4000 - Advisory Opinions
Advertisement for "No Fee" Checking Account Violates Truth in Savings Act if a Fee Is Imposed When Minimum Balance Is Not Maintained
November 21, 1995
Mark A. Mellon, Counsel
It has been brought to our attention that your depository institution placed an advertisement in the "newspaper" of September 3, 1995 offering a "Personal Banking Package". See the enclosed copy of the advertisement. The advertisement states that a "no fee" checking account is one of the features of this deposit product. A footnote to the advertisement states, however, that a daily average balance of $2,500 must be maintained in any group of accounts for no monthly fees to be charged and that, if the available balances fall below that sum for any one day during a month, a monthly fee of 8 dollars will be charged.
As a state-chartered depository institution which is not a member of the Federal Reserve System, you are subject to the Truth in Savings Act (the "TISA") and its implementing regulation, 12 C.F.R. Part 230, Truth in Savings (Regulation DD) ("Regulation DD"). See sections 262 and 274(6) of the TISA (12 U.S.C. §§ 4301 and 4313(6)); see also 12 C.F.R. § 230.1(c).
Section 263(c) of the TISA (12 U.S.C. § 4302(c)) provides that an advertisement which solicits deposits on the behalf of a depository institution shall not refer to or describe a deposit account as "free" or "no cost" or contain a similar term if a minimum balance must be maintained in the account in order to avoid the fees or if any regular service or transaction fee may be imposed on the account. This statutory requirement is implemented by 12 C.F.R. § 230.8(a) of Regulation DD which provides that an advertisement may not state that an account is "free" or "no cost" (or contain a similar term) if any maintenance or activity fee may be imposed on the account. The official staff commentary on Regulation DD provides that, for purposes of determining whether an account can be advertised as "free" or "no cost", maintenance and activity fees include "[a]ny fee imposed when a minimum balance is not met. . ." See 12 C.F.R. Part 230, Supp. 1, 12 C.F.R. § 230.8(a), comment number 3.i.
Review of the relevant statutory and regulatory provisions demonstrates that your advertisement does not comply with TISA and Regulation DD requirements. You should not advertise deposit accounts as "no fee" if in fact a fee will be charged if the account balance falls below a pre-specified minimum. Your institution should take steps to correct this deficiency in all future advertising which solicits investment in deposit accounts. We would appreciate it if you would inform us within two weeks from the date of the receipt of this letter whether you have taken such steps.
If you have any questions or would like to discuss this matter further, please contact Mr. Thomas Lawless, (617) 320-5701, Regional Counsel for the FDIC Boston Region. Thank you in advance for your prompt attention to this matter.