In response to a prior question, you stated that we can advertise the cost of an optional add-on checking account product that includes ID protection, among other benefits, as a “subscription” fee (rather than a “service” fee) if customers are not charged for services they do not receive. May we still refer to the cost of this product as a “subscription” fee if we do charge customers for services they do not receive but clearly disclose that customers who purchase this product may be charged for services they do not receive? The enrollment form customers must sign for this product indicates that they understand that registration or activation may be required for certain benefits and that they will be charged a monthly fee even if they do not register for or activate those benefits. The form also acknowledges that the customer has received a guide with information on how to activate and register for such benefits.

Jan 14, 2022

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Whether you refer to the cost of the add-on product as a “service” fee or “subscription” fee, we believe you should exercise caution when charging a fee for an add-on product that customers will not receive unless they take certain steps, as many banks have been cited for charging such fees. In our view, it may be advisable to monitor customers who are paying for add-on products to ensure that a significant proportion are indeed activating their benefits and that customers are not paying for services for years on end without activating them — in other words, monitoring for circumstances that may indicate an unfair, deceptive, or abusive act or practice related to the add-on services. However, with the proper disclosures, marketing, and other procedures related to your add-on products, as discussed in more detail below, we believe it is possible to charge such service or subscription fees without incurring liability for an unfair or deceptive act or practice.

We are aware of a bank that was cited by the Federal Reserve for representing to consumers that all the benefits of a deposit account add-on product would be effective on enrollment, when, in fact, consumers had to take additional steps to receive some of their benefits. In the consent order, the Federal Reserve noted that the bank “did not adequately disclose the two-step enrollment process to the accountholders at or prior to the time of enrollment.”

Unlike the cited bank, your disclosures appear to adequately inform your customers of the additional steps they must take to receive certain benefits, and that they will not receive these benefits — but will be charged for them — until these steps are taken.

Additionally, we recommend reviewing the CFPB’s guidance on marketing credit card add-on products, which we believe provides helpful suggestions for checking account add-on products.

The CFPB recommends considering the following factors when evaluating the effectiveness of your disclosures at preventing consumers from being misled about your add-on products:

(1) Is the statement prominent enough for the consumer to notice?

(2) Is the information presented in an easy-to-understand format that does not contradict other information in the package and at a time when the consumer’s attention is not distracted elsewhere?

(3) Is the information in a location where consumers can be expected to look or hear?

(4) Is the information in close proximity to the claim it qualifies?

The CFPB also recommends taking steps to ensure that the marketing and selling of add-on products is done in a manner that limits the potential for consumer harm. These steps include but are not limited to ensuring that:

(1) marketing materials reflect the actual terms and conditions of the product and are not misleading,

(2) any employee incentive programs tied to the sale of add-on products adheres to your bank’s guidelines and does not create incentives for employees to provided inaccurate information about the products,

(3) scripts and manuals used by telemarking and customer service representatives direct them to accurately state the terms and conditions of the products, including limitations on eligibility for benefits, prohibit enrolling customers for add-on products without clear affirmative consent after they have been informed of the terms and conditions, and provide clear guidance as to the wording and appropriate use of rebuttal language,

(4) to the maximum extent practicable, telemarketers and customer service representatives do not deviate from approved scripts, and

(5) cancellation requests are handled in a manner consistent with the product’s actual terms and conditions and that does not mislead the consumer.

Additionally, the CFPB recommends employing compliance management programs that include written policies and procedures governing add-on products, quality assurance reviews, independent audits of the add-on program, oversight of any affiliates or third-party service providers that perform marketing functions related to the product, an appropriate channel for receiving, investigating, and resolving consumer complaints related to add-on products, and a comprehensive training program for employees involved in the marketing, sale, and operation of add-on products.

