Article
FAQs
Raffles, Lotteries and Prize Promotions
General Advertising
Question: Our bank wants to offer a “bump-up” certificate of deposit in which the CD owner has the option to bump-up or increase the rate once during their CD loan term should the bank’s CD rates increase for the same CD term. Are there special advertising requirements for this product?
Answer: Regulation DD, which implements the Truth in Savings Act, does not have specific additional requirements for “bump-up CDs” however, the bank should ensure any advertisements clearly reflect the conditions of the bump-up feature as well as Reg. DD’s requirements for advertising certificates of deposit. As a reminder, if an advertisement for a certificate of deposit includes the product’s APY (Annual Percentage Yield), the ad must also detail:
- The time period the APY is offered (such as a statement the APY is accurate as of a specific date);
- Minimum balance to obtain the APY;
- Minimum balance to open the account, if greater than the balance to obtain the APY;
- Term of the time account;
- And statement, “Early withdrawal penalties may apply.”
In addition, TISA requires advertisements contain no misleading or inaccurate statements. Therefore, the bank will want to clearly describe the bump-up feature in your advertisements as well as your TISA disclosure. For example, you indicate the CD owner may bump-up their rate once during the CD term based on the current rates offered by the bank for the same CD term. May the owner bump up the rate at any point during the CD term or only after certain period of time? Is the increased rate applied retroactively back to the date the CD was opened or applied for the remainder of the CD term? Must the bump[1]up request be made in writing or can the account owner contact the bank to make the request by another means (e.g., call, text, email)? Where can the account owner find the bank’s current CD rate?
Bonus
Question: We are considering a new promotion. If a person opens a new deposit account and originates a new mortgage loan, the bank will pay $100 towards the borrower’s origination charge. Does this constitute a “bonus” on the deposit side?
Answer: No. The definition of “bonus” in Reg. DD, section 1030.2(f) states: “The term does not include interest, other consideration worth $10 or less given during a year, the waiver or reduction of a fee, or the absorption of expenses.” The commentary further explains that the reduction or absorption of a fee (even if the fees waived exceed $10) applies to banking-related services such as discounts on interest rates charged for loans. The bank paying $100 toward loan origination charge would be an absorption of fees, thus it is not a bonus.
Question: We are considering a promotion in which we would offer a bonus for opening a deposit account. I am being told by our compliance officer that we are limited to offering $10 for a deposit of less than $5,000 or $20 for a deposit of $5,000 or more. I thought these limits were mandated by Regulation Q, which was repealed with the Dodd-Frank Act passage. Please clarify for us.
Answer: You are both right! The Dodd-Frank Act did repeal Regulation Q and its limitations on “premiums” (bonuses) in 2011. However, shortly after, the FDIC revised its insurance rules and added a similar provision to Part 330 of its rules as underlined below. In short, if the premium/bonus exceeds the $10/$20 thresholds, but the bank does not require a minimum opening balance or that the borrower maintain a balance to earn the premium, then the premium/bonus is not considered “interest” earned on the account for FDIC insurance rule purposes.
- 330.101 Premiums
This interpretive rule describes certain payments that are not deemed to be “interest” as defined in § 330.1(k).
(a) Premiums, whether in the form of merchandise, credit, or cash, given by a bank to the holder of a deposit will not be regarded as “interest” as defined in § 330.1(k) if:
(1) The premium is given to the depositor only at the time of the opening of a new account or an addition to an existing account;
(2) No more than two premiums per deposit are given in any twelve-month interval; and
(3) The value of the premium (in the case of merchandise, the total cost to the bank, including shipping, warehousing, packaging, and handling costs) does not exceed $10 for a deposit of less than $5,000 or $20 for a deposit of $5,000 or more.
(b) The costs of premiums may not be averaged.
(c) A bank may not solicit funds for deposit on the basis that the bank will divide the funds into several accounts for the purpose of enabling the bank to pay the depositor more than two premiums within a twelve-month interval on the solicited funds.
(d) The bank must retain sufficient information for examiners to determine that the requirements of this section have been satisfied.
(e) Notwithstanding paragraph (a) of this section, any premium that is not, directly or indirectly, related to or dependent on the balance in a demand deposit account and the duration of the account balance shall not be considered the payment of interest on a demand deposit account and shall not be subject to the limitations in paragraph (a) of this section.
Member FDIC
Question: We are increasing our social media presence on platforms such as Facebook and Instagram. Are we required to add the “Member FDIC” logo and legend to every single post we add to these platforms or just those that promote deposit accounts? If we create a post promoting a deposit account special, can we simply add a “click here for details” link to the post and include the Member FDIC logo with the TISA/Reg. DD required disclosures on the linked page?
