Promotions or Bonus Programs
    • 03 Jan 2024
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    Promotions or Bonus Programs

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    Article summary

    Compliance for New Bonus or Promotion Programs

    Structuring a promotions or bonus program requires striking a balance between attracting and rewarding customers and adhering to legal, ethical, and operational considerations. Regular monitoring, clear communication, and a strong focus on the customer experience can contribute to a successful and compliant program.

    Below are some of the key considerations when proposing and structuring a promotions or bonus program:

    Understand Regulatory Requirements

    • Research and comply with federal, state, and international regulations (if applicable) that may apply, including UDAAP guidelines - compliance with UDAAP is vital. These guidelines mandate transparent, fair, and non-abusive practices.
    • Consider consulting with a legal expert to ensure that all aspects of the program are compliant. This is particularly important if the program is large scale, complex, or targets more vulnerable populations such as lower-income customers, non-native speakers, elderly customers, and students.

    Ensure Clarity and Transparency

    • Clearly articulate the terms, conditions, and eligibility criteria of the promotion or bonus. Every condition, restriction, and eligibility criterion should be explicitly stated in clear language that the average consumer can understand. Avoid small font or inconspicuous disclaimers or hiding important disclosures that require multiple clicks to read.
    • Avoid hidden fees or clauses that might confuse or mislead customers. If there are any costs or fees associated with the program, these should be disclosed upfront, with no hidden or surprise charges.

    Maintain Fairness

    • Design the program to be attainable and fair to all eligible customers. The requirements for earning a bonus or participating in a promotion should be reasonable and attainable for the target customer base.
    • Avoid practices that may seem discriminatory or biased. The program must be structured in a way that does not discriminate against certain customer segments or unfairly favor others. This includes considering factors like geography, age, income level, etc.
    • The rules and rewards should be applied consistently to all eligible participants, with no arbitrary changes or exclusions.

    Safeguard Privacy and Security

    • Ensure compliance with relevant privacy laws and if required, consider any changes that must be made to your existing Privacy Policy. Examples may include collecting additional personally-identifiable information and storing or using that information for marketing or sharing it with other third parties / affiliates.

    Design with the Customer in Mind

    • Consider the target audience and design offers that will be attractive to them.
    • Make the process of joining and participating in the program user-friendly.

    Monitor and Evaluate the Program

    • Set up tracking and monitoring to ensure the program operates as intended.
    • Regularly review the program’s success and make adjustments as needed.
    • Track any potential fraud arising from the program such as referral fraud, multiple account creation fraud, and social engineering or phishing attacks that are incented through the promotions program. This can include utilizing multi-factor authentication and device tracking / IP tracking to mitigate the fraud.

    Communicate Effectively

    • Ensure all marketing and promotional materials are consistent and honest.
    • Establish clear channels for customer support and inquiries related to the program.

    Consider Ethical Implications

    • Align the program with the company’s ethical guidelines and corporate social responsibility goals.
    • Avoid practices that could be perceived as manipulative or taking advantage of customers.

    Prepare for Scalability and Sustainability

    • Plan for the potential growth or reduction of the program.
    • Consider the long-term impact on customer retention, revenue, and brand reputation.

    Employee Training and Alignment

    • Train staff to accurately represent and explain the program to customers.
    • Ensure that all stakeholders understand the program's goals and compliance requirements.

    UDAAP Violations

    UDAAP Considerations

    Bonus programs are subject to various potential laws and regulations including UDAAP (Unfair, Deceptive, or Abusive Acts and Practices) rules, particularly for programs targeting consumers. Mismanagement or mis-marketing of bonus programs can result in reputational damage, regulatory fines, and bank partnership violations. Real world examples of UDAAP and consumer compliance enforcement actions can be found on the CFPB's website.

    Examples of potential UDAAP violations include the following scenarios. Unfortunately, UDAAP compliance is rarely a simple checklist and can be interpretive. It is always important to consider the target customer, circumstances, and underlying principles of UDAAP.

    • Misleading Rewards for Deposits: Offer a $50 bonus for new users who deposit "up to $500." However, the full bonus is only granted if exactly $500 is deposited, with lesser amounts receiving a reduced bonus. This could be deceptive if not clearly communicated.

    • Opaque Conditions for Account Tier Bonuses: Offer premium tiers with added benefits, like higher interest rates, for maintaining larger balances. However, the interest rates change and are not adequately disclosed. This could be seen as unfair.

    • Complicated Referral Programs: Offer a referral program where if a user refers 10 friends, they receive $100. However, the fine print states that these friends need to make transactions totaling a certain amount before the bonus is released. If this isn't clearly communicated, it can be deceptive. Separately, this can be considered deceptive if referring 10 friends that must qualify under certain circumstances is considered unachievable to receive the bonus.

    • Surprise Fees on "Free" Offers: A promotion offers a "free" financial advisory session for new account holders, but users are later charged a "service fee" after the session. This is deceptive if the fees aren't disclosed upfront.

    • Promising Quick Bonuses, Delivering Late: Promising instant bonuses for certain actions (like setting up direct deposit), but there are consistent, prolonged delays in the bonus payouts without a clear reason. This could be considered unfair.

    • Exclusive Offers without Clear Criteria: Offering exclusive deals or higher bonus rates to "selected" customers without clear criteria for selection. If the selection process is arbitrary or potentially discriminatory, this might be viewed as unfair or abusive.

    • Changing Terms without Notice: Frequently changing the terms of the bonus program without adequately notifying customers, this can be considered unfair or deceptive, especially if customers make decisions based on the initial terms.

    • High-Pressure Tactics: Using aggressive or high-pressure tactics to push users into taking advantage of a bonus offer (e.g., warning of dire financial consequences if not accepted), this could be viewed as abusive.

    • Restrictive Redemption: A promotion provides rewards in the form of "points," but the process for converting these points to cash or other tangible benefits is overly restrictive, convoluted, or expensive. This can be seen as deceptive or unfair if not transparently communicated.

    • Terminating Programs without Warning: If a promotion or bonus program is abruptly ended without adequate notice, leaving customers who thought they would qualify without expected rewards, this can be seen as unfair.

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