For resources related to our guidance, please see:

Federal Reserve issues enforcement action with Community Trust Bank, Inc. (July 26, 2018) (“As detailed in the consent order, the bank violated section 5 of the Federal Trade Commission Act in its offering of deposit account add-on products to consumers. The bank represented to consumers that all of the add-on product benefits would be effective upon enrollment when, in fact, consumers had to take additional steps to receive some of their benefits. The bank did not adequately disclose the additional steps prior to enrollment and did not explain to consumers that they would be billed regardless of benefit activation.”)

Community Trust Bank, Inc. Consent Order (July 25, 2018) (“The Bank did not adequately disclose this two-step enrollment process to the accountholders at or prior to the time of enrollment, or that the accountholders would billed regardless of benefit activation.”)

CFPB Bulletin 2012-06 (July 18, 2012) (“The CFPB considers the following factors in evaluating the effectiveness of disclosures at preventing consumers from being misled, including where disclosures relate to add-on products:

[1] Is the statement prominent enough for the consumer to notice?

[2] Is the information presented in an easy-to-understand format that does not contradict other information in the package and at a time when the consumer’s attention is not distracted elsewhere?

[3] Is the information in a location where consumers can be expected to look or hear?

[4] Is the information in close proximity to the claim it qualifies?”)

CFPB Bulletin 2012-06 (July 18, 2012) (“Institutions supervised by the CFPB should take steps to ensure that they market and sell credit card add-on products in a manner that limits the potential for statutory or regulatory violations and related consumer harm. These steps should include, but are not limited to, ensuring that:

[1] Marketing materials, including direct mail promotions, telemarketing scripts, internet and print ads, radio recordings, and television commercials, reflect the actual terms and conditions of the product and are not deceptive or misleading to consumers;

[2] Employee incentive or compensation programs tied to the sale and marketing of add-on products require adherence to institution-specific program guidelines and do not create incentives for employees to provide inaccurate information about the products;

[3] Scripts and manuals used by the institution’s telemarketing and customer service centers:

[i[i][/i]] Direct the telemarketers and customer service representatives to accurately state the terms and conditions of the various products, including material limitations on eligibility for benefits;

[ii] Prohibit enrolling consumers in programs without clear affirmative consent to purchase the add-on product, obtained after the consumer has been informed of the terms and conditions;

[iii] Provide clear guidance as to the wording and appropriate use of rebuttal language and any limits on the number of times that the telemarketer or customer service representative may attempt to rebut the consumer’s request for additional information or to decline the product; and

[iv] Where applicable, make clear to consumers that the purchase of add-on products is not required as a condition of obtaining credit, unless there is such a requirement.

[4] To the maximum extent practicable, telemarketers and customer service representatives do not deviate from approved scripts;

[5] Applicants are not required on a prohibited basis to purchase add-on products as a condition of obtaining credit; and

[6] Cancellation requests are handled in a manner that is consistent with the product’s actual terms and conditions and that does not mislead the consumer.”)

CFPB Bulletin 2012-06 (July 18, 2012) (“In addition, institutions that offer credit card add-on products should employ compliance management programs that include:

[1] Written policies and procedures governing credit card add-on products designed to ensure compliance with prohibitions against deceptive acts and practices, TILA, ECOA, and any other applicable Federal and state consumer financial protection laws and regulations,

[2] A system of periodic Quality Assurance reviews, the scope of which includes, but is not limited to, reviews of training materials and scripts, as well as real-time monitoring and recording of telemarketing and customer service calls in their entirety, consistent with applicable laws,

[3] Independent audits of the credit card add-on programs, which address the items listed above and consider whether these programs present elevated risk of harming consumers,

[4] Oversight of any affiliates or third-party service providers that perform marketing or other functions related to credit card add-on product so that these third-parties are held to the same standard, including audits, quality assurance reviews, training, and compensation structure,

[5] An appropriate channel for receiving, investigating, and properly resolving consumer complaints related to add-on products, and

[6] A comprehensive training program for employees involved in the marketing, sale, and operation of credit card add-on products.”)