless of whether the advertisement is placed inside or outside of the branch. However, the staff commentary does have alternative disclosure options for radio and television ads set forth in sections 1026.16(e) and 1026.24(g).
Must the credit union obtain its members’ consent under Truth in Savings or Regulation Z before delivering its advertising materials through email?
The advertising requirements of Truth in Savings (TISA) and Truth in Lending Acts (TILA) may be implicated when sending email advertisements, but credit unions do not need member consent to send email advertisements under these statutes/regulations. However, the requirements of the CAN-SPAM Act, which applies to unsolicited commercial emails, may also be triggered. CAN-SPAM generally requires unsolicited commercial ads to be labeled as an advertisement or solicitation and to include opt-out instructions along with the sender’s physical and electronic address. NCUA Regulatory Alert 04-RA-07 provides guidance on complying with CAN-SPAM. The FTC also has a document on CAN-SPAM compliance available on its website
If a “trigger term” is stated in the negative, is the credit union required to provide the additional advertising disclosures?
Under Regulation Z, “trigger terms” do require additional advertising disclosures when stated in the negative, or even when not stated explicitly, but readily implied. See, 12 C.F.R. Part 1026, Supp. I, comments 1026.16(b)(1)-1 and -2. For instance, if a credit union states its credit card had “no annual fee” is a statement of the term, this would trigger the additional disclosures. See, 12 C.F.R. § 1026.16(b)(1). Similarly, if the credit union were to claim “we will not charge you an annual fee” – the additional disclosures are still required as this statement is the same as stating “no annual fee.”
Given the differences between the rules for open-end and closed-end loans, how could a credit union convert an advertisement if a product is converted?
There are separate advertising requirements for open-end and closed-end loans in Regulation Z. The advertising requirements for open-end loans are found in 12 C.F.R. § 1026.16 and the requirements for closed-end loans are found in 12 C.F.R. § 1026.24. Unfortunately, there is no shortcut to converting open-end marketing pieces into compliant closed-end advertisements. A credit union would need to review the closed-end advertising rules and make sure its advertising includes all the necessary disclosures. The staff commentary to section 1026.24 contains additional details on the requirements.
Advertising compliance is the result of having a strong compliance management system that includes effective policies, procedures, education and communication about the applicable regulatory requirements. The advertising rules pursuant to the Truth in Savings Act and Regulation Z both generally prohibit commercial messages that are misleading, inaccurate or misrepresent a credit union’s deposit accounts or loan products.
Credit unions that fail to comply with the advertising rules also run the risk of potential UDAAP issues. The following three prongs are used to determine if an act or practice is “deceptive”: 1) it causes or is likely to cause substantial injury to consumers; 2) the injury is not reasonably avoidable by consumers; and 3) the injury is not outweighed by countervailing benefits to consumers or to competition. A “substantial injury” typically takes the form of monetary harm because of an unfair act or practice.
Also keep in mind that NCUA has an overarching advertising rule in Part 740 that prohibits all federally-insured credit unions from using any advertising that is “inaccurate or deceptive in any particular, or which in any way misrepresents its services, contracts, or financial condition…” Overall, clear and conspicuous advertisements and oversight of advertising materials can minimize potential confusion and complaints, fosters good member relations, and help reduce credit, legal, and other risks to the institution.
NAFCU will be closed Friday, December 23rd and Monday, December 26th for the Christmas Holidays.
The Regulatory Compliance Team really enjoyed the photo booth last week at NAFCU’s Annual Holiday Party!