03-10613. Accuracy of Advertising and Notice of Insured Status

AGENCY:

National Credit Union Administration.

ACTION:

Final rule.

SUMMARY:

The National Credit Union Administration (NCUA) is revising its rule governing advertising and the requirements for use of the official sign and official advertising statement regarding insured status. The revision modernizes and streamlines the rule for ease of reference and addresses the growing use of the Internet for member transactions and the use of trade names in advertising.

EFFECTIVE DATE:

This rule is effective July 1, 2003.

FOR FURTHER INFORMATION CONTACT:

Dianne M. Salva, Staff Attorney, Division of Operations, Office of General Counsel, at the National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia, 22314, or telephone: [phone].

SUPPLEMENTARY INFORMATION:

I. Background

On September 19, 2002, the NCUA Board (the Board) approved the publication of a proposal to update and streamline Part 740, NCUA's regulation requiring accuracy and honesty in insured credit union (CU) advertising and governing a CU's use of the official sign and official advertising statement to inform members of federal share insurance coverage. 67 FR 60604 (September 26, 2002).

The Official Sign: The regulation requires CUs to display the official sign, which sets out in large type “NCUA” and in smaller type states, “Your savings federally insured to $100,000,” at each teller station or window where insured account funds or deposits are normally received. The purpose of the rule is to ensure that, at the time they deposit funds or transact business with an insured CU, members are informed of the fact that federal share insurance applies to their accounts.

The Official Advertising Statement: The regulation, although containing various exemptions, also requires a CU to include the official advertising statement in any advertising including marketing materials in print, radio or television. The official advertising statement must state in substance, “This credit union is federally insured by the National Credit Union Administration.” Alternatively, the CU may use the short form advertising statement, “Federally insured by NCUA” with a reproduction of the official sign described above.

The proposal clarified the rule's application to Internet advertisements and member transactions on CU Web sites. It also incorporated legal interpretations permitting CUs to use trade or other names in advertisements and made other minor changes, including rewording it in a plain English style and placing the provisions regarding advertising excess insurance in a separate subsection.

II. Comments

NCUA received fourteen comments from the public. Seven commenters expressed their support for the amendment permitting the use of trade names in advertising. The proposal stated that, while CUs may use trade or other names in advertising, they must use their official charter name in all official or legal documents. The proposal did not include share certificates among the official or legal documents in which CUs must identify themselves with their official charter name. This was an inadvertent omission that has been corrected in the final rule. The purpose in excluding the use of trade names in official or legal documents is to ensure that members do not misinterpret the level of share insurance available to them. The Board agrees with a commenter who suggested that if a CU used the full charter name the first time it appears in a legal document and an acronym later in the same document members would be sufficiently informed about the identity of the CU and the availability of share insurance.

Thirteen commenters supported the requirement to use the official sign and official advertising statement on Internet Web sites, with five stating that the revised rule offered CUs flexibility and would not impose a significant burden. One commenter emphasized that the benefit to consumers would far outweigh any cost incurred by the credit union. Two state leagues stated that most of their credit unions were already in compliance.

Six commenters, while supportive of the proposal, suggested that NCUA permit CUs to alter the official sign's color and font sizes to ensure it is legible and visually prominent on an Internet screen. Although the proposed rule did not suggest any changes to the color or font size of the official sign, the Board agrees that the official sign must be legible to fulfill the purpose of the rule. The Board believes that additional flexibility may be helpful given the size constraints of an Internet screen and the rule's requirement that the sign appear on the same page where other information will also appear. For that reason, the Board is including in the final rule a provision that CUs may vary the font size of the text within the official sign to ensure the text is legible. The Board also recognizes that CUs may find the requirement in the current rule that the official sign appear in blue with white lettering to be unduly restrictive. Many CUs devote significant resources to the design and aesthetics of their Web sites, with a focus on attracting both new and existing members to view the information and transact business. Some commenters were concerned that the traditional colors might be less visible or contrast with CU Web site designs. The Board is most concerned that the message of the official sign is conveyed clearly. The Board also does not want CUs to be unnecessarily restricted in the color or design of their Web sites by the need to display the official sign in only the traditional colors of blue and white. In the past, NCUA has been asked to consider similar flexibility in the color of the official signs CUs display at teller windows or stations at “brick and mortar” locations. The Board sees no reason why CUs should not use the colors of their choosing on the official signs they display both on CU Web sites and in their lobbies. For these reasons, the Board has eliminated from the final rule the requirement that the official sign , have a blue background with white lettering. NCUA will continue to supply CUs with official signs, but will produce them only in the traditional blue and white.

