By the Division of Banks

March 8, 2011

To the Chief Executive Officer of the Institution Addressed

I write to bring to your attention certain issues regarding the advertising of financial services products in Massachusetts by financial institutions. The Division of Banks (Division) works to ensure that the banks, credit unions and licensees it supervises conduct transactions with all Massachusetts consumers fairly. The Division monitors advertisements in the Commonwealth to ensure that consumers are provided with appropriate information to assist them in evaluating whether or not to enter into a loan, deposit or other transaction with a regulated entity. Our review also seeks to protect consumers through assuring compliance with applicable consumer protection laws and regulations whether state or federal. In the course of that monitoring, we have found issues with recent advertisements for various deposit accounts at financial institutions.

As the industry is well aware, the Truth-in-Savings law, applicable to both state-chartered and federally-chartered banks, contains advertising rules. The purpose of the law, as with its counterpart the Truth-in-Lending law, is to allow a consumer to make meaningful comparisons among institutions on similar products. In the Commonwealth, chapter 93A of the General laws also protects consumers from unfair and deceptive transactions.

The current low interest rate environment has been good for borrowers but harsh for depositors' savings accounts. It also is a difficult time for financial institutions. This is all the more reason that consumer savers should not be enticed into a deposit transaction by a misleading representation. In addition, a financial institution should not be subjected to competitors' advertisements that appear illusory. Two examples of such advertisements that caught our attention during the recent monitoring period are described below.

Example 1: An advertisement published in a major newspaper which covers 1/3 of the page by an FDIC insured bank offers a high yield savings rate to new and existing customers who meet the minimum balance requirement. The percentage rate with annual percentage yield (APY) has an asterisk. Among other things, the asterisk notes that the rate may change at any time and gives the date on which the published interest rate was accurate. The date the interest rate was accurate was 20 days before the advertisement was published.

Comment: The advertising provisions of both the Truth-in-Savings law and chapter 93A are based on the tenet that advertisements must not be misleading or inaccurate. The federal Truth-in-Savings regulations at 12 CFR 230.8(c)(2)1. governing advertising require that an advertisement disclose an APY as of a specified date that must be recent in relation to the publication. The commentary adds that a daily newspaper must reflect rates offered "shortly before" the date the rate is published. Stating that the rate was effective 20 days before publication and that it may change at anytime appears to violate those requirements.

The advertisement discussed below published an APY that was accurate six weeks before the advertisement was published.

Example 2: An advertisement published in a major newspaper by an FDIC insured bank states an interest rate and APY for its free checking account with no ATM fees. The asterisk to the APY, as described below, in the advertisement has numerous conditions.

Comment: The fees associated with any deposit account or as part of any loan transaction are a vital component to any such transaction. The use of the word "free" triggers various matters addressed in the federal Truth-in-Savings law's regulation and commentary.

The advertised account in the above example required a consumer to comply with four component parts of the account each statement cycle. A consumer choosing such an account was mandated to conduct numerous electronic transactions as well as receive a recurring electronic payment each cycle. Failure to do so resulted in a substantially reduced interest rate as well as being charged for ATM transactions. All of those conditions are set out in the fine print following the asterisk.

One of the guiding principles under chapter 93A's regulation is that terms are to be disclosed in a "clear and conspicuous" manner. That term, as defined, requires, among other things, that the disclosure be presented so as to be "readily noticed and understood by a reasonable person…." In the above outlined examples, the purpose the advertisement was to promote the rate of interest. The most prominent feature was the APY. Yet the most important term, when that offered rate was available or in effect, was included in the least conspicuous part of the advertisement. Other promotional aspects of the account were featured far more prominently. Similarly, the advertisement of a "free" account should be expected to conspicuously list the numerous requirements that could negate that statement. This is especially true when numerous other promotional narrative comments appear in larger print than those key triggering conditions that reduce the APY by a very substantial amount. Such strategic adverse placement of such vital information is not fair to consumers and surely not consistent with the purpose of laws intended to provide consumers a means to compare savings rates and terms.

In summary, these recent bank advertisements on deposit products are in marked contrast to those of other retail business entities. The advertisements of those entities whether in publication or electronic format, clearly and broadly emphasize that the products are available at a price for only one-day, three days or longer and the days and dates are stated prominently as well. The consumer knows that going into a retail location on that day or dates what the price will be for the goods available.

For retail banking operations, consumer deposits are the life blood of an institution. In this rate environment and competitive market all institutions are reminded to not only comply with the rules and regulations but also ensure that their outreach efforts to attract deposits are always conducted within the letter of the law but more importantly the spirit of the law. Anything less deprives the consumer of meaningful and clear advertisement that a consumer can rely on when the consumer contacts a bank to initiate a transaction.

For all of these reasons, I call upon banks and credit unions to review their advertisements to ensure that consumers receive full and fair disclosure of all material terms of an offer, clearly and conspicuously. If there is a timing aspect of the availability or the effectiveness of an advertised APY, recommended practice is to prominently state the time qualifications, and any and all key component terms in the body of the advertisement. If your institution's advertisements appear to contravene the fair advertising principles outlined above, we request that you take immediate action to ensure that terms and conditions are clear and conspicuous.

If you have any questions, please call Joseph A. Leonard, Jr., Deputy Commissioner of Banks and General Counsel at (617) 956-1520. Thank you for your cooperation.

Sincerely,

David J. Cotney
Commissioner of Banks