Free Second-chance Account Marketing

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Question:

My bank offers a "second chance" checking account to consumers who have had accounts closed at other banks with charge-offs reported to a credit reporting agency. The accounts are free of maintenance and activity fees, and are covered by our overdraft payment program after sixty days if the consumer opts into it. The overdraft fees for the second chance account are $5 higher than for other checking account customers. If we don't mention our overdraft payment program in our marketing materials for these accounts, can we refer to the accounts as free?

Answer:

If the only thing you needed to be concerned about is compliance with Regulation DD's advertising requirements, you could probably get away with marketing these accounts as free, as long as you don't charge maintenance or activity fees.However, recent regulator actions, including the OTS's April 2010 proposal for Supplemental Guidance on Overdraft Protection Programs, the FDIC's issuance of FIL-47-2010, and significant enforcement actions by the OTS and the OCC, raise the bar on marketing compliance with a combination of "supervisory expectations" (FDIC) and "unfair or deceptive acts or practices" concerns (OTS and OCC), particularly with institutions that market as "free" a deposit account that's targeted at consumers with prior history of deposit account management problems without clearly describing the adverse account feature presented by the potential for substantial overdraft fee costs. The fact that your program would impose an even higher cost for overdrafts for this free account would probably make it a more significant target for regulatory attention unless your overdraft fee practices are clearly and transparently presented in the marketing of the account.

For my perspective, simply removing any reference to free won't resolve the problem for you. You will still need to provide a balanced marketing program that discloses your overdraft program's fees and, under Regulation DD (which is pulled back in when you mention the overdraft payment program), the other three aspects of the program required by Section 230.11(b) in each piece of advertising.

First published on BankersOnline.com 11/01/10