Question: We are constantly monitoring our loan officers’ social media use. We train them from our written policies and procedures. I found out from a friend recently that Jonathan Foxx had written a White Paper on social media, so I went to your Web site and downloaded it. It was amazingly helpful, especially in outlining the compliance procedures! We used parts of it to update our social media policy. However, could you provide a synopsis on the areas of risk a mortgage lender could face as a result of its use of social media?
Thank you for reading the White Paper, which was published in the February 2013 issue of National Mortgage Professional Magazine
, “Social Media and Networking Compliance.” You can download it from the articles page on our Web site (LendersComplianceGroup.com
). This White Paper is as relevant today–perhaps even more so–than it was in 2013.
Financial institutions tend to use social media in a variety of ways, including marketing, providing incentives, facilitating applications for new accounts, inviting feedback from the public, and engaging with existing and potential customers. This electronic resource is sometimes utilized to receive and respond to complaints. Some companies use it to provide loan pricing. For the sake of brevity, I am going to use the acronym “SM” to refer to social media.
SM takes many forms, including, but not limited to, micro-blogging sites (i.e., Facebook, and Twitter); forums, blogs, customer review Web sites, and bulletin boards (i.e., Yelp); photo and video sites (i.e., Instagram, Pinterest, and YouTube); sites that enable professional networking (i.e., LinkedIn); so-called virtual worlds; and social games. One way to distinguish SM from other online media is that communication tends to be more interactive. As a rule of thumb, consider messages sent through social media channels to be SM.
There are several “areas of risk,” to use your phrase, where SM attracts and interacts with customers. These areas can impact your organization’s risk profile, including the risk of harm to consumers, as well as various compliance, legal, operational and reputation risks.
Generally, compliance and legal risks stem from the potential for violations of, or non-conformance with, laws, rules, regulations, prescribed practices, internal policies and procedures, or ethical standards. Of particular importance—and a never-ending challenge—are the SM practices used by employees.
Training should involve making all affected employees aware that failure to comply with the financial institution’s SM policies and guidelines can expose it to enforcement actions and perhaps civil lawsuits. The big fear, of course, is a rogue employee not complying with an organization’s SM policy requirements.
These days, more and more often, I see how SM is being used to market products and originate new accounts. To the extent that an institution uses SM to engage in lending, it must comply with applicable laws and regulations. Let’s consider a few laws and regulations that may be relevant to your company’s SM activities with respect to residential mortgage banking.
Fair lending laws
The Equal Credit Opportunity Act, through Regulation B, prohibits creditors from making any oral or written statement, in advertising or other marketing techniques, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application. However, a creditor may affirmatively solicit or encourage members of traditionally disadvantaged groups to apply for credit, especially groups that might not normally seek credit from that creditor.
It is also important to note that creditors may not, with limited exceptions, request certain information, such as information about an applicant’s race, color, religion, national origin or sex. Since SM platforms may collect such information about participants in various ways, a creditor should be ensuring that it is not requesting, collecting, or otherwise using such information in violation of applicable fair lending laws.
If the SM platform is maintained by a third party that may request or require users to provide personal information—such as age and/or sex—or use data mining technology to obtain such information from SM sites, the financial institution must notify the user that it, the financial institution, does not itself improperly request, collect, or use such information. Even giving the appearance of doing so can lead to adverse consequences. This scenario is particularly thorny and requires very carefully detailed consumer disclosure.
You probably know that the Fair Housing Act (FHA), among other things, prohibits discrimination based on race, color, national origin, religion, sex, familial status or handicap in the sale and rental of housing, in mortgage lending, and appraisals of residential real property. FHA makes it unlawful to advertise or make any statement that indicates a limitation or preference based on race, color, national origin, religion, sex, familial status, or handicap. But, be careful, this prohibition applies to all advertising media, including SM sites.
