Mortgage firms are subject to a host of rules and regulations when they place an advertisement. The requirements apply regardless of how the message is distributed. Social media presents its own set of advertising challenges.
According to Regulation Z, which implements the Truth in Lending Act, a commercial message in any medium that directly or indirectly promotes a credit transaction is considered an advertisement. This includes printed materials like newspapers and magazines, direct mail and flyers. It also includes radio and television announcements as well as printed signs (exterior and interior ) and telephone solicitations.
Other mediums of advertising covered by Reg Z include digital advertisements like Internet ads and audio programs transmitted over a telephone system, telemarketing script or on-hold script.
The regulations were discussed in the Dec. 6 webinar, Advertising Dos and Don’ts for Mortgage Lenders and Brokers, hosted by Ballard Spahr LLP.
Ballard Spahr attorneys noted that individual states may define advertising differently than Reg Z.
The webinar indicated that when trigger terms are used in advertising, then additional disclosures are required including those that explain balloon payments, teaser rates and tax implications.
Reg Z prohibits ads that mislead consumers about a government endorsement. It also bans other misleading ads and prohibits the use of the current lender’s name, the term “counselor” and the use of foreign languages. Claims of debt elimination are also not allowed.
Ads for home-equity lines of credit prohibit the use of terms like “free money.”
Regulation N, the mortgage acts and practices advertising rule, prohibits material misrepresentation of any mortgage credit term. This includes things like monthly interest, loan expenses and prepayment penalties. It also includes comparisons involving variable terms like payments or rates. Other misrepresentations prohibited by Reg N include available cash or credit, the potential for default and the effectiveness of the loan to consolidate or restructure debt.
Ballard Spahr explained that if one regulator has a problem with advertising involving graphs, flags or consumer testimonials — among other things — then others will likely come to the same conclusion. Customer testimonials need to be attributed and verified — even those made on social media sites.
Among advertising practices that will garner the scrutiny of the Consumer Financial Protection Bureau are misrepresenting government affiliation, suggesting that rates offered on VA loans are part of an “economic stimulus plan” that will soon expire, and inaccurate rate information.
The CFPB is also looking for misleading statements on reverse mortgages and promises of pre-approval for guaranteed specific rates or terms.
Over at the Federal Trade Commission, lenders are scrutinized if they offer extremely low fixed rates without a discussion of significant loan terms. The FTC also is alerted when advertisements suggest a government affiliation or guarantees are offered without a discussion of the conditions that apply.
Whether or not the advertising occurs on social media, the focus is on the message and not the medium.
Ballard Spahr says lenders need to evaluate social media to determine how it will be used (i.e., for marketing purposes). Traditional rules apply regardless of how the message is delivered. Lenders are advised to consider re-purposing comments received through social media for commercial communications and to protect themselves against liability arising from content posted by third parties.
Lender’s also need to be careful about maintaining privacy when communication occurs with a client through social media.
When statements are edited on social media websites — such as removing only the negative comments and leaving the positive ones — then the lender becomes liable for the accuracy of those comments.
Ballard Spahr recommends that a social media policy and monitoring be implemented by all lenders. This will help them ensure that loan originators and other parties using their names aren’t violating advertising regulations.
“Companies must have policies and procedures requiring an appropriate and prior review of all consumer advertisements and marketing materials for legal compliance,” the webinar stated. “Employee training must emphasize the need for the review of all advertisements and marketing materials.”
Violations of advertising regulations can result in significant civil money penalties as well as legal and regulatory actions by state and federal regulators.
Ballard Spahr recently launched a new blog, CFPB Monitor, located at www.CFPBMonitor.com.