Answer: Not all social media posts will require “Member FDIC,” but any post that promotes deposit products and services or non-specific banking products must include the Member FDIC logo or words “Member FDIC.” To explain, the FDIC advertising rules are found at § 328of the FDIC Laws, Regulations & Related Acts and are triggered by any “advertisement” — defined as“a commercial message, in any medium, that is designed to attract public attention or patronage to a product or business.” So a Facebook or Instagram post would definitely be considered an advertisement. The FDIC’s rules state, “each insured depository institution shall include the official advertising statement prescribed in § 328.3(b) in all advertisements that either promote deposit products and services or promote non-specific banking products and services offered by the institution. For purposes of this § 328.3, an advertisement promotes non-specific banking products and services if it includes the name of the insured depository institution but does not list or describe particular products or services offered by the institution. An example of such an advertisement would be, ‘Anytown Bank, offering a full range of banking services.'” As you can see, the scope of the requirement is quite broad and not limited to just deposit account advertisements.
The FDIC rules do provide some exceptions to this general requirement, such as listings in a directory or bank stationery products, but there is no blanket exception for social media. Also keep in mind there are certain times the Member FDIC statement should NOT be included in an advertisement (or social media post). The FDIC rules prohibit banks from including the Member FDIC statement in advertisements (social media posts) that promote non-FDIC insured products such as insurance or annuities. Also, should an advertisement (or social media post) promote both FDIC insured deposit products and non-insured products, the products and information about them must be clearly segregated and the NDIP disclosures (Not FDIC Insured, Not Guaranteed by the Bank, May Lose Value) must be included with the non-insured deposit product information. Finally, banks often use their social media platforms to post information that has nothing to do with bank products and services — such as posts providing information about community events, bank volunteer efforts, staff promotions, etc. These posts do not require the Member FDIC logo or statement; however including the Member FDIC statement in these posts is not a violation of the FDIC rules.
To answer your original question, any post that promotes deposit products and services or non-specific banking products, must include either the Member FDIC logo or words “Member FDIC.” While other regulations, such as Regulation Z’s rules for advertising loan products and Regulation DD’s rules related to advertising deposit products contain “one-click rules” for electronic advertisements, the FDIC advertising rules do not. As a result, you will need to include the logo or “Member FDIC” within the post. (April 2021)
Question: What is the appropriate use of the FDIC official membership statement on Internet web pages? Must it appear on all pages of the bank’s web site?
Answer: The FDIC treats a bank’s home page as an advertisement (designed to attract public attention or patronage), therefore meeting the requirements under 12 CFR 328 for inclusion of the FDIC official membership statement (hereafter “logo”). There is no guidance on the location of the FDIC logo and it can appear anywhere on the page as long as it is clear, conspicuous and easily accessible. Although the logo is not required to be in close proximity to the Bank name, that’s probably the best location. Avoid placing the logo in close proximity to items that are uninsured, such as non-deposit investment products, or in close proximity to the names of entities that are not depository institutions, such as insurance or investment affiliates.
In addition, the FDIC logo must appear on all subsequent pages on which the bank advertises insured deposit products, electronic banking services, ATMs or other general information about the bank that would normally require the official advertising statement. (Note: in the online environment, a “page” is all of the information on one site that can be viewed using just the scroll bar or arrow keys. The Internet address displayed on the toolbar will not change if using only the scroll bar and/or arrow keys. If the Internet address displayed on the toolbar changes, a new page has been activated.) A web page advertising mortgage loans, trust or investment services, life insurance or any of the other exceptions enumerated at 12 CFR 328.3(c) need not include the logo.
Question: The bank just purchased a new ATM machine that has the ability to display various advertisements on the screen. If we include ads that promote deposit products and online banking services available at the institution, must we include the “Member FDIC” statement or logo?
Answer: Under the revised membership rules, there is no mandate to include the FDIC membership signs at or on ATMs. Instead, insured institutions are given permission to do so as long as disclosure is clear that FDIC insurance coverage is only applicable to deposits made to the institution that owns the ATM. (See 12 CFR 328.2(a)(1)(ii)) So, the question remains, if an ad for deposit products and services appears on the screen of the ATM (rather than the terminal itself), should the text of the ad appearing on the screen include “Member FDIC”? Or is this type of advertisement considered to be covered under the ATM exception at §328.2(a)(1)(ii)? Or, alternatively, is this type of advertisement deemed similar to that of radio and TV advertisements of less than 30 seconds, where there is an exception from including the official membership statement as detailed 12 CFR 328.3(d)(8)? Typically, when a consumer uses the ATM, the ad would be viewed for less than 30 seconds before the card transaction is initiated.
Since the ad appears on the screen of the ATM, rather than on the terminal itself, the rules at §328.2 do NOT apply, but instead the advertising rules of §328.3 DO apply. As such, a bank may use the 30-second rule for radio and TV ads, provided it can ensure that the ad on the ATM screen appears for no longer than 30 seconds before a transaction is initiated or another screen appears on the ATM. If bank cannot ensure this limited time, prudent practice is to include the “Member FDIC” statement in the ad appearing on the ATM screen.
Question: Our bank has an investment center and we want to do an ad that promotes products from the investment center as well as traditional bank products to illustrate the variety of savings options we have available. What are the requirements for advertisements that contain a mix of insured deposits and non-insured investment products?
