|
Various blogs and media outlets are prophesying an end to the era of free checking (see e.g. here and here). In fact, some banks have already eliminated free checking from their product offerings, as discussed here. In light of the hoopla over the demise of free checking, credit unions are in an excellent position to both differentiate themselves from banks, and add greater value to consumers, by offering and advertising free checking.
When may a credit union advertise a checking account as free? Pursuant to NCUA Rules and Regulations section 707.8, an advertisement may not:
Refer to or describe an account as “free” or “no cost” or contain a similar term if any maintenance or activity fee may be imposed on the account. The word “profit” must not be used in referring to dividends or interest paid on an account.
The question, then, is what constitutes a “maintenance or activity” fee? The commentary to section 707.8 explains that “for purposes of determining whether an account can be advertised as ‘free’ or ‘no cost,’ maintenance and activity fees include:
i. Any fee imposed if a minimum balance requirement is not met, or if the member exceeds a specified number of transactions.
ii. Transaction and service fees that members reasonably expect to be imposed on an account on a regular basis (see comments 4(b)(4)–1 and 2).
iii. A flat fee, such as a monthly service fee.
iv. Fees imposed to deposit, withdraw or transfer funds, including per-check or per-transaction charges (for example, $.25 for each withdrawal, whether by check, in person).
Credit unions should also keep in mind the Joint Guidance (Guidance) on overdraft programs in Letter to Credit Union 05-CU-03. Among other things, the Guidance states that “institutions should not promote ‘free’ accounts and overdraft protection programs in the same advertisement in a manner that suggests the overdraft protection program is free of charges.” While the Guidance does not necessarily represent any explicit regulatory or statutory requirement, it is recommended that credit unions take the Guidance very seriously—especially in light of the recent buzz surrounding overdraft protection.
|
