A TTS Production Marketing & Advertising Compliance, including UDAAP Expectations 0 of 51 Advertising Basics What is an advertisement? Reg. DD: a commercial message, in any medium and in virtually any form, that promotes directly or indirectly the availability of a product FDIC: a commercial message, in any medium, that is designed to attract public attention or patronage to a product or business All media is covered: radio, TV, print ads, Internet, etc. The Internet is considered a print medium under the rules Billboards and rate boards in branch lobbies are also considered ads When the institution controls the content and/or pays for its publication, it must follow the rules Rate sheets, or other publications over which the institution has no control are not advertisements (i.e. rate tables in the Sunday paper) UDAP/UDAAP: any communication with customers that communicates information about products or services, in whatever form is subject to examination 1 of 51
Latest Developments FTC Enforcement Policy Statement Addressing Native Advertising and Deceptively Formatted Advertisements (12/22/15) https://www.ftc.gov/news-events/press-releases/2015/12/ftc-issues-enforcementpolicy-statement-addressing-native Explains how consumer protection principles apply to different advertising formats, including native ads that look like surrounding non-advertising content Promotional messages should be identifiable as advertisements contains examples Has proximity and placement, prominence, and clarity guidance Both what the ad says and the format it uses to convey that information will be relevant. Any clarifying information necessary to prevent deception must be disclosed clearly and prominently to overcome any misleading impression. General principles FTC considers in determining whether any particular ad format is deceptive and violates the FTC Act 2 of 51 Latest Developments CFPB guidance and bulletin about marketing services agreements http://www.consumerfinance.gov/about-us/newsroom/cfpb-provides-guidanceabout-marketing-services-agreements/ (10/8/15) RESPA Section 8 prohibition against kickbacks and unearned fees Applies in consumer mortgage loan environment [W]hile marketing services agreements are usually framed as payments for advertising or promotional services, in some cases the payments are actually disguised compensation for referrals. Any agreement that entails exchanging a thing of value for referrals of settlement service business likely violates federal law, regardless of whether a marketing services agreement is part of the transaction. Examples provided: CFPB found a title insurance company that entered into marketing services agreements where the fees paid by the company were based in part on the number of referrals it received, as well as the revenue generated by those referrals 3 of 51
Latest Developments FTC annual financial acts enforcement report to CFPB (6/9/15) https://www.ftc.gov/news-events/pressreleases/2015/06/ftc-staff-provides-annualfinancial-acts-enforcement-report Details FTC s enforcement, research, rulemaking, and policy development activities with Regs. E, M, and Z Includes enforcement actions related to non-mortgage credit Auto finance and payday lending, mortgage loan advertising, and forensic audit scams Consumer and business outreach with Reg. Z requirements 4 of 51 Unfair or Deceptive Acts or Practices (UDAP) You may only advertise terms that are actually available No ad may be unfair or deceptive 5 of the FTC Act Applies to all ad types consumer and commercial Be careful of your audience who is likely to respond to the ad? Vulnerable populations 5 of 51
Unfair What makes an advertisement unfair? 1. It causes or is likely to cause substantial injury Injury means monetary harm, but substantial doesn t mean that much Small harm (misstatement of the rate or fees) to a large amount of people Look to how products are advertised are they accurate? 2. That cannot be reasonably avoided, and Unavoidable when it interferes with a consumer s ability to make a informed decision Omissions of fees or rate practices 3. The injury is not outweighed by any benefit to the consumer Outweighed net effect is to harm consumers; found in virtually all these situations 6 of 51 Deceptive What makes a practice deceptive? 1. The practice misleads or is likely to mislead; Likely to mislead looks at what is said as well as what is not said Is the rate artificially low? Is the initial rate more prominent than it should be? Are adjustments left unsaid in the ad? 2. A reasonable consumer would be misled, and Reasonable consumer is the target audience for the ad Who is likely to apply? 3. The practice is material Material practice again means likely to affect a consumer s choice This again is virtually everything 7 of 51
