VIDEO: What to Look for in Lending Advertisements
In this Compliance Clip (video) Adam discusses the compliance rules to look out for when reviewing advertisements and marketing material related to loans. As the consequences of violating lending advertising compliance rules can be significant, it is imperative that financial institutions know what to look for in their lending marketing and advertising material.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to tell us what we need to look for when reviewing lending advertising and marketing material. This, of course, is a lending topic.
The question we have here is: What should I look for when reviewing advertisements and marketing material that promote the loans that we offer? The answer for this is going to come from a number of compliance rules and regulations. In fact, this is a massive topic and we are in the process of finalizing a new program called Lending Advertising compliance and that program runs about three hours long getting into all the nitty-gritty of everything you actually have to look for. But in this Compliance Clip, we're limited to three to five minutes and so we're going to have to talk in a very high level overview of the things that need to be reviewed when we're looking at lending advertising and marketing material. So let's take a quick look.
There are a couple of key compliance rules and regulations that we need to consider when we review advertising relating to loans. And there's three main ones that drive most of what we should be looking for. And then there's a couple of other things to keep in mind as well. The three main concerns for lending advertising come from Regulation Z, Fair Lending, and UDAAP or Unfair, Deceptive or Abusive Acts and Practices.
Regulation Z is probably the most challenging piece because the rules are extremely complex and we actually have separate rules for open-end credit and separate advertising rules for closed-end credit. So there's really two sets of rules that we have to take a look at and there's also some other pieces of Regulation Z we have to look at to fully understand what those rules are telling us we have to do. So Regulation z is probably the most complicated piece when it comes to lending advertising requirements.
The second piece that we have to be aware of, of course, is fair lending. And fair lending is probably one of the highest risk areas in a financial institution. Fair lending can come from many different directions. It can come from what your loan officers say to your applicants. It can come from your underwriting standards, the way you design your products, and even the way you advertise and market your lending products. And so it's very important to have a good background and understanding of fair lending rules because anything that you put out in a publication or any type of video or audio message becomes an advertisement and therefore, would be subject to fair lending provisions. So once you say something that could potentially discriminate against a protected class, you potentially have a fair lending issue. So fair lending is the second piece.
Finally, our third piece is Unfair, Deceptive or Abusive Acts and Practices. Understanding UDAAP in and of itself is also a really big challenge because there's a lot of moving parts to that and it's somewhat challenging to know what to look for, but in Regulation Z one of the requirements is that you provide things in a clear conspicuous manner and you offer actually available terms. So those are two requirements of Regulation Z and, in fact, those requirements apply to both open-end and closed-end credit. And so if you violate those rules in Regulation Z where you're offering terms that are not actually available or you're not providing the disclosures in a clear conspicuous manner, you could also end up with a violation of the Unfair, Deceptive or Abusive Acts and Practices rules.
So, understanding these three rules in detail is really key to being able to review advertising and marketing material that's related to loans.
In addition to these three key areas, there's a couple of other considerations. The first is RESPA Section 8. Of course, the Real Estate Settlement Procedures Act Section 8 prohibits kickbacks and unearned fees as it relates to a settlement service. In short, this means that you cannot provide kickbacks or unearned fees to somebody in relation to a settlement service for services that were not actually rendered and not actually performed and so this is a key piece when it comes to lenders dealing with real estate agents or title companies or even appraisers. It's very important that only fees are being paid for services that are actually performed because if there is an honored fee or a kickback it could potentially violate RESPA Section 8. A lot of times that doesn't involve the marketing team but if you're doing cross marketing and some joint marketing efforts there are some very particular rules you have to follow in order to make sure that you are not violating RESPA Section 8. So that's another thing you have to look for in lending advertising.
Also, if you're a bank or credit union you've got some considerations as it relates to your FDIC or NCUA deposit insurance so it's very important to make sure that you're advertising the membership of being a a member of FDIC or the NCUA appropriately so those are some concerns that need to be in your advertising. You also need to include any potential statements of Equal Credit Opportunity and following the Fair Housing Act rules.
Finally, you may have some secondary market rules or investor rules. It's very important to make sure that if you're selling loans on the secondary market that you are, in fact, doing those in accordance with what your investor requires.
As you can see this is a very large, complicated topic. And lending advertisements are not something that can be typically reviewed in just 15 minutes. And so if you're a marketing professional, it's important to understand that these rules are so complex and, in fact, to cover all of my training programs on Reg Z, fair lending, and UDAAP, and all of the pieces you need to know about RESPA Section 8, member-FDIC and. And then digging into the secondary market rule probably takes at least two days to cover all of the nitty-gritty details of all of those rules. So, if you're a marketing professional, it is important to understand that your compliance team cannot be reviewing material in just 15 minutes, or have it done by lunch or this afternoon for a deadline. It's something that expectations need to be agreed upon because this will take your compliance team some significant amount of time to review depending on the ad. Now, some ads are very easy and you can just say hey you know there's really nothing that we have to worry about and we're fine but other marketing material you might have might be a 15-page new home buyer document that could take a good week or so of going back and forth and working through all the logistics. So it's very important to understand that lending advertising can't always be reviewed in just a quick 10 or 15 minutes. It's something that's very complicated and something that takes the utmost focus and determination to make sure you get it right because if you fail to get lending advertising right. you could have some significant consequences including fines, penalties and public enforcement action.
That's really all I have time for in this Compliance Clip but hopefully that helps you understand what needs to be reviewed when it relates to lending advertising compliance requirements. And as I said before, we do have a program that's going to be available in our stores, it’s probably there by the time you're watching this video but it's in our store at compliancecohort.com/store and the program is called Lending Advertising Requirements and like I said, we're really diving into those main rules, the Regulation Z pieces of both open-end and closed-end, fair lending as it applies to advertising and even redlining as it applies to advertising as well as UDAAP and a couple of other things like RESPA Section 8. So take a look at our store at compliancecohort.com/store if you want to go a deeper dive into the advertising compliance requirements for loans.