WordPress.com - Iowa Bankers Association 1 · 2016-03-15 · Balances greater than $250,000 do not earn interest on amount over $250,000. 2 Indexed rates as of 8/1/2015; highest tier

Regulatory Compliance Update 3/15/2016

Iowa Bankers Association 1



Let’s take a moment to define what an “advertisement” is. An advertisement is any commercial message in any medium that promotes, directly or indirectly, a financial institution’s products or services. However, each regulation has it’s own definition of what constitutes an advertisement for the purposes of its own compliance requirements.

An internet website is considered by regulatory agencies to be an advertisement. And don’t forget social media. While much of social media (such as Facebook, Twitter, U-Tube, etc.) fall outside a bank’s website, the chat feature within a website would be considered social media and care should be taken on what is communicated during a chat session.



Let’s talk a bit more about social media. Social media is considered to be a form of interactive online communication in which users can generate and share content through text, images, audio and/or video. Social media can take many forms, including, but not limited to, micro-blogging sites (e.g., Facebook, Google Plus, and Twitter); forums, blogs, customer review web sites and bulletin boards (such as Yelp); photo and video sites (e.g., YouTube); professional networking sites like LinkedIn; and social games (e.g., FarmVille and CityVille). Social media can be distinguished from other online media in that the communication tends to be more interactive.

The FFIEC clarified messages sent via traditional email or text message do not constitute social media, although such communications may be subject to a number of laws and regulations.

Businesses use social media in a variety of ways and for various purposes. Most businesses started using social media venues to promote their involvement in community events and community promotions in general. Most then moved on to use social media as tool to promote products and services, to provide incentives to get customers to use the product or service, solicit new business through online account applications, to invite feedback from the public and for engaging with existing customers, for example by receiving and responding to complaints or



providing investment options.



To the extent that an financial institution uses social media to engage in lending, deposit services or payment activities, it must comply with the same applicable laws and regulations as when it engages in these activities through other media such as radio, print ads, websites, or direct mail. While the FFIEC guidance document does not provide specific examples of what would and would not be permitted with regard to common types of social media use, it does provide a helpful summary of the applicable laws and regulations institutions must comply with when advertising, transacting or otherwise communicating with consumers in any medium..



Use of official statement in advertising: Include In all advertisements that either:Promote deposit products and services, orPromote-non-specific banking products and services offered by the

bank

Exceptions. Types of ads that do not require the official advertising statement:Statements of condition (call reports);

Supplies such as stationery (except when used for marketing purposes), envelopes, deposit slips, checks, drafts, signature cards, deposit passbooks, certificates of deposit, etc.;

Signs or plates in the insured depository institution offices or attached to the buildings in which such offices are located;Listings in directories;

Advertisements not setting forth the name of the depository institution;

Entries in a depository institution directory, provided the name of the insured depository institution is listed on any page in the directory with a symbol or other descriptive matter indicating it is a member of the Federal Deposit Insurance Corporation.

Joint or group advertisements of depository institution services where the names of insured depository institutions and noninsured institutions are listed and form a part of such advertisements;



Advertisements by radio or television, other than display advertisements, which do not exceed thirty (30) seconds in time;

Advertisements which are of the type or character that make it impractical to include the official advertising statement, including, but not limited to, promotional items such as calendars, matchbooks, pens, pencils, and key chains; and

Advertisements which contain a statement to the effect that the depository institution is a member of the FDIC, or that the depository institution is insured by the FDIC, or that its deposits or depositors are insured by the FDIC to at least $250,000 for each depositor.

Reg. DD does not exclude any type of advertisement from disclosure requirements, but reduces the required elements for advertising via:Broadcast or electronic media, such as television or radio; Outdoor media, such as billboards; and Telephone response machines. NOTE: websites are not in this list.



Not really anything new here. In general, ad must be clearly understood and include enough information for the customer to make an informed decision. Features must actually be available to the general public. Don’t include benefits that are rarely if ever received. If there are limitation, don’t bury them in the fine print. Clear and Prominent means less asterisks and footnotes.



FTC issued guidance indicates if you use the term preapproved – 80 – 90% of the recipients should qualify.

When using “as high as” or “as low as” – at least 50% should receive that rate. Important to document and monitor.

Document claims – how arrived at statement.

Don’t mix messages!



Monitor Complaints – especially those that claim false statements, incomplete information, fees that aren’t disclosed or are excessive. Also check for high product cancellation rates, low enrollment or usage (be careful to automatically enroll people – may be charged a fee without receiving the benefit). Also check for early payoffs or cancellation – may indicate dissatisfaction.



