UDAP + Abusive = UDAAP Dodd-Frank added abusive to come up with UDAAP Who does this standard apply to? What makes a practice abusive? Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service Takes unreasonable advantage of : A lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service The inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service Reasonable reliance by the consumer on a covered person to act in the interests of the consumer 8 of 51 Unfairness in Other Regulations Unfairness is already built into other rules Especially related to advertising Reg. Z requires only actually available terms be offered: only those terms that actually are or will be arranged or offered by the creditor be stated Reg. DD prohibits misleading or inaccurate advertisements, further stating that an advertisement shall not misrepresent a depository institution s contract Reg. B, FHA, and fair lending If a practice unfairly targets or has a disparate impact on members of a protected class, it may also be considered unfair 9 of 51
FTC UDAP Mortgage Rules Bans deceptive mortgage ads Bans material misrepresentations for all mortgages Would allow FTC and the states to seek civil penalties against violators 16 CFR 321: Lists examples of misrepresentations about fees, costs, obligations, and others that would be violations Does NOT cover banks, thrifts, federal credit unions, and other entities that are outside FTC s jurisdiction But can serve as a basis for UDAP/UDAAP 10 of 51 CFPB Enforcement Actions Focus on Practices (the P in UDAAP) Sales and marketing practices engaged in deceptive tactics to sell products misled about the benefits deceived about the nature of the products misinformed about cost of the products Cancellation practices, marketers scripts, and sales practices were the focus of the order, not the add-on products themselves 11 of 51
CFPB Enforcement Actions Consent Orders to resolve allegations that vendors deceptively marketed ancillary products Such as payment protection and credit monitoring Will refund approximately $140 million to roughly 2 million customers, and $25 million penalty Recipients prohibited from selling and marketing certain ancillary products until obtaining approval to do so Also must take specific actions to enhance compliance with consumer financial laws Consent order on how free checking accounts are marketed Free isn t really free Consent orders concentrated on sales practices, not products or services How scripting is maintained, responses, customer understanding UDAAP focus is clear, focus on deception 12 of 51 CFPB Expectations CFPB Bulletin 2012-06 Expects supervised institutions and their vendors to offer ancillary products in compliance with federal consumer financial laws Reviews applicable federal law and outlines compliance program components that CFPB expects supervised institutions to maintain Cites supervisory experience [that] indicates that some credit card issuers have employed deceptive promotional practices when marketing these products Failing to adequately disclose terms and conditions Enrolling customers without their consent Billing for services not performed 13 of 51
Best Practice Recommendations No customer communication should be released without a fair lending, UDAAP, and technical compliance review Ad copy should be reviewed every time; even if content does not change Complaints may also prompt mid-stream advertising reviews 14 of 51 Deposit Advertising Look to Truth in Savings/Reg. DD for consumer deposit account advertising For commercial accounts, follow UDAP principles (TISA doesn t apply) The ad must fairly represent the terms of the deposit contract offered Profit cannot be used to characterize interest or earnings on an account 15 of 51
Deposit Advertising Be careful with use of the words free or no cost If any maintenance or activity fee could be assessed (under any circumstances), the account is not free Minimum balance, excessive transaction, service fees, etc. Check re-order fees, over-limit charges, NSF charges, and dormancy fees are not activity fees and can be assessed on a free account ATM, electronic services fees are not activity fees if account could be obtained without services 16 of 51 Deposit Advertising Be careful with use of the words free or no cost A service may be advertised as free even if the account itself is not free Free ATM transactions, for instance Limited time free accounts are OK, too, as long as timeframe is included in the ad Advertising an account as free as long as conditions (not relating to the deposit account, e.g. age) are met is OK Provided the conditions are disclosed in the ad 17 of 51
