QUESTION
Our marketing department has
hooked up with a social media influencer.
We are a mortgage lender, and I am the Compliance Manager. I am concerned about social media in particular, let alone getting involved with an influencer. My CEO seems all gung-ho about it, but I’m trying to get some guardrails into place. Hey, we’re not promoting cakes and cooking tips on Tik Tok around here!
This situation touches on several regulations, as you know. I think I’ve adequately addressed the regulatory issues. But what about all the rest?
I need strong, practical, actionable guardrails beyond the regulations.
What guardrails can I require of social media influencers?
ANSWER
You are correct: a social media influencer relationship is going to cause a host of regulatory concerns. Don’t
for a minute think that the regulators are not watching for such social media arrangements.
The plethora of potential regulatory violations is mind-blowing. I realize that
you have the regulations covered, but I am going to offer some suggestions that
will help you with the regulatory risks.
I will answer your question from the angle of the Federal Trade Commission (FTC), whose input and guidance you might not have considered. The FTC has provided a set of guidelines[i] (or, to use your expression, “guardrails”) for arrangements with social media influencers. However, I will broaden the guidance to ensure you focus on specific aspects of this relationship.
First, I like to begin with a definition. For the purposes of explication in this article, I define a social media influencer as persons and entities (“influencer”) that use social media to suggest, recommend, promote, or endorse products and services offered by another person or entity.
Let me be clear, several federal and state laws affect advertising by mortgage lenders and brokers. The most important are the Truth-in-Lending Act (TILA), the Equal Credit Opportunity Act (ECOA), the Fair Housing Act (FHA), the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) and similar unfair and deceptive trade practice statutes adopted by the various states. But there are other applicable statutes. Also to be considered are the Mortgage Advertising Practices (MAP) regulations originally published by the FTC, then republished in December 2011 by the CFPB.
Secondly, I will define the term “advertising.” For purposes of this article, advertising includes any appeal or solicitation a mortgage lender or broker makes to existing or potential customers, whether consumers, real estate firms, brokers, builders, or developers.[ii] It includes, but is not limited to:
- Newspaper and magazine advertisements,
- Television and radio spots,
- Social media advertising and promotions (i.e., endorsements),
- Telemarketing scripts,
- Brochures,
- Direct mail letters,
- Messages printed on monthly statements,
- Leaflets, and
- Handouts distributed at training sessions, meetings, and conventions.
Generally, “advertising” does not include customized letters tailored to customers who already have applied for or selected the product or service being promoted in the letter, such as commitment letters, decline or turndown letters, counteroffers, notices of incomplete application, and responses to inquiries or complaints.[iii]
Pens, cups, hats, key chains, and similar promotional items also need not be considered “advertising” if they merely contain the company name or logo and it is impractical to apply standard rules and policies to them.[iv]
As I’ve counseled many times, lenders should adopt strict policies and controls over advertising materials prepared in their name or by their employees or agents to ensure that advertising complies with the sometimes complicated rules contained in the statutes and regulations. Financial institutions should require all advertising material and marketing campaigns to be reviewed and approved by a compliance professional before publication.
Our firm has a robust practice in advertising compliance. Click Here for more information if you want to consider our support for advertising compliance.
Just a historical note: according to the CFPB, examiners in 2014 and 2015 found that social media advertising at several lenders had escaped monitoring or compliance review, resulting in loan originators creating their own content advertising the length of payment, amount of payments, number of payments, and finance charges, without providing required disclosures in violation of Regulation Z (Truth-in-Lending). The institutions agreed to appropriate corrective actions. Now, there is a binge on social media influencers to contend with. Be careful!
With the foregoing in mind, the following set of bullets should be included in your policy and procedures for social media influencer relationships. By "policy and procedures," I mean that appropriate due diligence requirements should include social media, advertising, and marketing.
- The influencer should clearly and conspicuously indicate the relationship between the influencer and the other party, such as an affiliate (viz., “we’re affiliated companies owned by the same parent company”).
- If the other person or entity gives the influencer a benefit in return for mentioning its products and services, the influencer should mention that benefit (viz., “we receive compensation from [the other firm] in return for mentioning its products and services”). A “benefit” feature, if not properly structured, may well be a violation of RESPA Section 8. Watch out!
- The influencer should treat tags, likes, pins, and similar ways of showing the influencer likes a product or service as endorsements that require disclosures.
- The influencer should place each disclosure so it’s hard to miss. A disclosure should appear along with the endorsement message and should not appear only if the viewer must click more to reach it.
- The influencer should not mix the disclosure with a group of hashtags or links, although the disclosure could include a hashtag such as #ad or #sponsored.
- If an endorsement appears in a picture on platforms like Snapchat, Instagram Stories, Facebook, Tik Tok, or Twitter, the disclosure should be superimposed over the picture in a way that ensures viewers have time to notice and read it.
- If the endorsement appears in a video, a disclosure should appear both in audio and video as part of the video and not just in a description uploaded with the video and not only in words superimposed on a video.
- If the endorsement is made in a live stream, the disclosure should be repeated periodically so viewers who see only part of the stream will get the disclosure.
- Disclosures should use unambiguous and straightforward language, without vague or confusing terms such as uncommon abbreviations or shorthand.
- A disclosure should be in the same language as the endorsement.
- An influencer should not assume that a platform’s disclosure tool is sufficient; instead, it should only consider using that tool in addition to the influencer’s own good disclosure.
- An endorsement should be honest and truthful. For instance, an influencer should not mention experience with a product the influencer has not tried, say the product is terrific if the influencer thinks it’s terrible, or make up a claim requiring proof the influencer does not have.
- The influencer should ensure its disclosures are properly implemented and not rely on someone else to make them.
[i] Disclosures
101 for Social Media Influencers (November 2019)
[ii] Federal
Reserve Regulation Z, 12 CFR § 1026.2(a)(2) and its staff commentary
[iii] Regulation Z
Staff Commentary, 1026.2(a)(2)-1(ii)
[iv] Cf. 12 CFR
§ 328.3(c)(10)
