Bank Compliance Association of Connecticut Inc Advertising and

Interpreting Recent Ads Ø “We Proudly Cook in Zero Trans-Fat-Free Oil” What does that mean? That is a double negative! Is there trans-fat-free oil or not? ? ? Copyright 2007, Integrated Compliance Solutions, LLC 2

Ø Lipitor ads; Dr. Jarvik can’t row! It’s ok, Bob. . . neither can

Ø “Genie Francis Lost 30 lbs. *” • Results not typical. Did you catch the small print? No? Oh, well. . . it’s there. How long did it take to lose the weight and what did she have to do? Was there exercise involved—ewww? Copyright 2007, Integrated Compliance Solutions, LLC 4

Ø “Your kids will never turn up their noses at Tyson Chicken Nuggets. ” Never? ? Really? ? You’ve never met my kids—how would you know? Hyperbole! Copyright 2007, Integrated Compliance Solutions, LLC 5

• Why should there be so many questions? The FTC and the banking agencies do not think there should be such a lack of clarity or, worse, unfairness or deception, when advertising products and services. • As a result, financial institutions are required to follow advertising rules. Copyright 2007, Integrated Compliance Solutions, LLC 6

Today’s Agenda • I will discuss rules and scenarios for loan ads, including Websites. • Rich Howells will discuss rules and scenarios for deposit and nondeposit products, including Websites. • We will also discuss tips for managing and controlling compliance risk. Copyright 2007, Integrated Compliance Solutions, LLC 7

Why Advertise? Copyright 2007, Integrated Compliance Solutions, LLC 8

What is an Ad? An ad is any commercial message that promotes a product or service. It may appear in print, on radio, on TV, on a public address system, inside or outside the bank, in a window display, in literature, signs, billboards, or online. It may also appear on a customer’s statement. Copyright 2007, Integrated Compliance Solutions, LLC 9

Is a Website an Ad? Yes it is! – Refer to FDIC Advisory Opinion dated November 3, 2000, FDIC-00 -10. • It quotes Webster’s dictionary: “[a] notice designed to attract public attention or patronage. ” • It also quotes Black’s Law Dictionary: “[t]he action of drawing the public’s attention to something in order to promote its sale. ” Copyright 2007, Integrated Compliance Solutions, LLC 10

The Opinion states: We believe that in virtually all cases a bank’s home page is a notice designed to attract public attention or patronage and thus is an advertisement. . . Moreover, any web page that meets this definition is an advertisement. . This would generally include most pages within a bank’s web site. . Copyright 2007, Integrated Compliance Solutions, LLC 11

Is a Loan Rate Sheet an Ad? No if: • It is published by a newspaper or periodical that lists limited information about the rate of selected banks and the bank does not pay a fee to be included and does not have control over whether the information will be published. Copyright 2007, Integrated Compliance Solutions, LLC 12

• The rate sheet is distributed by the bank only as information material

Marketing Perspective • I have a tight deadline to get this ad to the printer/on the Website. • We need to get the ad out to roll this product out and make money. After all, that’s what we are all here to do! • If I miss the deadline, I will be in trouble. Copyright 2007, Integrated Compliance Solutions, LLC 14

Compliance Perspective • I have a tight deadline to review this ad. • I need to be sure the ad complies with the law to avoid penalties or a bad reputation. After all, that is what I am here to do! • If I miss a violation, I will be in trouble. Copyright 2007, Integrated Compliance Solutions, LLC 15

How Everyone Can Win Copyright 2007, Integrated Compliance Solutions, LLC 16

Getting it Right the First Time • Deadlines will be met and errors will be avoided if: 1. Staff members know the requirements 2. Marketing and Product areas include Compliance early on (not the day before the ad is needed) 3. Staff members have easy tools to use (and they use them) 4. A standard is set for turnaround time, allowing time for any corrections to be made Copyright 2007, Integrated Compliance Solutions, LLC 17

Requirements for Loan Ads • Fair Housing Act • Unfair or Deceptive Acts or Practices • Truth in Lending (Regulation Z) • FACT Act (prescreened offers) • “Do-Not-Bother Me” Trio • E-SIGN and Electronic Disclosure Rules The requirements follow. . . Copyright 2007, Integrated Compliance Solutions, LLC 18

