Don't get burned by your toaster giveaway.

• Author: McCollough, Jennifer

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Your CEO has asked you to come up with a campaign to attract new interest-bearing checking account holders. You develop an offer to pay for the first order of preprinted checks (a $12.50 value) to any customer who opens an interest-bearing checking account with a $300 minimum deposit during the designated promotional period. To make the offer even sweeter, you propose that the bank throw in an additional $5 into the new account. The new account-holder, thus, will receive $17.50 in benefits.

You think you have a winner, but after consideration, you hesitate. You recall vaguely that some disclosure and reporting requirements are triggered when a bank gives cash or gifts worth more than $10 to a customer. Do these compliance requirements apply to your campaign?

If you are like many marketers, you are not sure. After all, you are a marketer, not a compliance officer.

Gifts and cash giveaways are a great marketing tool for financial institutions. But banks and thrifts must recognize that free stuff often carries a burden of regulatory disclosure or IRS reporting. It's not a heavy burden, but it is one that you must carry.

Let's look at the three areas of regulation that you need to be familiar with if you want to make intelligent decisions about the compliance implications of marketing campaigns. These are:

Truth in Savings and its implementing Regulation DD.

* Regulation Q.

* IRS reporting rules in the Internal Revenue Code and regulations.

In this article, we will talk about the first two topics--the Truth in Savings Act and Regulation DD and Regulation Q. In a follow-up in next month's issue, we will discuss IRS reporting rules.

Truth in Savings: The lightest load?

The Truth in Savings Act and its implementing Regulation DD require that a bank disclose key pieces of information about its deposit accounts to allow consumers to comparison shop for the deposit accounts that best fit their needs. The annual percentage yield (APY) is one such piece of information. The APY is a very "clean" comparative value. It looks at the interest rate being paid on an account and the term of the account and comes up with an annual value a customer can easily compare with accounts at different banks.

But the APY does not tell the customer the whole stoW. It does not, for example, include the value of any free stuff ("bonuses") that might be given to customers in addition to the interest the account will earn. A customer must therefore receive bonus information to more accurately compare deposit accounts.

And that is the Truth in Savings burden: disclosing sufficient information about the bonus to enable the customer to comparison shop. But before you can properly provide bonus information to a customer, you need to understand what constitutes a "bonus."

Defining "bonus"

Let's start with the incentives a bank might offer that are not bonuses. A bonus does not include waiving fees, reducing fees or absorbing expenses. When you waive the safe deposit box rental fee for a year for each new account customer, you have no bonus worries.

You will have bonus considerations, however, if your giveaway meets both of the following conditions:

* The free item--a premium, gift, award or other consideration--must have a value of more than...