QUESTION
A
couple of our loan officers want to promote their social media page by doing a
drawing for the most “shares” and “likes.” How can we do this and not
violate RESPA?
ANSWER
The
loan officers have not really provided much information to you about their
proposed posting. That can be dangerous from a compliance standpoint because
companies sometimes fail to understand that social media advertising is no
different from any other kind of advertising in terms of compliance
requirements. The social media posting needs to satisfy all advertising
requirements as if it appeared in print media. You should require the loan
officers to provide you with a copy of exactly what they want to post and then
review it in light of your company’s Social Media and advertising
policies. That being said, it is more
likely than not that the proposed contest would violate RESPA Section 8 - and possibly other laws and regulations
as well. I will address the problem
areas one by one:
1.
RESPA Section 8(a)
RESPA
Section 8(a) prohibits the transfer of a thing of value pursuant to an
understanding that settlement service business will be referred to any person:
(a) No
person shall give and no person shall accept any fee, kickback, or thing of
value pursuant to any agreement or understanding, oral or otherwise, that
business incident to or a part of a real estate settlement service involving a
federally related mortgage loan shall be referred to any person.
A Section
8(a) violation requires three elements:
- The payment
or receipt of a “thing of value.”
- An agreement
or understanding.
- A referral
of “settlement service” business.
The
origination of a federally related mortgage loan is a settlement service,
including but not limited to the taking of a loan application, processing,
underwriting and funding.
An
agreement or understanding for referral of business can be inferred and does
not need to be written or even verbal. It can be implied from conduct.
The
definition of “thing of value” is very broad and includes “any payment,
advance, funds, loan, service, or other consideration.” Under Regulation
X, the implementing regulation of RESPA, a “thing of value” is very broadly
defined in includes the opportunity to win a prize. For example, HUD’s Industry “FAQs about
RESPA” states that a lender may not set up a contest for real estate agents
under which the agent who provides the lender with the most business will win a
trip to Hawaii. The trip itself, and even the opportunity to win the trip,
would be a thing of value given in exchange for the referral of business. (Note,
however, that the FAQs also state that a lender may give a borrower an incentive,
such as a chance to win a trip or a rebate for doing business with the lender,
because such an incentive is “promotion” and not payment for a “referral.”
In
the proposal from your loan officers, the drawing prize would most likely
qualify as a “thing of value.” And, since this thing of value would presumably
be offered not only to prospective borrowers, but also to people whose “likes”
and “shares” would amount to recommendations to others, there is a high
likelihood that the “likes” and “shares” could be construed as “referrals” of
settlement service business provided in exchange for a thing of value and, hence,
a violation of RESPA.
2. Possible Illegal Lottery
Many states have enacted laws that restrict the use of “lotteries” and
sometimes make conducting them a crime. The law of each state where the
promotion can be viewed should be read carefully to determine whether this
promotion is covered by any anti-lottery or gambling law. In that regard,
a lottery is generally defined to include an advertising technique that
involves: (1) consideration, (2) chance, and (3) a prize. For example, if: (1)
a consumer closes a loan with a mortgage lender, (2) and the consumer’s lucky
number is drawn, then (3) the lender awards the consumer a trip to
Hawaii. Here the elements might possibly be: (1) the website viewer
provides your company with consideration by posting “likes” and “shares” in
order to win a prize in the drawing.
3. Possible UDAAP
Since, in order to participate in the contest, it is required that the
contestant provide “likes” and “shares” of the website, these could certainly be
construed as an actual or implied “endorsements.” Do the postings then fall
into the category of fake or false “testimonials” or “endorsements” if the
“likes” and “shares” are posted only to win the contest? FTC rules state that endorsements in advertising
must reflect the honest opinions, findings, beliefs, or experience of the
endorser. They should not contain any representations that would be deceptive
or could not be substantiated if made directly by the advertiser. [16 CFR
§255.1(a)] An endorsement includes
any advertising message (including verbal statements, and demonstrations.)
Advertisements presenting endorsements by what are represented, directly or
by implication, to be “actual consumers” should use actual consumers, in
both the audio and video or clearly and conspicuously disclose that the
persons in such advertisements are not actual consumers of the advertised
product. [16 CFR 255(2)(b)] Here, the advertised product is, by
implication, the company and its various loan products.
4. Discriminatory Impact/Redlining
Federal regulators have encouraged mortgage lenders to be careful about advertising patterns or practices that a
reasonable person would believe indicate prohibited-basis customers are less
desirable. This means
that the rules of the contest must be carefully drawn to make sure that no
protected class of persons is excluded from access to participation, either
intentionally or statistically.
In
short, contests like this posted on social media can be fraught with compliance
risk, much of which may not be immediately apparent. You are wise to require
prior review.
Michael Pfeifer, Esq.
Director/Legal & Regulatory Compliance
Lenders Compliance Group &
Servicers Compliance Group
