Accuracy of Advertising and Notice of Insured Status

AGENCY:

National Credit Union Administration (NCUA).

ACTION:

Notice of proposed rulemaking and request for comments.

SUMMARY:

The NCUA Board proposes revising its rule governing advertising and the requirements for use of the official sign and official advertising statement regarding insured status. The purpose of the revision is to modernize the rule to address the growing use of the Internet for member transactions, the use of trade names, and clarify and streamline the existing rule for ease of reference.

DATES:

Comments must be received on or before November 25, 2002.

ADDRESSES:

Direct comments to Becky Baker, Secretary of the Board. Mail or hand-deliver comments to: National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. You may fax comments to (703) 518-6319. E-mail comments to regcomments@ncua.gov. Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT:

Dianne M. Salva, Staff Attorney, Division of Operations, Office of General Counsel, at the above address or telephone (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Background

The NCUA Board (Board) is proposing to revise its regulation concerning an insured credit union's (CU's) advertising practices and use of the official sign and official advertising statement to notify members of the CU's insured status. The NCUA policy to review regulations periodically to “update, clarify and simplify existing regulations and eliminate redundant and unnecessary provisions” prompted this revision. Interpretive Ruling and Policy Statement (IRPS) 87-2, Developing and Reviewing Government Regulations.

Trade Names

NCUA's Office of General Counsel (OGC) has issued several opinions interpreting Part 740 to permit CUs to use trade names in advertising. Several CUs have written to the OGC concerning the use of trade names in advertising. Some CUs prefer to use a trade name or signage with a name other than the official charter name. In one case, an OGC opinion approved the use of a trade name that is an abbreviation of the official charter name. To foster member recognition, another OGC opinion approved the use of a second name, other than the official charter name, to reflect the trade name of a sponsor. In yet another case, an OGC opinion permitted the use of a trade name that did not include the words, “federal credit union.” Since OGC has received multiple questions from CUs on this issue, the Board has determined that it could make the rule more informative by incorporating the OGC's interpretations into the regulatory text. Similarly, NCUA has issued guidance to CUs on the use of more than one name. NCUA Letter to Credit Unions No. 99-CU-17 (October 1999).

While the use of more than one name or a trade name in advertisements is acceptable, a CU must use its official charter name in all official or legal documents and in communications with NCUA. Of utmost concern to NCUA is that the use of a trade name does not confuse members about the level of share insurance applicable to their accounts. For that reason, a CU using a trade name or a second name must use its official charter name on consumer disclosures, contracts, titles, liens, stocks or other documents that set out legal responsibilities or obligations. It must also ensure that its staff advises new members that accounts opened or deposits made in branches or facilities with different names are not separately insured. A CU must also ensure that it does not violate the rights of another party in a trade name. For ease of reference, the proposal revises § 740.2 to clarify that it does not prohibit the use of trade or second names, but that CUs must use the official charter name in legal documents.

Internet

Currently, over 40 percent of all federally insured credit unions have a web site and almost half offer members the ability to perform transactions. Since increasing numbers of CUs are using the Internet to advertise their services and conduct transactions with members, the Board is concerned that members receive adequate notice about the availability of federal share insurance when they use the Internet to engage in transactions. Part 740 requires CUs to display the official sign at each station or window where insured account funds or deposits are usually received. 12 CFR 740.3. It also requires CUs to include the official advertising statement in advertisements. The proposal revises this provision to address the use of the official advertising sign and official advertising statement on the Internet more clearly.

NCUA is aware that CUs use the Internet to offer services to current members and to invite new members to join. This does not differ from advertising on television, radio or newspapers. To the extent Part 740 requires a CU to include the official advertising statement in advertisements in other media, the NCUA Board believes it should also require it for advertisements on the Internet. The proposal would require CUs to display the official advertising statement on their main or home page at minimum. Further, many CUs have links from their main or home page to subsidiary pages where a member may conduct transactions, such as deposits or fund transfers, and where nonmembers may apply for membership. These pages are analogous to a teller window or station at a CU office. The proposal would also require the CU to display the official sign on all subsidiary pages where a member may transfer or deposit funds or open an account.

The Board notes that most CUs operating Internet sites already display the official sign and advertising statement in this manner and is pleased that the proposal will not add a significant regulatory burden.

Since advertising on the Internet is so closely analogous to advertising in other media, the Board believes the requirement in § 740.2 for accuracy in advertising should also apply to electronic advertisements. The proposal, therefore, amends § 740.2 to include electronic media.

Other proposed changes to the regulation are minor and editorial. For example, the proposal retitles the rule to reflect the content more clearly. It also reorganizes § 740.2 into two sections for clarity and ease of reference. In the proposal, § 740.2 covers accuracy in advertising and the new § 740.3 covers advertising of excess insurance. Finally, without changing the meaning, the proposal clarifies and simplifies the language of the rule and headings by reducing excess verbiage and rewording it in a plain English style.

Regulatory Procedures

Regulatory Flexibility Act

The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a proposed rule may have on a substantial number of small entities (primarily those under one million dollars in assets). This proposed rule will not have a significant economic impact on a substantial number of small credit unions, and therefore, no regulatory flexibility analysis is required.

Paperwork Reduction Act

NCUA has determined that the proposed rule 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 regulatory 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. This proposed rule, if adopted, will apply to both federal and state credit unions. It does not, however, significantly change the current regulatory framework. It will not have a substantial direct effect on states, on 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 proposed rule does not constitute a policy that has federalism implications for purposes of the executive order.

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

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

Agency Regulatory Goal

NCUA's goal is to promulgate clear and understandable regulations that impose minimal regulatory burden. We request your comments on whether the proposed rule is understandable and minimally intrusive if implemented as proposed.

List of Subjects in 12 CFR Part 740

• Advertisements
• Credit unions

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

PART 740—ACCURACY OF ADVERTISING AND NOTICE OF INSURED STATUS

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