Examinations of High-Yield Accounts by FDIC Gives Insight into Compliance Issues in New Product Development

An article in the winter edition of the FDIC’s Supervisory Insights Journal discusses a number of common regulatory violations found in advertising, website, and disclosure materials used with high-yield checking accounts.  In addition, the article provides insight into how and why compliance issues arise in the development of new financial products, such as potential violations of Truth-in-Savings and Section 5 of the FTC Act (Unfair or Deceptive Trade Practices).

High-yield checking accounts typically offer features such as free checking, high annual percentage yield (APY), and no minimum balance if the customer meets certain conditions.  These conditions might include a minimum number of transactions per month, enrolling in online banking, and the use of electronic statements.  The compliance pitfalls focused on in the article arise when statements made in promotional materials, webpages, and account disclosures do not accurately and uniformly represent the account’s terms, and the conditions required to qualify for benefits.  Some of the most common problems  identified by the FDIC include: (i) failing to state a non-qualifying APY; (ii) failure to distinguish between qualifying and non-qualifying ATM and debit card transactions; (iii) omitting some of the conditions required to get the higher APY; and (iv) failing to define the period during which the conditions must be met.  One specific example of a misleading statement cited in the article is stating that the customer must “use” a debit card a certain number of times during a period, when the actual requirement is that a certain number of debit card transactions post and settle during the period.  The article states that inaccurate or misleading statements are a source of compliance, legal, and reputational risk, and can lead to enforcement actions and potential Unfair or Deceptive Trade Practice claims. 

The article goes on to point out that many of the compliance issues associated with promotional and disclosure materials arise from the tension between an institution’s compliance and marketing functions, as well as potential overreliance on third-party materials assumed to be in compliance.  A lack of coordination between compliance and marketing personnel during product development may result in websites, promotional materials, and advertisements that fail to uniformly meet regulatory requirements.  Subsequent changes to previously-vetted materials may also result in regulatory violations. 

The concerns highlighted in the article are not unique to high-yield accounts.  The article goes on to recommend a number of best practices to integrate into an institution’s compliance management systems, such as the following:

• Involving compliance personnel early in a new product’s development, implementation, and promotional stages.
• Ensuring that customer materials contain clear and conspicuous terminology, with adequately defined terms.
• Monitoring customer inquiries and complaints, which could suggest confusing or misleading materials.
• Ensuring that employees who are responsible for opening new accounts are properly trained in product features and are able to clearly communicate this information to customers.