Annual Percentage Yield When an interest rate is advertised, the annual percentage yield must also appear, using that term The APY may be stated without the interest rate, however The abbreviation APY may be used elsewhere in the ad as long as it is spelled out at least once in the ad (may be in the small print) The numerical statement of the rate is the trigger 1% over normal rates or bonus rates available do not trigger any additional disclosure If stating the APY numerically, state it to 2 decimal places 18 of 51 Annual Percentage Yield When an interest rate is advertised, the annual percentage yield must also appear, using that term If stating both the interest rate and the APY, the interest rate cannot be more conspicuous than the APY Why would it be? APY will (normally) be a higher number Internet: disclosing the interest rate with a link to the APY is not acceptable they must be visible on the same page When advertising a tiered-rate (or stepped-rate) account, you cannot just advertise the highest APY include all Tolerance: APYs disclosed with an accuracy of within.05 (plus or minus) Intentional over-disclosure is still a violation, however 19 of 51
Bonus A bonus is something (cash, merchandise, etc.) given to a customer in connection with opening or maintaining an account Having a value of over $10 (yearly calculation) Discounts coupons at stores or restaurants are not bonuses Waiver of a fee or account expense is not a bonus Institution products don t count Bonus amount is not included in the APY calculation Use of the word bonus when not meeting the definition in Reg. DD is OK Bonus rates on CDs would be OK does not trigger anything 20 of 51 1099 Requirements IRS considers most anything given to an accountholder interest and therefore reportable on a 1099 Cash is always reportable (if over applicable 1099 threshold) de minimis premiums exception: non-cash inducement to a depositor to open or add to an account, that does not have a value in excess of $10 for a deposit of less than $5,000 or $20 for a deposit of $5,000 or more Interest-bearing account: 1099-INT $10 reporting threshold per depositor per year Noninterest-bearing account or loan: 1099-MISC $600 reporting threshold 21 of 51
Trigger Terms APY and bonus are triggering terms, meaning if either appears in an ad, additional disclosures must also be made in the ad For broadcast media ads (meaning radio, TV, outdoor billboards, telephone), disclose: The minimum balance (if any) to get that APY If it is a tiered rate account, the minimum for each tier must be disclosed The term of the account for a time product (CD) If a bonus is offered, the APY and all applicable disclosures about the APY must appear You cannot advertise a bonus by itself (without the APY) 22 of 51 Trigger Terms APY and bonus are triggering terms For written ads (meaning newspaper, magazine, internet, brochures, etc.), disclose: All requirements for broadcast media, plus: If the rate is variable, a statement that the rate may change after the account is opened The timing of the APY offered ( offered until or offered as of ) The minimum opening deposit (if greater than the minimum to earn the stated APY) A statement that fees could reduce the earnings on the account (if this is the case) For a time account, statement that a penalty may or will be imposed for early withdrawal If a bonus is offered, what is required to earn the bonus and when it will be provided For Internet ads, triggered terms may appear in a link, provided that link is only one click away 23 of 51
Signs and Systems Indoor signs are exempt from many of the deposit advertising rules What is an indoor sign? A sign inside the premises of the depository institution (regardless of whether or not it can be viewed from the outside) Rate boards, computer screens, etc. Signs posted outside the institution are not on premises Required disclosures for indoor signs: Rates must be advertised as APY Interest rates may also be disclosed, but not alone If an APY is disclosed, a statement that the person should ask an employee for more information about fees and terms If advertising a tiered-rate account, the lower dollar amount to get the listed tier must be disclosed If a time account, the term 24 of 51 Signs and Systems Loan signs Reg. Z has no such exceptions; signs must meet all Reg Z requirements Discretionary overdraft limits on automated systems If the dollar amount of such a limit is included in the disclosed balance, the disclosure is considered to be an advertisement promoting the payment of overdrafts Additional disclosures (conditions, etc.) required 25 of 51
FDIC Signs and Statement Member FDIC must appear on certain advertisements This is the FDIC s official advertising statement Can use symbol or statement (variations) This should appear in each ad for any insured deposit product Also if the ad mentions the institution s name, but is not specific as to any product There are various exceptions to these rules (FDIC regulation: 12 CFR 328) It is permissible, though not necessary, for loan ads It should NOT appear in ads for non-deposit investment products, like mutual funds, annuities, etc. NCUA rules regarding its sign and statement Include it in all radio and TV ads, annual report, and size requirement for print media 26 of 51 Non-Insured Investment Products When advertising non-deposit investment products, like mutual funds, securities, and so forth, do NOT include the FDIC official advertising statement or logo Sales representatives should inform consumers (orally or in writing) that: "This product is not insured by the Federal Deposit Insurance Corporation" "This product is not a deposit or other obligation of, or guaranteed by, the bank" "This product is subject to investment risks, including possible loss of the principle amount invested" Provide 3 disclosures in visual media : NOT FDIC- INSURED May lose value No bank guarantee May also include: Not a Deposit ; Not Insured by Any Government Agency When advertising both insured and non-insured products, make sure proper disclosures are made, and there is separation in the ad so there is no doubt non-insured products are not insured 27 of 51
