When is Free Not Really ‘Free’?

By Carl Pry

Using the word “free” in an ad for a deposit account can often be more trouble than it’s worth. There have always been stringent rules in place dictating what you can and cannot do when stating whether an account (or a feature of an account) is free or no cost, but recent history shows the ante has been raised.

Truth in Savings (Regulation DD) is pretty straightforward: Don’t use the word free “if any maintenance or activity fee may be imposed on the account.” Sounds simple enough, and such fees are easy to identify: minimum balance or excessive transaction fees are mentioned in the regulation’s commentary, as are flat and per-transaction fees. If these types of fees are assessed, the account is not free and cannot be advertised that way. The rule also addresses when an account is free provided conditions are met (the commentary mentions age) and specifies those conditions be clearly stated.

But here is where it gets more complicated, and a look at recent enforcement actions confirms advice to be extremely obvious and clear about what it will take for the account to be truly free. Failure to do so could result in problems not only with Reg. DD, but also UDAAP (Unfair, Deceptive or Abusive Acts or Practices), as both have similar standards prohibiting “misleading or inaccurate advertisements” (Reg. DD) and deception (UDAAP).

This concept extends to ads in any media

If conditions and requirements that must be met in order for the account to be free are not disclosed within the ad in a way a normal customer would identify and understand (meaning small-print language at the bottom of the ad that most people won’t read is not good enough), inclusion in account-opening disclosures does not “cure” the error. The damage has already been done. Note this concept extends to ads placed in any sort of media—using an excuse of inadequate space in a tweet or online banner ad to include the qualifiers won’t get you anywhere, either.

A related concept is to be sure to include in the ad information about what will happen if free account conditions are not met, and fees will then be assessed or the account itself converted into a type that charges fees. Again information provided later (on a periodic statement or insert, for example) does not mitigate the inaccuracy of the original ad. It should be crystal clear to consumers looking at the ad copy that the account is free if specific conditions are met, and if they are not met, a fee will be charged or the account converted.

Since the word “free” has always had a special draw in the advertising world, it is a natural magnet for examiners. And with the bar being raised on what must be stated in order to avoid a UDAAP problem, marketers should pay more attention to it than ever.


Carl G. Pry, CRCM, is a managing director for Treliant Risk Advisors in Washington, D.C., where he advises clients on a wide variety of compliance, fair lending, corporate treasury, and risk management issues. Email: [email protected]