Misleading or inaccurate statements. Any advertisement, regardless of the medium, must be true and accurate in content. Ads must never misrepresent the bank’s deposit contract. In addition, ads may not contain the terms “free” or “no cost” or other similar terms (such as “fees waived”) if any maintenance or activity fee may be charged to the account.

Banks may always advertise specific account services as free if no fee will be charged for the service. For example, if the bank imposes no per-transaction fee for withdrawals, the ad could state “free withdrawals.” However, the ad must not further imply the account is free if a monthly service fee may be charged. Banks may also advertise accounts (or specific services) as free for a limited time, if the time period is also stated. Accounts may also be advertised as “free” for customers meeting certain conditions not related to the deposit account, such as the customer’s age. For example, banks may advertise an account as “free for age 62 and over” or “free with direct deposit of payroll,” even though a maintenance or activity fee will be assessed on accounts held by customers not meeting the conditions.



Annual Percentage Yield (APY). Any ad containing the APY for an account triggers additional disclosures to be included in the ad. However, simple references to “rates” in an ad do not require the additional disclosures (so long as the rates are not determinable from the ad).

When the APY appears in the ad, add the statements on the screen. A statement that fees could reduce the earnings should be added if the account will be subject to maintenance or activity fees.



A “bonus” for Reg. DD means, “any 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 consumer during a year in exchange for opening, maintaining, renewing or increasing an account balance.” The term does not include interest, other consideration worth $10 or less given during a year, the waiver or reduction of a fee or the absorption of expenses.

There are no limitations on the fair market value of bonuses paid on interest-bearing accounts. However, there are limitations on the amount of bonuses that may be paid to non-interest-bearing accounts, as described in the FDIC interpretive rule (12 CFR 330.101):

Premiums, whether in the form of merchandise, credit or cash, can be given by a bank to the account holder if:

The premium is given to the depositor only at the time of the opening of a new account or an addition to an existing account;

No more than two premiums per deposit are given in any twelve-month interval; and



The value of the premium (the total cost to the bank, including shipping, warehousing, packaging and handling costs) does not exceed $10 for a deposit less than $5,000 or $20 for a deposit of $5,000 or more.

Any premium in any amount so long as the premium is not directly or indirectly related to, or dependent on, the balance in a demand deposit account and the duration of the account balance.





6 month introductory rate. 1.51% for $100,000.01 to $250,000, .75% for $50,000.01 - $100,000 and .50% for $25,000.01 to $50,000. footnote #4 – You’ll also enjoy multiple ways to avoid the monthly fee.

Small Print: 1 Annual Percentage Rate (APY) are accurate as of 8/1/2015 (NOTE This is a December Ad). $25,000 minimum to earn interest (Ad shows $25,000.01). Balances greater than $250,000 do not earn interest on amount over $250,000.

2 Indexed rates as of 8/1/2015; highest tier 0.57% (1 YR UST+30bps), middle tier 0.47% (1 Yr UST+20bps), lowest tier .37% (1 YR UST + 10bps).

4 $25 monthly service charge is waived if you enroll in estatements, maintain a minimum balance of $15,000 AND either have a business loan balance of $100,000 or more (based on ledger balance) or Maintain a Boost Checking or Emerald Analysis Checking Account.

Other issues: How long is this good for? New money only? Available to non-customers only (bank’s intent). Since has a maintenance fee – “Fees May Reduce Earnings”. If checking is so great, why need another to qualify? If it is for non-



customers, they can’t qualify as they don’t have the other accounts. Need to provide an example with a blended rate. Does entire balance earn the higher rate when balance increases? What type of balance, daily balance, average daily balance, month end balance, statement balance?





NOTE: Potential fair lending issues arise due to the mere placement of advertisements. By placing ads in publications in only one language when two or more are predominantly in use in the bank’s assessment area could be a violation. For example, in bilingual communities, if the bank advertises mortgage loans only in English-language newspaper(s), and ignores placing the ad in the local Spanish-language newspaper(s), the bank could be found to be illegally discriminating on the basis of national origin.



May not advertise specific installment payment or down payment unless bank is prepared to agree to those terms.

May not show a very low annual percentage rate that will not, in fact, be available from the bank at any time.

Advertisements MAY promote terms offered for a limited period or that will become available at a future date.

Disclosures must be “clear and conspicuous,” meaning legible and presented in a reasonably understandable form.

