QUESTION
Our banking department called us out for publishing testimonials that our loan officers use. We were contacted by an examiner who said they had checked out some of the testimonials and endorsements and found that some were either bogus or misleading.
First of all, I didn’t know a banking department could go so far as to check out the veracity of testimonials.
Secondly, our loan officers are honest and get their business from referrals, but the banking department makes them look like they were intentionally making up bogus testimonials.
Thirdly, the loan officers have hundreds of endorsements and testimonials. I don’t see how we can verify every one of them.
I think the department is way out of line! It feels like they are harassing us. I would like to know your opinion about this kind of advertising. Endorsements and testimonials are a big part of our marketing strategy.
What are some guidelines for endorsements and testimonials?
COMPLIANCE SOLUTION
Policies and Procedures: Advertising Compliance
ANSWER
Endorsements and testimonial advertising are an important and valuable part of overall marketing. Of course, scrutinizing advertisements is an inherent responsibility of banking departments. As consumer advocacy agencies, they must ensure that the public is properly informed of a loan product or service.
Many interlocking regulations have a substantive impact on advertising compliance because contact with the public by means of advertising is one of the most prevalent ways a financial institution can encourage consumers to use its services.
The banking department is not “way out of line.” It monitors your loan flow process from the earliest advertisement that leads to an application, thence to underwriting, loan closing, and beyond. If you believe verifying the testimonials is too big a task, don’t publish them! A banking department will want to see that you documented a validity review of a testimonial or endorsement.
Most loan officers are certainly honest. They are the lifeblood of mortgage banking. Everyone works together to ensure the consumer has a good experience. However, loan officers are on the front lines, most working on commission; they bring in the loans and the ones who financially suffer the most when sales slow or loans don’t close for some reason. There is no reason for them to be defensive when a banking department finds errors in their testimonials. But you need to watch out for a “pattern or practice” of bogus endorsements and misleading testimonials.
So, let’s focus on the nature of endorsements and testimonials and not get all huffed up in righteous indignation. I will offer some thoughts on this subject and suggest you share them with your loan officers. Contact me here if you need advertising compliance. We have a team devoted solely to advertising and marketing compliance.
DEFINITION
As you probably know, I like to get a definition in place for a cogent discussion.
Here’s how I define endorsements and testimonials:[i]
Endorsements and testimonials are 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.
RULES OF THE ROAD
There are certain indisputable rules of the road that you must apply. For this article, I use the terms endorsement and testimonial interchangeably. These are the four most important rules to follow.
1. Honesty
Endorsements must reflect the endorser's honest opinions, findings, beliefs, or experiences. Furthermore, an endorsement may not convey any express or implied representation[ii] that would be deceptive if made directly by the advertiser.
2. Context
Although the endorsement does not need to be the exact words of the endorser – unless the endorser requests it - the endorsement may not be presented out of context or reworded to distort in any way the endorser’s opinion or experience with the product.
3. Bona Fide User
When the advertisement represents that the endorser uses the endorsed loan product or service, the endorser must have been a bona fide user of it at the time[iii] the endorsement was given.
4. Full Disclosure
Advertisers are subject to liability for false or unsubstantiated statements made through endorsements or for failing to disclose material connections between themselves and their endorsers.[iv] (Be careful here! Endorsers may be liable for statements made in the course of their endorsements.)
GUIDELINES FOR ENDORSEMENT TYPES
Generally, three types of endorsements are encountered in mortgage banking: consumer, expert, and organization. I will provide a brief overview of each.
Consumer Endorsements
For the most part, there are three types of consumer endorsements.[v] Here’s a brief outline.
1. A consumer endorsement about the performance of an advertised product or service will be interpreted as representing that the product or service is effective for the purpose depicted in the advertisement.
2.
An
advertisement containing an endorsement relating the consumer’s experience on a
central or key attribute of the
product or service will likely be
interpreted as representing that the endorser’s experience is representative of
what consumers will generally achieve with the advertised product or service in
actual, albeit variable, conditions of use.
3.
Advertisements
presenting endorsements by what are represented, directly or by implication, to be “actual
consumers” should utilize
actual consumers in audio and video, or clearly and conspicuously disclose that the persons in such advertisements
are not actual consumers of the advertised product.
Expert Endorsements
There are two primary guidelines
involving expert endorsements,[vi]
as follows:
1.
If an advertisement represents, directly or indirectly (viz., by implication), that the endorser
is an expert concerning the
endorsement, the endorser’s qualifications must state factually the endorser
has the requisite expertise with respect to the endorsement.
2.
Although the expert may, in endorsing
a loan product, take into account
factors not within their
expertise, the endorsement must be supported by an actual exercise of that expertise in evaluating the product’s features or characteristics
to the extent to which they have relevant knowledge and expertise,[vii]
and which are relevant to an ordinary consumer’s
use of or experience with the product and, importantly, are available to the
ordinary consumer.
Organization Endorsements
Endorsements from organizations can be tricky. There is one essential guideline.
1.
Organization
endorsements, especially expert
ones, represent the judgment
of a group whose collective experience exceeds that of any individual member,
and whose judgments are generally free of subjective factors that vary from
individual to individual.
This is the tricky part because an organization’s endorsement must be reached by a process sufficient to ensure that the endorsement fairly reflects the collective judgment of the organization. Moreover, if an organization is represented as being an expert, then, in conjunction with a proper exercise of its expertise in evaluating the product,[viii] it must utilize an expert or experts recognized as such by the organization or standards previously adopted by the organization and suitable for judging the relevant merits of such products.
MATERIAL DISCLOSURE
A few words about material disclosure. If there’s a connection between the endorser and the seller of the advertised loan product or service that might materially affect the weight or credibility of the endorsement – for instance, where the audience does not reasonably expect the connection – such connection must be fully disclosed.
Jonathan Foxx, Ph.D., MBAChairman & Managing Director
[i] 16 CFR Part 255, § 255.0(b): “…including verbal statements, demonstrations,
or depictions of the name, signature, likeness, or other identifying personal
characteristics of an individual or the name or seal of an organization.” For the purpose of this article, I refer the reader to Guides Concerning the Use of
Endorsements and Testimonials in Advertising, Federal Trade Commission, 16
CFR Part 255.
[ii] §§ 255.2(a) and (b) regarding
substantiation of representations conveyed by consumer endorsements.
[iii] § 255.1(b) regarding the “good reason
to believe” requirement.
[iv] § 255.5
[v] § 255.2
[vi] § 255.3
[vii] See § 255.1(d) regarding the liability
of endorsers.
[viii] Ibid