Fair Housing Act • Prohibits discriminatory advertising • Requires use of the logotype with the Equal Housing Lender legend • Lobby Poster (11” x 14”) • Cannot use models, words, symbols, etc. that suggest, imply, or express a discriminatory preference Copyright 2007, Integrated Compliance Solutions, LLC 19

UDAP • The Federal Trade Commission prohibits the use of unfair methods of competition or unfair or deceptive acts or practices • The banking agencies are responsible for enforcing those prohibitions • Connecticut has an Unfair Trade Practices Act (CUTPA) • What is unfair or deceptive? Copyright 2007, Integrated Compliance Solutions, LLC 20

• It is unfair if: 1. The act or practice causes or is likely to cause substantial injury to consumers 2. Consumers cannot reasonably avoid the injury 3. The injury must not be outweighed by countervailing benefits to consumers or to competition Copyright 2007, Integrated Compliance Solutions, LLC 21

• It is deceptive if: 1. There is a representation, omission, or practice that misleads or is likely to mislead the consumer 2. The act or practice is deceptive from the perspective of the reasonable consumer 3. The representation, omission, or practice is material. Copyright 2007, Integrated Compliance Solutions, LLC 22

• UDAP does not fit neatly into a checklist • Marketing/Product and Compliance might have different opinions • Tips for avoiding UDAP problems are listed in FDIC FIL-26 -2004 dated March 11, 2004. Some of them are. . . Copyright 2007, Integrated Compliance Solutions, LLC 23

– Review all materials to ensure they accurately and fairly describe the terms, benefits, and limitations, including optional products and services – Draw the customer’s attention to key terms, including limits and conditions, that are important in making an informed decision – Clearly disclose all material limitations or conditions on the terms or availability of the products or services (e. g. , special interest rate, expiration date for terms that apply only during an introductory period, prerequisites, conditions for canceling without charge, etc. ) Copyright 2007, Integrated Compliance Solutions, LLC 24

– Clearly disclose fees, penalties, other charges – Clearly disclose contract provisions that permit a change in terms and conditions of an agreement – Tailor materials to the target audience Copyright 2007, Integrated Compliance Solutions, LLC 25

– Accurately represent the amount of potential, approved, or useable credit that the consumer will receive if making claims about amounts of credit available to consumers – Review compensation arrangements for bank employees and vendors to avoid unintended incentives to engage in UDAP Copyright 2007, Integrated Compliance Solutions, LLC 26

Truth in Lending (Reg. Z) Triggering Terms require other Reg. Z disclosures to be included in the ad. To avoid lots of language in ads, avoid the Triggering Terms. Copyright 2007, Integrated Compliance Solutions, LLC 27

Triggering terms need not be explicitly stated; they may simply be readily determined from

• What are “closed-end loans”? (Section 226. 24) – Not revolving loans, like HELOCs, ODPs, and credit cards. They can be secured or unsecured. Examples include: • • • Mortgages Home Equity Loans Car Loans Personal Loans Collateral Loans Copyright 2007, Integrated Compliance Solutions, LLC 29

• Triggering terms for closed-end loans: – Number of payments or period of repayment (term) – Amount of any payment – Dollar amount of Finance Charge (not the rate) – Amount or percentage of downpayment (for credit sales only—you are financing the sale of your asset) Copyright 2007, Integrated Compliance Solutions, LLC 30

• What are the additional disclosures if any of the triggering terms are used in the closed-end ad? – Terms of repayment – “Annual Percentage Rate” (APR); no tolerance for error in ads – If the APR is variable, state that fact – Amount or percentage of downpayment (for credit sales only) Copyright 2007, Integrated Compliance Solutions, LLC 31

• What are other closed-end loan ad rules? – The ad cannot be misleading – The terms must actually be available – If the rate is stated: • It must be identified as the “APR” or “Annual Percentage Rate” (need not spell out but a good practice) • If it is a variable-rate loan, state that fact • If the Interest Rate is also in the ad, the type size must be the same or smaller than the APR type size Copyright 2007, Integrated Compliance Solutions, LLC 32

