One of my favorite parts of my job is reviewing ads for clients to ensure that they are in compliance. In reviewing hundreds of ads every month, I’ve noticed a few common mistakes. Today, I will address a few of the more common mistakes I see in ads for deposit products and services. Upcoming in a later article, I will address some common mistakes we see in loan ads.
If an ad for a consumer deposit states a rate, it must be stated as an annual percentage yield. The term “APY” may be used if the phrase, “annual percentage yield” is used at least once in the ad, including in the footnotes/mouseprint. An interest rate may be stated if it is used in conjunction with the APY to which it relates; no other rate of return may be used.
We will often see a simple interest rate disclosed but not an APY; this is especially true in ads for tiered-rate accounts. If you state an APY for a tiered-rate account, you must state the APY for each tier and state the minimum balance for each tier with equal prominence and in close proximity to the corresponding APY. Now, you may highlight one APY in the body of the ad and state the other APYs in the footnotes as long as each APY is stated and the minimum balance is stated with equal prominence and in close proximity to the APY to which it corresponds.
Another common mistake we see with tiered-rate accounts is how the APY is stated on accounts that use tiering method B. Method B is where interest is paid on the balance amount within each tier instead of being paid on the full balance based on the tier in which the total balance falls. Because you do not know how much a consumer will have in their account and the APY they will earn will vary depending on the account balance, you will need to disclose an APY range for each tier (except the bottom tier) determined by calculating the APY for the minimum and maximum balances within each tier. We often see ads that include only the interest rate for each tier and then the APY for one tier, usually tier with the highest APY. Or, we will see ads where the APY for each tier will be determined individually, without regard to the balance in other tiers.
Ads for variable-rate consumer deposits must include a statement the rate may change after the account is opened. For ads where there is a fixed-rate promotional period, the ad may state that the rate may change after the promotional period ends. We see many ads that state the “rate subject to change.” This is not sufficient; the regulation requires that you state the rate may change after consummation.
When stating an APY, you must round it to the nearest one-hundredth of a percent and round to two decimal places. The regulation provides that account disclosures may express an interest rate in more than two decimal places but it does not have a similar provision for advertisements. We often will see ads where the interest rate/APY is stated as a whole percent or one-tenth of one percent.
A “mistake” that we often see isn’t really described in any regulation but is instead based on regulator feedback. Examiners have indicated that when “free” is used to describe an account or account service, such as a debit card, and overdraft/returned item fees may apply, the ad should state that overdraft/returned item fees may apply.
We see many ads that indicate that there is a fee for excessive transactions. Ads that only indicate that there a fee for transactions in excess of Regulation D’s limits for savings deposits are misleading if the account is subject to account closure and/or suspension of transaction capability.
Another issue we often see is with the Member FDIC. Many ads are using the incorrect logo for the FDIC. The correct symbol, in 12 CFR § 328.3, is the portion of the FDIC’s Official Sign (the black and gold teller window sign/sticker) consisting of “FDIC” and the two lines of smaller type above and below “FDIC.” Essentially, that is everything to the right of the two curved lines and stars. If the two lines of text above and below the “FDIC” are indistinct and illegible, you may drop the two lines but the FDIC must be clearly legible. We see a lot of banks that use the FDIC’s business logo with the seal inside of the C. You can see both logos on the FDIC’s Rules and Regulations page. The wrong logo is in the blue banner at the top of the page and the correct logo is found in § 328.1.