When ‘Free’ Means Free

Regs spell out when you can—and can’t—advertise accounts as free.

September 26, 2011

Since the Federal Reserve issued its final rules on interchange fees, some financial institutions have decided to eliminate free checking as a strategy to recoup lost interchange income.

This is a strategy that could result in increased market share for those credit unions that continue to tout their free checking accounts to members. But it’s important to look at whether the checking accounts your credit union offers as “free” actually are free and whether the accounts or related services can be advertised as such.

Truth in Savings and NCUA Rules and Regulations Section 707.8 provide that advertisements must not be misleading or inaccurate and can’t refer to or describe an account as “free” or “no cost” if a credit union imposes any maintenance or activity fee on the account.

Appendix C of the regulation provides greater insight as to when credit unions can and can’t use “free” to describe an account or related services.

The rule also provides that a credit union can’t advertise that it waives fees if it imposes any maintenance or activity fee.

Maintenance and activity fees

Maintenance and activity fees might include:

  • Fees imposed for not meeting a minimum balance requirement;
  • Transaction and service fees that credit unions might reasonably expect to impose on a regular basis, including monthly service fees; and
  • Fees imposed to withdraw or transfer funds, or per transaction charges.

Fees for using ATMs or electronic transfer services that aren’t required to open an account aren’t maintenance and activity fees, however.

There are other specific instances where NCUA allows an account to be advertised as free. But credit unions should be careful because despite these provisions, credit unions still must ensure that the advertisement isn’t misleading.

Specific account services

NCUA rules allow a credit union to advertise a specific account service or feature as free so long as the credit union doesn’t impose a fee for that service or feature. For example, you might have free bill pay or free mobile banking services. So long as you don’t mislead members by implying that the account is free and that no other fee may be charged, then it’s acceptable to advertise the free bill pay or free mobile banking without actually linking them to a free checking account.

Keep in mind for mobile banking, however, that you may have other disclosures that should be included in the advertisement. These include the fact that although the credit union doesn’t charge fees for the service, the mobile carrier might charge fees for Internet access, text messaging, or e-mail services.

Limited time or conditions

NCUA rules also allow a credit union to advertise an account or specific account services as free even if they’re only free for a limited period of time. But in advertising the account or services as free, you also must state in the advertisement the time period that they’re free.

Another permissible use of free is when credit unions advertise accounts as free for members that meet certain conditions not related to share accounts, such as a member’s age.

For example, credit unions might advertise a share account as “free for persons over age 65,” even though it charges a maintenance or activity fee on accounts for members younger than 65.

So, when advertising an account or an account service as free, credit unions should always ensure that they’ve included the appropriate disclosures.

Additionally, be sure you’re not using “free” in ways that could be misleading or inaccurate.

ANDREA STRITZKE is vice president, regulatory compliance, for PolicyWorks. Contact her at