• What are “open-end loans”? (Section 226. 16) – The balance can change. When the borrower pays down, the bank allows the credit to be extended again up to the limit. They can be secured or unsecured. Examples include: • Home Equity Lines of Credit • Credit Cards • Overdraft Protection Lines of Credit Copyright 2007, Integrated Compliance Solutions, LLC 33

• Triggering terms for open-end loans: – Description of circumstances under which a Finance Charge will be imposed – Periodic rate – Range of balances to which rate applies – Annual Percentage Rate or Finance Charge – Balance determination method – Other charges Copyright 2007, Integrated Compliance Solutions, LLC 34

• What are the additional disclosures if any of the triggering terms are in the open-end ad? – Any minimum, fixed, transaction, activity, or similar charge – Any periodic rate, expressed as an APR – If the APR is variable, state that fact – Any membership or participation fee (including any annual fee) Copyright 2007, Integrated Compliance Solutions, LLC 35

• What are other open-end loan ad rules? – Same as for closed-end

• Special triggering terms for HELOCs: (Section 29) – Any of the triggering terms for other open-end products (listed on previous slide) – Payment terms of the plan (stated in either the positive or the negative) Copyright 2007, Integrated Compliance Solutions, LLC 37

• What are the additional disclosures for HELOCs if any of the HELOC triggering terms are in the ad? – – – All of the additional disclosures for other open-end products Any loan fee that is a percentage of the credit limit Estimate of any other plan opening fees (dollar amount or range) Maximum APR that may be imposed if the plan is variable-rate Balloon payment disclosure Any discounted or premium rate disclosure Copyright 2007, Integrated Compliance Solutions, LLC 38

• What are other HELOC ad rules? – If tax advantages are stated, include: Consult your tax advisor. – If the ad states “no closing costs, ” include: Property insurance required. Copyright 2007, Integrated Compliance Solutions, LLC 39

• Special rules for credit cards (Section 226. 5 a) – Disclosures to be provided prominently on or with an application or solicitation in the form of a table with headings – Must include: • “grace period” • Each periodic rate used to compute the Finance Charge expressed as an Annual Percentage Rate • Fees • Minimum finance Charge • Transaction Charges • Balance computation method Copyright 2007, Integrated Compliance Solutions, LLC 40

FACT Act • If the institution engages in prescreening (a process by which a credit bureau compiles or edits a list of consumers meeting specific credit-granting criteria provided by the for use in soliciting consumers for credit or insurance products, then the institution must: institution) – Make a firm offer – Provide a Prescreened Opt Out Notice from future solicitations with the mailing Copyright 2007, Integrated Compliance Solutions, LLC 41

• A prescreened list may include only consumers who have not opted out from prescreening, and it may contain only the following information: – Name and address of the consumer – Identifier that is not unique to the consumer – Other information that does not identify the relationship or experience of the consumer re a particular creditor or other entity Copyright 2007, Integrated Compliance Solutions, LLC 42

“Do-Not-Bother-Me” Trio • Do-Not-Email (CAN-SPAM) – Controlling the Assault of Non-Solicited Pornography and Marketing Act • Do-Not-Call • Do-Not-Fax Copyright 2007, Integrated Compliance Solutions, LLC 43

CAN-SPAM • If the institution sends commercial email messages, then the message must clearly and conspicuously include: – ID that the message is an ad/solicitation (unless the recipient has previously given affirmative consent) – Notice of option to decline further email solicitations – Valid physical postal address of the sender • Need a way to respond to replies or optouts (stop within 10 BD of opt out) Copyright 2007, Integrated Compliance Solutions, LLC 44

Do-Not-Call • Institution cannot make telephone solicitations without first screening against the DNC lists

Do-Not-Fax • Ok to fax ads only if: – You have an “established business relationship” or express written permission from the recipient • Recipient gives you the fax number or you obtain the fax number from the recipient’s own directory, ad, or Internet site (unless the recipient noted on those materials that it does not accept unsolicited ads at the fax number) • You verify that the recipient consented to have the number listed in sources compiled by third parties Copyright 2007, Integrated Compliance Solutions, LLC 46