Advertisements consisting of a series of sequentially numbered pages qualify as “multiple page advertisements” requiring only a single set of disclosures provided in a table or chart. For webpages, this can be tricky as there is no specific guidance as to what is considered a “page”. Therefore, you should carefully review how advertisements are displayed on the computer screen to minimize compliance risk.



For loans and credit secured by a dwelling, “clear and conspicuous” means:

• In visual text advertisements, the required disclosures must appear with equal prominence and in close proximity to the advertised rates or payment triggering the required disclosures.

“Equal prominence and in close proximity” means: Same type size and located immediately next to or directly above or below the advertised rates or payment(s), without any intervening text or graphical displays (may not appear as a footnote).

This requirement applies to the rates or payments disclosed in the ad, and the amount of payment(s) over the term of the loan, and period of time for which each payment applies.

• In Internet advertisements, “clear and conspicuous” means that the required disclosures are not obscured by techniques such as graphical displays, shading, coloration, or other devices.

• In televised advertisements, visual text must not be obscured by techniques such as graphical displays, shading, coloration, or other devised, and must be displayed in a manner that allows a consumer to



read the information required to be disclosed.

• In oral advertisements, whether by radio, television, or other medium (e.g., on-hold phone messaging), the disclosures must be given at a speed and volume sufficient for a consumer to hear and comprehend them.



ADVERTISEMENT OF ANNUAL PERCENTAGE RATE: If an ad states a rate of finance charge, it must state the rate as an “annual percentage rate,” using that term or the abbreviation “APR.”

If the annual percentage rate may be increased after consummation, the ad must state that fact.

Ads for loans or credit NOT secured by a dwelling: The ad must not state any other rate, except that the ad may state a simple annual rate or periodic rate that is applied to an unpaid balance, but such rate must be stated in conjunction with and not more conspicuously than the annual percentage rate.

Ads for loans or credit secured by a dwelling: The ad must not state any other rate, except that the ad may state a simple annual rate that is applied to the unpaid balance in conjunction with, but not more conspicuously than, the annual percentage rate.



May not use the word “fixed” to refer to rates, payments or the credit transaction in an advertisement for a variable-rate transactions or other transactions where the payment will increase. (Certain exceptions detailed within the regulation at Section 1026.24(i)(1)(i).)

For any advertisement in any medium, including radio or television: May not compare a consumer’s actual or hypothetical current payments or rates and any payment that would apply if the consumer obtains the advertised loan UNLESS the advertisement includes:

A comparison to all applicable payments or rates for the advertised product that will occur over the term of the loan; and

A statement that the advertised payments do not include amounts for taxes and insurance, if applicable.

A comparison includes a claim about the amount a consumer may save under the advertised product. A statement such as “save $300 per month on a $300,000 loan” implies a comparison between the advertised product’s payment and a consumer’s current payment.



May not advertise a product as being endorsed or sponsored by a governmental entity, unless the ad is for an FHA, VA, or similar loan program that is so endorsed or sponsored.

May not mislead consumers in an advertisement that is not sent by or on behalf of the current lender by displaying the name of the consumer’s current lender in an ad, unless the ad also prominently discloses that it is not associated with the customer’s current lender.

May not claim that the advertised product will eliminate debt or result in a waiver or forgiveness of the consumer’s existing loan obligations with another creditor.

Cannot use such phrases as “Wipe out personal debt,” “New DEBT-FREE Payment,” “Set yourself free: get out of debt today,” “Refinance today and wipe your debt clean,” “Get yourself out of debt,” etc.

May not give the false impression that a broker or lender has a fiduciary relationship on behalf of the borrower by using the term “counselor” in the ad.

May not provide information about trigger terms or required disclosures only in a foreign language, but provide other trigger terms or required disclosures only in English.



Has Member FDIC and Equal Housing Lender. Issues: Fixed/adjustable rate –which is it? Since this is truly an ARM – now need to include total down payment required, repayment terms (# and amount of payment, amount of payments including balloon if applicable, the Blended APR and the fact that the rate may increase. Asterisk near APR – no asterisk in rest of ad. What are they trying to say?

*Annual Percentage Rate (APR) subject to change without notice and based on first lien for an owner-occupied, single-family residence, maximum combined loan to value of 85%, credit score of 720 or higher, direct deposit to bank checking account and automatic payments from THAT account. For a $100,000 loan at 3.95% APR, estimated monthly payments would be $XX.XX. Payments do not include amounts for taxes, insurance premiums and the actual total payment obligation may be greater. Subject to credit approval and program qualifications.



