Regulation DD and Advertising Business Accounts

Issue/Inquiry

During the Bank’s recent marketing audit, a few issues were identified regarding its website. The auditors pointed out that the Bank provides the interest rates, APY, and other disclosures required by Regulation DD for its personal checking and savings accounts but does not provide this information for its business checking and saving accounts. The business and personal accounts are on separate pages of the website.  Is the Bank required to provide this information for the business accounts?

Response Summary

The disclosure requirements of Regulation DD, including those for advertising, pertain only to consumer accounts. An advertisement for a business account product would, therefore, not be subject to Regulation DD disclosure requirements. Bank policy may require such disclosures to be made with respect to business accounts. In that case, failure to do so would be a violation of policy, but this would not be a violation of the regulatory requirements.

Response Detail

Regulation DD implements the Truth-in-Savings Act. With one possible exception, its disclosure requirements cover only consumer accounts, including those pertaining to advertising, and do not apply to business accounts.

The purpose of Regulation DD is to enable consumers to make informed decisions about accounts at depository institutions. Its requirements apply to depository institutions and to any person who advertises an account offered by a depository institution, including deposit brokers. 12 CFR §1030.1(b), (c).

An “advertisement” is a commercial message, appearing in any medium, that promotes directly or indirectly the availability of a deposit in “a new or existing account.”  12 CFR §1030.2(b).

The term “account” means:

[A] deposit account at a depository institution that is held by or offered to a consumer. It includes time, demand, savings, and negotiable order of withdrawal accounts. 12 CFR §1030.2(a).

The term “consumer” means:

[A] natural person who holds an account primarily for personal, family, or household purposes, or to whom such an account is offered. The term does not include a natural person who holds an account for another in a professional capacity.

The focus of the regulatory requirements of Regulation DD is always on the consumer. The official commentary provides examples of commercial messages in visual, oral, or print media that offer or announce to prospective customers the availability of “consumer accounts.” Official Interpretations, ¶1030.2(b)-1.

Another example is a statement in the official commentary that the advertising rules apply to an advertisement by a deposit broker offering consumers an interest in an account at the depository institution, whether the account is to be held by the broker or directly by the consumer. Official Interpretations, ¶1030.1(c)-2.

Likewise, the disclosures required by the advertising rules “may be provided to the consumer in electronic form without regard to the consumer consent or other provisions of the E-Sign Act in the circumstances set forth in those sections.” 12 CFR §1030.3(a).

The one possible exception concerns FDIC examination procedures, which require the examiner to:

Determine the types of deposit accounts offered by the institution to consumers (including accounts usually offered to commercial customers that may occasionally be offered to consumers)*** FDIC Compliance Examination Manual – January 2014, Deposits – TISA, VI.3.15.

This means that if a business account may occasionally be offered to consumers as well, then an examiner would expect the disclosure requirements of Regulation DD to be satisfied, including those pertaining to advertising. This also bears out the general rule, however, that Regulation DD requirements pertain to an account only to the extent that it is a consumer account.

There are two caveats to the conclusion that Regulation DD advertising rules do not apply to business accounts. The first concerns the policy of the Bank. While the requirements of Regulation DD exclude business accounts by definition, if Bank policy requires such disclosures to be made with respect to such accounts, failure to do so would be a violation of policy.

The second is more problematic, as Regulation DD is not the only law regulating deposit product advertising. UDAAP applies to all aspects of a depository institution’s consumer products and services, including advertisements. While the Dodd-Frank Act explicitly addressed consumer transactions through its UDAAP provisions, some commentators have argued that, since UDAAP takes some of its concepts of what is unfair or deceptive from the FTC’s UDAP, and since UDAP also applied to commercial transactions, UDAAP should apply to commercial transactions as well.

There is no official guidance on this point or anything suggesting that it requires a financial institution to make Truth-in-Savings disclosures for business accounts, but the Bank should be aware of this potential for risk. At the very least, it would be prudent for the Bank to be certain that disclosures and advertising related to business deposit accounts are clear and not deceptive or misleading.

This entry was posted on Monday, September 21st, 2015 at 2:00 pm.