Lotteries Banks are prohibited from holding or participating in lotteries A lottery is where 3 or more people give money or credit for the possibility that one or more of them (but not all of them) will get more than they contributed The winner may be determined by Any random selection, game, race, contest, etc. The key is giving money or credit to get in If there is no purchase required to qualify the contest, drawing, etc., then it is not a lottery under the statute and you can do it Financial institutions cannot Deal in lottery tickets for others Advertise or publicize another s lottery or its winners Allow use of its premises by others for a lottery purpose 28 of 51 Equal Housing Lender Equal Housing Lender statement/logo (the house ) Visual ads: Must appear in all dealing with residential lending No size requirement anymore just must be legible Internet ads: logo should appear on each page dealing with residential lending products Verbal ads: equal housing lender statement 29 of 51
Fair Lending Considerations Ads must not overtly discriminate (who would be discouraged from applying by looking at your ad?) Encourage everyone; discourage no one For instance, watch the characteristics of the models in ads make sure they represent the makeup of your marketing area Ad programs are examined in their totality does your program tend to discriminate? Be careful with jointly-sponsored ads You could be seen as a co-conspirator in discriminatory conduct 30 of 51 Fair Lending Considerations Geographic lending advertising Is it OK to send different ads based on state, city, county, zip code, etc.? High-minority census tracts (HMCTs) How about advertising for different ages? Only age 62 or over may be targeted (older Americans) Vulnerable classes (UDAAP) Proxies for prohibited information Are you really screening on a prohibited basis? 31 of 51
What You CAN Do Vary advertisements if there is a legitimate business justification What is this? Vary on non-prohibited bases? Special promotions are OK, as long as Offer rates or deals not everyone would get, as long as enough would qualify And conditions are clearly stated Utilize segment marketing, as long as 32 of 51 Tax Deductibility Don t hold yourself out to be a tax expert or advisor Do you advertise that interest on home loans is taxdeductible? Especially on home equity loans where LTV could exceed 100%, retirement account ads Consult your tax advisor or similar language 33 of 51
Reg. Z: Consumer Loan Advertising Closed End Credit Reg. Z controls consumer loan ads commercial: just comply with UDAP principles If you state an interest rate, you must also state the APR (reverse not true, though) When advertising a rate, APR is sufficient - don t need to spell it out What you must say in an ad depends on what you already do say in the ad: Triggering Terms If you say any of these: Downpayment information (only in a credit sale*) Payment amount Number of payments or repayment period Any finance charge amount Triggered Terms Then you must say all of these: Downpayment information (only in a credit sale*) Terms of repayment (typical) APR (and if it is variable, that fact) * A credit sale is one in which the creditor is also the seller (selling repossessed property, for instance) 34 of 51 Reg. Z: Consumer Loan Advertising Closed End Credit Numerical disclosures of the terms are what trigger Or if you can figure out the number from the ad s information Notice what is not a triggering term: APR But if you advertise an APR that may rise after consummation, you must state that it is variable You may also state the interest rate, but not more prominently than the APR For online ads, a link to triggered terms is acceptable (only if they are one click away) Many additional requirements for mortgage loans 35 of 51
