We are often asked to review advertisements that contain bonuses. A bonus, under Truth in Savings (12 CFR 707), requires additional disclosures, so today we thought we would delve into the triggers and requirements.
WHAT IS A BONUS?
Truth in Savings defines bonus as “a premium, gift, award, or other consideration worth more than $10 (whether in the form of cash, credit, merchandise, or any equivalent) given or offered to a member during a year in exchange for opening, maintaining, or renewing an account, or increasing an account balance.” [12 CFR 707.2(e)]
Official Staff Interpretations gives examples of what is, and what is not, considered a bonus:
A bonus includes:
- A credit union offers $25 to potential members for becoming a member and opening an account. The $25 could be provided by check, cash, or direct deposit.
- A credit union offers a portable radio with a value of $20 to members and potential members for opening a share draft account.
A bonus would not include:
- A credit union offers $20 to any member if the member is responsible for encouraging a potential member to open an account. The $20 is not a bonus because the $20 is not paid to the individual opening the account.
- A credit union offers $25 to a member if the member can locate his name in the body of a newsletter.
- Statements like “bonus checking” or “get a bonus when you open a checking account.”
Along these guidelines, loans offering cash back would not be considered a bonus as it does not relate to opening maintaining or renewing a deposit account.
WHAT DISCLOSURES ARE TRIGGERED IF I INCLUDE A BONUS IN MY ADVERTISEMENT?
If a bonus is included in an advertisement, the advertisement must also state the following information, to the extent applicable, clearly and conspicuously (707.8(d)):
- The “annual percentage yield,” using that term;
- The time requirements to obtain the bonus;
- The minimum balance required to obtain the bonus;
- The minimum balance required to open the account, if it is greater than the minimum balance necessary to obtain the bonus; and
- When the bonus will be provided.
Yes! Including the APY in an advertisement, as required by the bonus disclosures, triggers additional disclosures. 707.8(c) requires that when an APY is stated in an advertisement, the advertisement must also include, to the extent applicable, clearly and conspicuously:
- For variable-rate accounts, a statement that the rate may change after the account is opened.
- For interest-bearing accounts and dividend-bearing term share accounts, the period of time the annual percentage yield will be offered, or a statement that the annual percentage yield is accurate as of a specified date. For dividend-bearing accounts other than term share accounts, a statement that the annual percentage yield is accurate as of the last dividend declaration date. In the event that disclosure of an annual percentage yield as of the last dividend declaration date might be inaccurate because of known or contemplated dividend rate changes, the credit union may disclose the prospective annual percentage yield. Such prospective annual percentage yield may be disclosed either in lieu of, or in addition to, the dividend rate and annual percentage yield as of the last dividend declaration date.
- The minimum balance required to earn the advertised annual percentage yield. For tiered-rate accounts, the minimum balance required for each tier shall be stated in close proximity and with equal prominence to the applicable annual percentage yield.
- The minimum deposit required to open the account, if it is greater than the minimum balance necessary to earn the advertised annual percentage yield.
- A statement that fees could reduce the earnings on the account.
- The time requirements, early withdrawal penalties and required dividend payouts for term share accounts.
ARE THERE ANY EXCEPTIONS?
Yes, if a bonus is being paid to open an account that doesn’t pay dividends or interest, the APY would not have to be disclosed. Official Interpretation to section 707.3 clarifies that the credit union is not required to disclose terms that are not applicable, providing the example of “disclosures for a non-dividend-bearing account would not include disclosure of annual percentage yield.” If the account being advertised does not have an APY, the regulation does not require the credit union to disclose a 0% APY on the advertisement, because it would not be applicable. If no APY is stated an advertisement, the credit union is not required to include the triggered disclosure information required under section 707.8(c).
There may be partial disclosure exceptions for television or radio ads (707.8(e)(1)), indoor signs (707.8(e)(2), and newsletters (707.8(e)(3)). These should be reviewed to ensure that all the required disclosures are included for the specific media type.
Remember, Truth in Savings does not provide for “one click away” disclosures like Regulation Z has for specific disclosures. All of the required disclosures should be included on the advertisement to be in compliance with TIS requirements.
ARE THERE ADDITIONAL DISCLOSURES REQUIRED?
Yes, remember that whenever the credit union is advertising a deposit account, it must include the official advertising statement, such as “Federally insured by NCUA.” [12 CFR 740.5]
WHAT DO I DO IF I STILL HAVE QUESTIONS?
This is a summary of advertising bonuses. Credit unions should always refer to 12 CFR 707.8 for full advertising disclosure requirements.
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