Six commenters also stated that it is unnecessary to require the official sign or advertising statement on Internet pages other than the credit union main page. As an alternative two commenters suggest that the rule only require the official sign on the main page and the log-on screen where members identify themselves in order to conduct transactions on-line, or a membership application page or pages advertising deposit-related products. The Board agrees with these suggestions. All CU Internet sites that permit members to conduct transactions require members to identify themselves on a log-on screen. Displaying the official sign there will provide adequate notice of federal share insurance to the member. Further, displaying the official sign or advertising statement on the page where a viewer can apply for membership or see an advertisement for an insured deposit or share-related product will ensure that the message about federal share insurance is available when it is most relevant.

One commenter suggested that CUs that currently do not display an official sign or advertising statement on their Web sites may need additional time to comply with the proposed changes. The Board wishes to permit CUs ample opportunity to incorporate the official sign and advertising statement into their Web sites, so it is adopting an effective date 60 days following publication of the final rule.

The final rule is identical to the proposed rule with the exception of minor editorial changes, the addition of share certificates among the official or legal documents in which CUs must identify themselves with their official charter name, the provision permitting CUs to use alternative font sizes in the official sign displayed on their Internet Web sites and the elimination of the color requirement for the official sign.

III. Regulatory Procedures

Regulatory Flexibility Act

The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact any proposed regulation may have on a substantial number of small entities (those under $1 million in assets). The final amendments will not have a significant economic impact on a substantial number of small credit unions and, therefore, a regulatory flexibility analysis is not required.

Paperwork Reduction Act

NCUA has determined that the final regulation does not increase paperwork requirements under the Paperwork Reduction Act of 1995 and regulations of the Office of Management and Budget.

Executive Order 13132

Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. In adherence to fundamental federalism principles, NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order. The executive order states that: “National action limiting the policymaking discretion of the states shall be taken only where there is constitutional and statutory authority for the action and the national activity is appropriate in light of the presence of a problem of national significance.” This rule will apply to both federal and state credit unions. It does not significantly change the current regulatory framework. It will not have a substantial direct effect on states, the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. NCUA has determined that the rule does not constitute a policy that has federalism implications for purposes of this executive order.

The Treasury and General Government Appropriations Act, 1999—Assessment of Federal Regulations and Policies on Families

The NCUA has determined that this rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 (1998).

Agency Regulatory Goal

NCUA's goal is to promulgate clear and understandable regulations that impose minimal regulatory burden. The regulatory change is understandable and imposes minimal regulatory burden.

Small Business Regulatory Enforcement Fairness Act

The Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121) provides generally for congressional review of agency rules. A reporting requirement is triggered in instances where NCUA issues a final rule as defined by Section 551 of the Administrative Procedure Act. 5 U.S.C. 551. The Office of Management and Budget has found that this rule is not a major rule for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996.

List of Subjects 12 CFR Part 740

• Advertisements
• Credit unions

By the National Credit Union Administration Board on April 24,2003.

Becky Baker,

Secretary of the Board.

For the reasons set forth in the preamble, NCUA revises 12 CFR part 740 as follows:

PART 740—ACCURACY OF ADVERTISING AND NOTICE OF INSURED STATUS

740.0

Scope.

740.1

Definitions.

740.2

Accuracy of advertising.

740.3

Advertising of excess insurance.

740.4

Requirements for the official sign.

740.5

Requirements for the official advertising statement.

The authority citation for part 740 continues to read as follows:

Authority: 12 U.S.C. 1766, 12 U.S.C. 1781, 12 U.S.C. 1789.

§ 740.0

Scope.

This part applies to all federally insured credit unions. It prescribes the requirements for the official sign insured credit unions must display and the requirements with regard to the official advertising statement insured credit unions must include in their advertisements. It requires that all other kinds of advertisements be accurate. It also establishes requirements for advertisements of excess insurance.

§ 740.1

Definitions.

(a) Account or accounts as used in this part means share, share certificate or share draft accounts (or their equivalent under state law, as determined by the Board in the case of insured state credit unions) of a member (which includes other credit unions, public units, and nonmembers where permitted under the Act) in a credit union of a type approved by the Board which evidences money or its equivalent received or held by a credit union in the usual course of business and for which it has given or is obligated to give credit to the account of the member.

(b) Insured credit union as used in this part means a credit union insured by the National Credit Union Administration (NCUA).

§ 740.2

Accuracy of advertising.

No insured credit union may use any advertising (which includes print, electronic, or broadcast media, displays and signs, stationery, and other promotional material) or make any representation which is inaccurate or deceptive in any particular, or which in any way misrepresents its services, contracts, or financial condition, or which violates the requirements of § 707.8 of this subchapter, if applicable. This provision does not prohibit an insured credit union from using a trade name or a name other than its official charter name in advertising or signage, so long as it uses its official charter name in communications with NCUA and for share certificates or certificates of deposit, signature cards, loan agreements, account statements, checks, drafts and other legal documents.