Reg. Z: Consumer Loan Advertising Open End Credit Again, what you must say in an ad depends on what you already do say in the ad: Triggering Terms If you say any of these: Finance charge or APR Any other charges Triggered Terms Then you must say all of these: Transaction or other activity charges APR (and the fact that it may vary, if it can) Any membership of other participation fee Additional special rule for HELOCs Triggering terms can be stated affirmatively or negatively (the absence of the term) No Closing Costs Home Equity Lines During July! - Triggers Stating the absence of a triggering term nonetheless means you must include all triggered terms in your ad For all consumer loans covered by Reg. Z, the form of media doesn t matter Rate boards, online ads, etc. all must follow the same rules 36 of 51 Privacy Rules Normally, consumer financial information must be kept private and not shared with outside parties for any purpose, including marketing Section 13 of Reg. P provides for an exception covering joint marketing of financial products with others This means a customer cannot opt out of this type of sharing However, this sharing must be disclosed to customers in your Privacy Notice disclosure The institution must enter into a contract with the third party, specifying that the third party not disclose the information to others in an otherwise violation of Reg. P 37 of 51
Privacy: Prohibition Against Sharing Account Numbers Reg P prohibits disclosure of account numbers or similar access numbers/codes to nonaffiliated third party for marketing purposes It is allowable to credit bureaus, however There is a little different definition of account number here It means a credit card or deposit account number But it also covers any other transaction account number This is different than the standard definition you re used to (such as a checking account under Reg. CC, etc.) It means an account other than a deposit account or credit account from which a third party could initiate charges Could someone steal money out of the account if they had the number? If so, then sharing it is prohibited 38 of 51 FCRA: Sharing Information with Affiliates If you share consumer report information with third parties you must provide the consumer with the ability to prevent the sharing (opt out) Sharing consumer reports with an affiliate so the affiliate can make a marketing solicitation Includes transaction information If consumer has a business relationship with the affiliate, it s excepted The affiliate cannot do it unless the institution that has the information (you) discloses to the consumer that their information may be shared with affiliates for such purposes, and The consumer is provided with an opportunity and a simple method to prohibit the sharing (opt out) There may be different ways to opt out made available The opt out must be clear, conspicuous, and concise and simple The opt out is effective for 5 years At the end of 5 years, another opt out opportunity must be provided before solicitations from sharing can occur 39 of 51
FCRA: Prescreening This is the practice of obtaining a list of qualified prospects from a credit bureau, or otherwise obtaining credit information before making the solicitation Criteria is submitted to the bureau, must be retained for 5 years A firm offer of credit must be made to every name on the list Verifications can be made to ensure that the prospect still meets the criteria The offers can vary among people on the list they don t have to be equal Preapproved offers must include additional disclosures: Information from the consumer s credit file was used in the solicitation The consumer meets the criteria for the product offered The consumer has the right to prohibit future solicitations Procedures to exclude the consumer s name from such lists 40 of 51 Prescreening Disclosures Layered approach to required notice (2 separate disclosures) Short form notice is used on the first page of the principal promotional document (near the main promotional message for electronic solicitations) This is the cover letter, or document or screen meant to be seen first Just the opt-out right, toll-free number, and a reference to the long form notice Must be distinct text (different style from the main one) and larger than the principal text on the page, and no smaller than 12-point type (relative prominence standard for electronic solicitations) Long form notice contains all the details, and is separated from other information on the solicitation No smaller than principal text on page, no smaller than 8-point Opt-out is good for 5 years 41 of 51
Sample Language for Prescreenings Short form notice on principal page of solicitation Long form notice contained within the body of the solicitation itself Required notice 42 of 51 Offering Free Credit Reports FTC Free Credit Reports Rule requires prominent disclosures in advertisements for free credit reports Ads offering free credit reports must include a disclosure, across the top of each page that mentions free credit reports, which states: THIS NOTICE IS REQUIRED BY LAW. Read more at FTC.GOV. You have the right to a free credit report from AnnualCreditReport.com or 877-322-8228, the ONLY authorized source under federal law. Website disclosure must include a clickable button to Take me to the authorized source and clickable links to AnnualCreditReport.com and FTC.GOV 43 of 51