Answer: The FDIC insurance advertising rules make it very clear that you cannot advertise insured deposit products and insurance/investment products together unless they are clearly segregated.
Clearly segregating could include placing the deposits information in one text box and the investment product information in a separate text box. The insured deposit products are subject to the FDIC advertising rules and therefore must include the statement “Member FDIC” or FDIC insurance logo in that section of the ad promoting insured deposit products.
The Interagency Statement on Retail Sales of Non-deposit Investment Products issued February 15, 1994 states “advertisements and other promotional and sales material, written or otherwise, about Non-deposit investment products sold to retail customers should conspicuously include at a minimum that the products:
- Are not insured by the FDIC;
- Are not deposits or obligations of the institution and are not guaranteed by the institution;
- Are subject to investment risk, including possible loss of principal invested;
- So, in the segregated area of the ad that discusses the insurance/investment products offered by the institution, the “not, not, are” statements should be clearly included.
https://www.fdic.gov/regulations/laws/rules/5000-4500.html
Raffles, Lotteries and prize promotions
Question: Our bank marketing department wants to do a debit card holiday promotion. The promotion will have three tiers based upon debit card usage. For each tier, there will be a drawing for a chance to win a gift card of a specified amount. Is this something that we can offer to our customers?
Answer: Unfortunately, this promotion violates Section 20 of the Federal Deposit Insurance Act (FDIA). The reason the promotion is a violation is that requiring the use of a debit card in exchange for a chance to win would be considered requiring “a thing of value” in return for a chance to win, which meets the definition of “lottery” in Section 20. Section 20 of FDIA prohibits banks from conducting or participating in lotteries. For more information, see the article found in the Iowa Banking Guide titled Raffles, Lotteries, Promotional Games and Prize Drawings as well as the guide on the IBA’s website Compliance Publications page titled Raffles, Lotteries, Promotional Games.
However, if the bank removed the distribution of the prize by chance and gave a bonus to all customers who use their card “x” number of times, it is not considered a lottery and thus, is not prohibited. For example, for every ten times a debit card is used, the customer earns a $10 gift card. This would be a permissible promotion as long as TISA’s bonus rules are followed. There is a Bonus Guide on the IBA website. (December 2019)
Question: A local non-profit organization has approached the bank and requested we sell raffle tickets for a fundraiser they are holding. They also want the bank to promote the event. I know the bank cannot sell the raffle tickets, however is the bank allowed to advertise the raffle in bank advertisements or can the bank display a sign in the bank about the event?
Answer: Unfortunately, a raffle is considered a lottery since there is an exchange of something of value for a chance to win a prize. Therefore, the bank is not allowed to either sell tickets or advertise the raffle in a bank advertisement because of section 20 of the Federal Deposit Insurance Act. The Act contains the following prohibition:
SEC. 20. PARTICIPATION BY STATE NONMEMBER INSURED BANKS IN LOTTERIES AND RELATED ACTIVITIES.–
(a) PROHIBITED ACTIVITIES.–A State nonmember insured bank may not–
(1) Deal in lottery tickets;
(2) Deal in bets used as a means or substitute for participation in a lottery;
(3) Announce, advertise, or publicize the existence of any lottery; or
(4) Announce, advertise, or publicize the existence or identity of any participant or winner, as such, in a lottery.
However, the bank is permitted to display a sign about the raffle in the bank, including displaying items that will be raffled off for the fundraiser. In 2005, the FDIC issued an opinion letter stating that displaying information on a community raffle does not violate Section 20 of the Federal Deposit Insurance Act as long as the bank doesn’t sell tickets and the bank cannot determine the prize winner, administer the raffle, or deliver the prize. (December 2019)
Question: Our bank is opening a new branch. To celebrate and attract new customers, we will be offering a prize through a random drawing. The first 100 people to open a new account will have their names entered in the drawing. The winner will be drawn at random and will receive a wonderful gift bag filled with goodies. Can the bank offer this promotion?
Answer: Whenever a bank proposes a prize promotion, it must determine if the promotion is lawful under both state and federal law. For a bank to offer a compliant and lawful prize promotion, the promotion has to meet several criteria. The promotion cannot require a person to make a purchase, donation or have an account as a condition of awarding a prize. The promotion also has to be open to non-customers and customers cannot have a significantly better chance of winning than non-customers. Finally, the winner must not be required to be present to win the prize. These criteria must be disclosed in the advertising for the promotion.
The requirements of the proposed promotion limit winners to bank customers who have opened an account. Due to this requirement, the promotion is not compliant with state and federal regulations. The bank will need to make the promotion available to non-customers and not require entrants to open an account as a condition for eligibility if it wants to offer a compliant promotion.
Regulations and state codes that regulate prize promotions are Section 20 of the Federal Deposit Insurance Act, Iowa code Chapter 714B, and Iowa Administrative code 61-32.1 IBA also has tools on our website that describe the criteria for lawful, compliant prize promotions. Those tools can be found in the Iowa Banking Guide on the IBA’s website titled Raffles, Lotteries, Promotional Games and Raffles, Lotteries, Promotional Games and Prize Drawings.