§ 740.3

Advertising of excess insurance.

Any advertising that mentions share or savings account insurance provided by a party other than the NCUA must clearly explain the type and amount of such insurance and the identity of the carrier and must avoid any statement or implication that the carrier is affiliated with the NCUA or the federal government.

§ 740.4

Requirements for the official sign.

(a) Each insured credit union must continuously display the official sign described in paragraph (b) of this section at each station or window where insured account funds or deposits are normally received in its principal place of business and in all its branches, 30 days after its first day of operation as an insured credit union. Each insured credit union must also display the official sign on its Internet page, if any, where it accepts deposits or open accounts, but it may vary the font sizes from that depicted in paragraph (b) of this section to ensure its legibility.

(b) The official sign shall be as depicted below:

(1) NCUA will automatically supply all insured credit unions an initial supply of official signs with a blue background and white lettering at no cost for compliance with paragraph (a) of this section. If the initial supply is not adequate, the insured credit unions must immediately request additional signs from NCUA. Any credit union that does not have an adequate supply but requests additional signs from NCUA will not be considered to have violated paragraph (a) of this section unless the credit union fails to display the signs after receiving them.

(2) Insured credit unions may purchase additional signs from commercial suppliers in additional colors, materials and sizes, for uses other than those required by paragraph (a) of this section.

(c) An insured credit union must not receive account funds at any teller's station or window where any noninsured credit union or institution receives deposits. Excepted from this prohibition are credit union centers, service centers, or branches servicing more than one credit union where only some of the credit unions are insured by the NCUA. In such instances, immediately above or beside each official sign there must be another sign stating, “Only the following credit unions serviced by this facility are federally insured by the NCUA _” (the full name of each credit union insured will follow the word NCUA). The lettering must be of such size and print to be clearly legible to all members conducting share or share deposit transactions.

(d) The Board may require any insured credit union, upon at least 30 days' written notice, to change the wording of its official signs in a manner deemed necessary for the protection of shareholders or others.

(e) For purposes of this section, the terms “branch,” “station,” “teller station,” and “window” do not include automated teller machines or point of sale terminals.

§ 740.5

Requirements for the official advertising statement.

(a) Each insured credit union must include the official advertising statement, prescribed in paragraph (b) of this section, in all of its advertisements, including on its main Internet page, except as provided in paragraph (c) of this section.

(1) An insured credit union must include the official advertising statement in its advertisements thirty (30) days after its first day of operations as an insured credit union unless the Regional Director grants it an extension.

(2) If advertising copy without the official advertising statement is on hand on the date the requirements of this section become operative, the insured credit union may use an overstamp or other means to include the official advertising statement until the supplies are exhausted.

(b) The official advertising statement is in substance as follows: This credit union is federally insured by the National Credit Union Administration. The short title “Federally insured by NCUA” and a reproduction of the official sign may be used by insured credit unions at their option as the official advertising statement. The official advertising statement must be in a size and print that is clearly legible.

(c) The following advertisements need not include the official advertising statement:

(1) Statements of condition and reports of condition of an insured credit union which are required to be published by state or federal law or regulation;

(2) Credit union supplies such as stationery (except when used for circular letters), envelopes, deposit slips, checks, drafts, signature cards, account passbooks, and noninsurable certificates;

(3) Signs or plates in the credit union office or attached to the building or buildings in which the offices are located;

(4) Listings in directories;

(5) Advertisements not setting forth the name of the insured credit union;

(6) Display advertisements in credit union directories, provided the name of the credit union is listed on any page in the directory with a symbol or other descriptive matter indicating it is insured;

(7) Joint or group advertisements of credit union services where the names of insured credit unions and noninsured credit unions are listed and form a part of such advertisement;

(8) Advertisements by radio that do not exceed thirty (30) seconds in time;

(9) Advertisements by television, other than display advertisements, that do not exceed thirty (30) seconds in time;

(10) Advertisements that because of their type or character would be impractical to include the official advertising statement, including but not limited to, promotional items such as calendars, matchbooks, pens, pencils, and key chains;

(11) Advertisements that contain a statement to the effect that the credit union is insured by the National Credit Union Administration, or that its accounts and shares or members are insured by the Administration to the maximum of $100,000 for each member or shareholder;

(12) Advertisements that do not relate to member accounts, including but not limited to advertisements relating to loans by the credit union, safekeeping box business or services, traveler's checks on which the credit union is not primarily liable, and credit life or disability insurance.

(d) The non-English equivalent of the official advertising statement may be used in any advertisement provided that the Regional Director gives prior approval to the translation.