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., MBA
Chairman & Managing Director Lenders Compliance Group
[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.
[vii] See § 255.1(d) regarding the liability
of endorsers.