I probably get asked most of all about TILA’s impact on SM. So, let me state categorically: any SM communication in which a creditor advertises credit products must comply with Regulation Z’s advertising provisions. Regulation Z broadly defines advertisements as any commercial messages that promote consumer credit. Indeed, the official commentary to Regulation Z unequivocally states that the advertising rules apply to advertisements delivered electronically.
To emphasize the foregoing caveat more broadly, an advertisement is a commercial message, in any medium, that is designed to attract public attention or patronage to a product or business. There is no ambiguity: SM is covered under Regulation Z.
Sometimes I am asked what is not considered an advertisement, as if SM does not have to fall into the advertisement bucket. Let’s be clear, under Regulation Z only a few interactions with consumers are not advertisements, such as, among other things, direct personal contacts relating to the negotiation of a specific transaction; informational material (i.e., loan pricing sheets) distributed only to business entities; notices required by federal or state law (viz., if the law requires specific information to be displayed and only the required information is included in the notice); and educational materials that do not solicit business. Tread very carefully here! Be sure to get independent guidance such as our firm offers. Don’t make up your own rules!
To give you an idea of what you are up against in using SM, any loan advertisement may not state any rate other than an APR, except that it may mention a simple annual interest rate along with (but not more conspicuously than) the APR. But many SM platforms do not give a user the ability to handle font size, bold text, special characters, and so forth.
Regulation Z also includes rules for advertisements that include “triggering terms,” such as (in closed-end credit) the number of payments; or period of repayment; or the amount of any payment; or the amount of any finance charge. And, if an advertisement includes a triggering term, then it must also state, as applicable, the amount or percentage of the down payment; the terms of repayment; and the APR. And I am merely grazing the surface of SM implications in connection with advertising loan products. Even a very general, loan product description can cause havoc in SM compliance as it relates to Regulation Z.
Real Estate Settlement Procedures Act
Section 8 of the Real Estate Settlement Procedures Act (RESPA) prohibits certain activities in connection with federally related mortgage loans. These prohibitions include fee-splitting, as well as giving or accepting a fee, kickback, or thing of value in exchange for referrals of settlement service business. RESPA also has specific timing requirements for certain disclosures. These requirements apply to applications taken electronically, to wit, certainly via SM platforms.
Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act (FDCPA) restricts how debt collectors may collect debts. The FDCPA generally prohibits debt collectors from publicly disclosing that a consumer owes a debt. Using SM to inappropriately contact consumers or their families and friends may violate the restrictions on contacting consumers imposed by the FDCPA.
Communicating via SM in a manner that discloses the very existence of a consumer's debt or to harass or embarrass consumers about their debts leads to complaints and usually administrative action. Making false or misleading representations easily may violate the FDCPA.
Can you imagine a debt collector writing about a debt on a Facebook wall? If you can’t, your institution does not belong in SM—even if it is not involved in debt collection!
Unfair, Deceptive, or Abusive Acts or Practices
The Federal Trade Commission (FTC) Act [15 USC 45, Section 5] prohibits “unfair or deceptive acts or practices in or affecting commerce.” Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits unfair, deceptive, or abusive acts or practices. [See 12 USC 5531; Sections 1031 and 1036.] But note, an act or practice can be unfair, deceptive, or abusive despite technical compliance with other laws.
A financial institution should not engage in any advertising or other practice via SM that could be deemed “unfair,” “deceptive,” or “abusive.” As with other forms of communication, the financial institution should ensure that information it communicates on SM sites is accurate, consistent with other information delivered through electronic media, and not misleading.
Information contained in this article is not intended to be and is not a source of legal advice.
Jonathan Foxx, Ph.D., MBA, is chairman and managing director of Lenders Compliance Group, the first and only full-service, mortgage risk management firm in the United States, specializing exclusively in outsourced mortgage compliance and offering a suite of services in residential mortgage banking for banks and non-banks. To ask a question or request compliance support, e-mail [email protected].