Providing disclosures in “fine print” may not be “fine” after all.
Recently, many banks have been reacquainted by their examiner with Section 5 of the FTC Act: Standards of Unfair or Deceptive Acts or Practices.
Section 5 deals with what is “unfair” and what is “deceptive.” Somehow, it escaped the bank’s notice that some of their account disclosures were unfairly, and in a deceptive manner, hiding key account terms from consumers. (This appears to be mostly centered around disclosures for the popular “reward” checking accounts.)
What’s interesting is the deception may not be entirely a matter of adequate disclosure, delivered on time. On the subject of deception, Section 5 says, “A deceptive representation can be expressed, implied, or involve a material omission. The key is the overall net impression created by the written disclosures. Fine print may be insufficient to correct misleading text.” In other words, how a disclosure is made is just as important as when it was made and what it says.
Banks should take two lessons from this.
Lesson one, overly enthusiastic and/or overly simplified advertising copy cannot be remediated by the fine print of a disclosure. So, that “smear” of disclosure that is typically part of the last two seconds of a car television commercial, would surely be a compliance violation if it was broadcast by a bank. Disclosures have to be clear, conspicuous and timely. No smears.
Lesson two, a bank’s disclosures must meet the “overall net impression” test. It’s not clear exactly what this means — which is no surprise, I suppose. But a smart bank will sit down with Senior Management, the Compliance Officer and the Marketing Officer and make doggone sure that customers can clearly understand the terms of any offer — that the overall net impression of account requirements is adequate. This will be true regardless of whether the offer is made in advertising, publications, “Jumbotrons”, account disclosures and/or statement messages. (Banks might even take the radical step of consulting with their regulator before they go live with any of the above.) In addition, smart banks will design a system, and appoint an “system owner” that will monitor ongoing compliance and report any deficiencies.
What a smart bank should be doing now.
We think smart banks will be eyeballing every account disclosure in the bank. Ditto for every brochure, web page, advertising script and layout. Everything gets examined and an estimate is made relative to the “overall net impression.” (If you have a lot going on, and no people to spare, we can do this review for you quickly and affordably. No on-site work required. Everything is web-delivered.)
There’s more to Section 5 than this. Call us and we can talk it over, 800-521-2036.
We’ll be happy to talk this over and do some spit-balling over possible alternatives for your bank. Remember, it never costs anything to compare notes and talk things out. Alternatively, send me an email with “DECEPTION” in the email and we’ll set up a time to discuss.