Bonus Advertising: The Domino Effect
With students going back to school, it’s the perfect time for credit unions to market a bonus promotion to encourage individuals to open new accounts. I remember being in elementary school and asking my mom every fall to open new accounts so we could get a new toaster.
For a refresher on what’s considered a bonus, check out our blog Are You Giving Your Members a Bonus? The NCUA has specific advertising requirements credit unions must follow when advertising a bonus, but credit unions must be aware of the domino effect advertising a bonus may have.
If a credit union is advertising a bonus, section 707.8(d) requires a credit union to also state in the advertisement:
“(1) The “annual percentage yield,” using that term;
(2) The time requirements to obtain the bonus;
(3) The minimum balance required to obtain the bonus;
(4) The minimum balance required to open the account, if it is greater than the minimum balance necessary to obtain the bonus; and
(5) When the bonus will be provided.”
Now you must be thinking, BUT WAIT JANICE!, aren’t there additional requirements for advertisements that state the annual percentage yield? Yes, that’s the domino effect. Advertising a bonus requires the credit union to state the annual percentage rate, and in doing so it triggers the additional advertising disclosures required under section 707.8(c). This means the regulation requires the credit union to also state in the advertisement any variable rates, the time the annual percentage yield is offered, the minimum balance required to earn the APY, any opening deposit minimum, any effect of fees, and any features of term share accounts (if the advertisement is for a term share account).
The other challenge this effect creates is with non-dividend-bearing accounts. Many credit unions provide a bonus for individuals who open a new non-dividend-bearing account, such as a checking account. We frequently get asked by credit unions, if the account has a 0% APY, must the advertisement state the 0% APY, and does that trigger the additional advertising disclosures?
Section 707.8(d) states:
“if a bonus is stated in an advertisement, the advertisement shall state the following information, to the extent applicable, clearly and conspicuously:
(1) The “annual percentage yield,” using that term;” Emphasis added.
All required disclosures of Part 707, including advertising disclosures must comply with the general disclosure requirements of section 707.3. The 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 checking 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 additional disclosure information required under section 707.8(c).
This “extent applicable” standard applies to all the advertising disclosure information required by sections 707.8(c) and (d). For example, if the account being advertised does not have an opening deposit minimum, the credit union does not need to include in the advertisement $0 opening deposit minimum. Respectively, if there is no minimum balance required to obtain the bonus, the credit union is not required to state in the advertisement $0 minimum balance to obtain bonus.