New Debit Card “Bonus”

Issue/Inquiry

The Bank is looking to launch a campaign to increase point-of-sale (“POS”) transactions. The target audience will be low volume debit card holders, and they will receive a statement credit to their checking account if they increase the number of POS transactions to 15 or more. Is the Bank required to provide new disclosures? Are there any other requirements the Bank would be responsible for?

Response Summary

Prior notice of the Bank’s proposed change would not be required under Regulations DD or E. However, under the Unfair, Deceptive, or Abusive Acts or Practices (“UDAAP”) or contract law, the Bank should provide a clear and conspicuous disclosure of the new terms within a reasonable time before such go into effect. The Bank should also review the deposit account agreement to determine what is required when the terms of the agreement are changed.

Response Detail

Under Regulation DD, if a change in any terms or conditions required to be disclosed when the account was opened reduces the annual percentage yield or adversely affects the consumer, then a depository institution must give notice of such changes 30 days in advance. The terms and conditions required to be disclosed initially include bonuses. 12 CFR §1030.5(a).

A “bonus” is a premium, gift, award, or other consideration worth more than $10 that is given or offered to a consumer in exchange for opening, maintaining, renewing, or increasing an account balance. If the Bank is offering something worth more than $10 for opening an account, whether it is in the form of cash, credit, or merchandise, then it is considered a bonus for the purposes of Regulation DD. 12 CFR §1030.2(f).

In this case, the credit would not be given for opening, maintaining, renewing, or increasing an account balance, but rather for a consumer using a debit card more often for POS transactions. In addition, the change would not reduce the annual percentage yield or adversely affect the consumer.  As such, the credit would not be considered a bonus for the purposes of Regulation DD, and a disclosure of the credit would not be required in the account opening disclosures. Since no initial disclosure is required, subsequent disclosures are not required under Regulation DD.

Under Regulation E, a notice of the change of terms or conditions is required to be disclosed 21 days in advance when an electronic funds transfer service is contracted, such as liability, error resolution, or fees, if the change results in an increase of fees or liability to the consumer, fewer types of electronic funds transfers, or stricter limitations on electronic funds transfers. 12 CFR §1005.8(a).

In this case, the changes contemplated by the Bank would not result in changes requiring prior notice under Regulation E.

The agreement entered between the Bank and the customer established the terms and conditions of the account. As such, the Bank should review the account opening agreement to determine what will be required when the terms of the agreement are subsequently changed, apart from whether such a change is required by a regulatory requirement.

From the standpoint of UDAAP or contract law, the Bank should make a clear and conspicuous disclosure of the new terms in advance of any changes within a reasonable time. This is especially important if the Bank currently charges a fee for debit card transactions, which the credit for POS transactions could offset, since the change could affect debit card use by the consumers and the fees paid by them.

This entry was posted on Monday, September 16th, 2019 at 6:00 am.