• Must include an opt-out notice on fax ads even when the recipient has given prior express permission – Notice must be on the first page (clear and conspicuous) – State that opt out may be made and that failure to comply within 30 days is unlawful & – Phone #, fax #, free way to opt out (24/7) – Consumer must ID the fax # to stop using Copyright 2007, Integrated Compliance Solutions, LLC 47

E-SIGN & Electronic Disclosures • E-SIGN (Electronic Signatures in Global and National Commerce Act) – Makes electronic signatures legally valid – If another law requires disclosures to be provided in writing, then E-SIGN requires additional disclosures to be provided first • Examples: Reg. CC, DD, E, Z, B, among others – Content of E-SIGN additional disclosures. . . Copyright 2007, Integrated Compliance Solutions, LLC 48

– Consent to receive electronic disclosures – Option to receive paper disclosures – Right to withdraw consent – Procedure for requesting a paper copy & fees – Duty of customer to provide contact info – Hardware and software requirements – Customer’s responsibility to provide proof of ability to access information and electronically consent Copyright 2007, Integrated Compliance Solutions, LLC 49

• Electronic Disclosures Rules – Federal Reserve revised consumer protection rules about electronic delivery of disclosures in 4 Q 07 – Truth in Lending was revised in 12/14/07 Federal Register; effective 1/14/08; mandatory compliance date 10/1/08 – Equal Credit Opportunity was revised at the same time – What do the revised rules say? Copyright 2007, Integrated Compliance Solutions, LLC 50

• Special exception for electronic ads and applications – Prior consumer consent is not required for advertising-related disclosures or for disclosures that are required to be provided on or with an application, such as: – Section 226. 19(b)—ARM Loan Program Disclosure; CHARM booklet – Section 226. 5 b—HELOC Important Terms Disclosure; HELOC booklet – Section 226. 5 a—credit card applications/solicitations disclosures Copyright 2007, Integrated Compliance Solutions, LLC 51

• How to do it: – Disclosures automatically appear on the same screen as the application – Disclosures are placed elsewhere if the application page conspicuously refers to the location and states that the disclosures contain rate, fee, and other cost information – Disclosures are placed elsewhere and they are linked conspicuously using a nonbypassable link before the application is submitted Copyright 2007, Integrated Compliance Solutions, LLC 52

• If an electronic ad includes a table or schedule, any other required information appearing elsewhere on the Website must direct the consumer to the location where the table or schedule begins. – Example: a triggering term may be accompanied by a link that directly takes the consumer to the additional information. (One click) Copyright 2007, Integrated Compliance Solutions, LLC 53

• Top Website compliance pitfalls involving loans include the failure to: – Include conspicuous links to application disclosures – Identify triggering terms and include additional required information – Include conditions, limits, expirations dates – Keep information current Copyright 2007, Integrated Compliance Solutions, LLC 54

Internal Controls 1. Include advertising and Website compliance in the institution’s Compliance Program (refer to regulator’s exam manual) 2. Assign responsibility 3. Use current checklists 4. Maintain documentation of reviews 5. Retain records for two years 6. Take prompt corrective action if noted Copyright 2007, Integrated Compliance Solutions, LLC 55

Checklist Requirements Y/N REGULATION Z Is the ad not misleading and are the terms actually available? CLOSED-END If the rate is stated, is APR or Annual Percentage Rate included? If variable, is that fact stated? If Interest Rate is stated, is type size same or smaller than APR? Are there triggering terms (number of payments or period of repayment; amount of any payment; dollar of Finance Charge; downpayment if credit sale)? If triggering terms, are additional disclosures included (terms of repayment; APR; if variable, statement of that fact; downpayment if credit sale)? Copyright 2007, Integrated Compliance Solutions, LLC 56

Requirements Y/N OPEN-END Is there a description of circumstances under which a Finance Charge will be imposed? Are there any triggering terms (periodic rate; range of balances rate applies to; APR or Finance Charge; balance determination method; other charges)? If triggering terms, are additional disclosures included (minimum, fixed, transaction, activity, or similar charge; any periodic rate expressed as an APR; if APR is variable, a statement of that fact; any membership or participation fee, including an annual fee)? Copyright 2007, Integrated Compliance Solutions, LLC 57