Testimonials FTC s Guides Concerning the Use and Endorsements and Testimonials in Advertising covers: Any advertising message that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser Standards to be met: Material connections must be disclosed Testimonials must be truthful Expert endorsers must actually be qualified False or misleading claims = UDAP 44 of 51 Do-Not-Call Rules There are 3 aspects to this: FTC Do-Not-Call rules, company-specific rules, and state laws FTC Do-Not-Call rules (from the Telephone Consumer Protection Act, or TCPA) After a personal phone number (including cell phone numbers) is registered with FTC, you cannot call that number for solicitations unless it is covered by an exception Companies with a present relationship are exempt for 18 months since last transaction with it (3 months if an inquiry or application has been made) If the consumer has expressly consented to calls Numbers remain on the list indefinitely You must check the list every 3 months for additions and changes 45 of 51
Do-Not-Call Rules Company-specific rules If a consumer specifically asks the company not to call anymore, no solicitation calls may then be made Keep your own Do-Not-Call list in addition to checking the FTC s list State Do-Not-Call rules Most are similar to FTC s, but be sure to check FTC has called for comments on possible changes to the caller ID provisions of the TSR Strengthen the rule? 46 of 51 E-Mail: CAN-SPAM Act Controlling the Assault of Non-Solicited Pornography And Marketing Act of 2003 (CAN-SPAM) This applies to you if you send out electronic messages to either customers or prospective customers to sell your products or services These are commercial electronic mail messages, whose primary purpose is to sell product or service Transactional or relationship messages are exempt these facilitate, complete, or confirm a transaction the customer has requested, or contains needed information regarding such a transaction; they can also deal with an account or relationship with the customer Unsolicited messages must meet certain standards They cannot contain false or misleading information (including in the header) They must contain a means to reply (a return address) for means of opting out of future messages 47 of 51
Junk Fax Prevention Act Similar to Do-Not-Call Rules and CAN-SPAM Prevents unsolicited advertisements via fax unless there is an established business relationship (EBR) When there is an EBR, the person sending the fax must obtain the fax number directly from the recipient or otherwise ensure that the recipient voluntarily agrees to the make the number available for public distribution Voluntary agreement that faxes to that number are acceptable Could appear in a directory for public consumption The send must provide a clear and conspicuous notice and contact information on the first page of the fax This allows the recipient to opt out of future fax transmissions Senders must honor opt out requests within 30 days 48 of 51 Online Marketing: COPPA Children s Online Privacy Protection Act (COPPA); applies when: Web site or online service (games, activities, etc.) directed to children under 13 and collects personal information from children; or Site is directed to general audiences and have knowledge that site collects personal information from children Must post clear and prominent link to information practices notice on bank s home page and at each place where collecting personal information from children Larger font size or a different color type on a contrasting background could be used 49 of 51
Online Marketing: COPPA Notice requirements: Must be clearly written and understandable Include the name, address, telephone number, and email address of the collector Types of information collected and how collected How information is used Whether information is disclosed to third parties Procedures where parent can review the child's information, ask to have it deleted and refuse to allow further collection Verifiable consent from the child's parent must be obtained before information can be collected, used or disclosed Reasonable effort must be made to ensure a parent receives the information practices notice and consents to it 50 of 51 Contact Information Compliance Questions: Treliant Risk Advisors PryCompliance@hotmail.com Webinar/Registration Questions: Mark Bennett Total Training Solutions PO Box 310 Waunakee, WI 53597 1-800-831-0678 www.bankwebinars.com mbennett@ttstrain.com Upcoming Webinars Current Expected Credit Losses (CECL): How to Calculate and Maintain a Proper Allowance May 25 Loan Participations: What You Should Know May 26 Compliance Perspectives: A Monthly Update May 26 The Carrot and the Stick: Incentive and Motivation in the Workplace May 26 What to Do When a Customer Dies June 2 Game Plan to Pass Your Next Fair Lending Exam Ten Steps for Success June 2 Basic Underwriting June 7 BSA Series: 10 Examination Hot Spots June 7 Excel Explained: Pivot Tables June 8 Regulation CC - Check Holds June 8 Dealing with Subpoenas, Summonses, Garnishments, Tax Levies, Etc. June 9 51 of 51