NOTE: With the exception of advertisements for home equity plans, an advertisement for open-end credit must state the credit term as a positive number in order to trigger disclosures. For example, “no annual membership fee” would not trigger the additional disclosures.

Examples of terms that trigger additional disclosures in open-end credit advertisements:

“12% APR.”

“Small monthly service charge on the remaining balance”

Examples of terms that do not trigger additional disclosures in open-end credit advertisements:

“Credit cards available.”

“Just say ‘charge it.’”

“Take some credit back to school.”



For ads stating discounted or premium rates:

If an ad states an initial rate that is not based on the index and margin used to make later rate adjustments in a variable-rate plan, the advertisement also must state with equal prominence and in close proximity to the initial rate:

The period of time the initial rate will be in effect; and

A reasonably current annual percentage rate that would have been in effect using the index and margin.

“Equal prominence and in close proximity” means:

Same type size and located immediately next to or directly above or below the promotional rate or payment to which it applies.



• Offer is effective 10/26/15 to 4/30/2016 and is based on a NEW home equity line of credit (HELOC) from <$5,000 - $200,000 with a maximum combined loan to value of 80%. Closing costs for equity lines are $75.00. There is an annual fee of $15.00 in Iowa and $35.00 in Illinois (property or person?). If all requirements are met, the introductory rate of 1.49% will be in effect for the first 6 months after your account is opened. Upon expiration of the introductory rate, interest rates will become variable with a maximum of 18% or as applicable by law. All balances will accure at Wall Street Journal Prime + .50% (WSJP) (currently 3.75%). Offer is subject to credit approval and property insurance is required. This offer is available only to owner-occupied, single-family residential property located in IA or IL. No purchase money lines allowed. There is no limit on advance taken at origination (not to exceed your credit amount). The bank must obtain a valid first or second lien position on the collateral. Offer subject to change without notice. Certain conditions and restrictions may apply. See a bank employee for complete details. Please consult your tax advisor regarding the deductibility of interest.

Additional thoughts: No statement that rate may vary. When is annual fee charged?



The CFPB joined the party by adding another A to UDAP. Under their definition, this includes Unfair, deceptive or abusive practices. Let’s break those down.

“UNFAIR” DEFINED: Causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. Likely to cause substantial injury (monetary harm) to even a small amount of harm to large number of people.

Not reasonably avoidable by consumers: Interferes with consumer’s ability to make decision. Subjects consumer to undue influence or coercion.

“DECEPTIVE” DEFINED: Representation, omission, or practice that misleads or is likely to mislead the consumer. Evaluated in context of the entire advertisement, transaction or course of dealing: Misleading cost or price claims and/or omitting material limitations or conditions from an offer.

Offering to provide product or service that is not in fact available. Earn up to 10% cash back when in fact the only time you would earn that is if you used your credit card to make a $1 purchase because maximum available cash back was $.10 per transaction.



ABUSIVE DEFINED: Any act that materially interferes with the consumer’s ability to understand the terms or conditions of the product/service or takes unreasonable advantage of the consumer’s lack of understanding, inability to protect their own interest and/or the reliance they have on the bank to act in their best interest.

Considered from perspective of the reasonable consumer. Be careful with targeted marketing – particularly to elderly or financial vulnerable/unsophisticated. Written disclosures must include qualifying limitations.



“BEST PRACTICES”

Fully and adequately disclose costs, qualifications and limitations of products and services – regulatory “clear and conspicuous” standard.

Describe when products and services are OPTIONAL. Fully and adequately disclose costs and benefits of optional or related products.

Avoid statements that consumers may pay less than minimum amounts due when such payment will result in late fees, over limit fees or other account fees.

Clearly disclose phone numbers and/or mailing addresses to which consumers may address complaints.

Conduct adequate risk management in selection of third-party vendors.

Review compensation arrangements to avoid unintended incentives to engage in unfair or deceptive practices.

Implement appropriate procedures to ensure consumer payments are credited in a timely manner.

May 2, 2013

2013 IBA Marketing Conference 34

Describe how monthly payments will be applied, for example, if first to fees, penalties or other charges before regular interest and principal amounts.

Ensure advertisements and disclosures are sensitive to the target market.

Provide adequate notice upon change in terms, including changes to past business practice.





Documents

WordPress.com - Iowa Bankers Association 1 · 2016-03-15 · Balances greater than $250,000 do not earn interest on amount over $250,000. 2 Indexed rates as of 8/1/2015; highest tier