Requirements Y/N HELOCs If ad states no fees, does the ad include “Property insurance is required”? If tax advantages stated, does the ad include “Consult your tax advisor”? Are there any triggering terms (any listed above under “open-end”; or, payment terms of the plan, worded in either the positive or the negative)? If triggering terms, are additional disclosures included (all of the ones listed above; and, any loan fee that is a percentage of the credit limit; estimate of any other plan opening fees; maximum APR if plan is variable; balloon payment disclosure; discount or premium rate disclosures? FAIR HOUSING ACT If the ad is for a dwelling-related loan, does it include the Equal Housing Lender logo and legend legibly? If the ad is for a dwelling-related loan, does it avoid discriminatory content? Copyright 2007, Integrated Compliance Solutions, LLC 58

Requirements Y/N E-SIGN/ELECTRONIC DISCLOSURES If the ad is on the Website, are the application disclosures included on the screen with the application or through a conspicuous, one-click, nonbypassable link before the application can be submitted? FACT PRESCREENING If this solicitation is made via prescreened list, is a Prescreened Opt Out Notice included and does the list include only the permissible information? DO NOT FAX, CALL, EMAIL If this solicitation will be made via fax, does the institution have an established business relationship or customer consent and does fax include the Opt-Out Notice? If this solicitation will be made via telephone, did the institution first screen the name against the FTC’s do-not-call list? If this solicitation will be made via email, does it include an Opt-Out Notice, physical address of the institution, and statement that it is an ad? Copyright 2007, Integrated Compliance Solutions, LLC 59

Scenarios Do these phrases include a “triggering term”? 1. 30 -year mortgage 2. $23. 44 per $1, 000 borrowed 3. No-cost HELOC available 4. 5. 50% Annual Percentage Rate 5. 5. 00% Interest Rate for Life! Copyright 2007, Integrated Compliance Solutions, LLC 60

Scenarios • Are these additional disclosures ok for a closed-end discounted ARM ad (triggering terms appear in the ad)? 1 -year adjustable rate mortgage of X. XXX% APR effective February 28, 2008. Based on a loan amount of $XXX, XXX with a XX% downpayment, the 1 -year ARM will have a monthly payment for the first year. Rate is then subject to increase or decrease each year. Copyright 2007, Integrated Compliance Solutions, LLC 61

• Are these additional disclosures ok for a fixed-rate mortgage ad (triggering terms appear in the ad)? X. XXX% APR effective February 26, 2008. Rates subject to change. Based on a loan amount of $XXX, with an XX% downpayment, the loan would be repaid in 360 monthly payments of $XXX. Copyright 2007, Integrated Compliance Solutions, LLC 62

• Are these additional disclosures ok for a variable-rate HELOC ad (triggering terms appear in the ad)? Based on the Wall Street Journal Prime Rate as of February 28, 2008, the initial APR would be X. XXX%, variable, and the non-discounted rate would be Y. YYY% variable. The maximum APR is ZZ. ZZZ%. Property insurance required. Minimum credit line is $XX, XXX. Annual fee is $XX. Available only for 1 -4 family owneroccupied properties located in CT. Consult your tax advisor. Copyright 2007, Integrated Compliance Solutions, LLC 63

Regulatory Resources q q q q www. ftc. gov http: //www. ftc. gov/donotcall www. philadelphiafed. org/srcinsights www. fdic. gov/regulations/laws/rules/4000 -100. html http: //www. occ. gov/handbook/til. pdf http: //www. federalreserve. gov/boarddocs/supmanual/cch/200711/cch 200711. pdf http: //www. ots. treas. gov/docs/4/428022. pdf http: //www. ncua. gov/Regulations. Opinions. Laws/rules_and_regs/NCU A_RR_Complete_2. pdf Copyright 2007, Integrated Compliance Solutions, LLC 64

ICS White Paper Refer to the attached ICS white paper regarding the amendments to

Contact Information Michele A. Johnson, CRCM Assistant Director Integrated Compliance Solutions mjohnson@icscompliance. com 203 -526 -1589 www. icscompliance. com Copyright 2007, Integrated Compliance Solutions, LLC 66