Advertising: Avoiding Fair Lending and UDAAP …

1 advertising : Avoiding FairLending and UDAAP PitfallsMichelle AndersonSenior ManagerErnst & GargAssociateMayer AndersonSenior ManagerErnst & GargAssociateMayer Advertisements are at the intersection of a number ofregulator concerns, including fair Lending and theprohibition on unfair, deceptive, or abusive acts orpractices ( UDAAP ). As compliance professionals, you are at the vortex of themillion dollar question: is it possible to create acompliant, yet effective, advertisement? Recent enforcement actions demonstrate that institutionscannot rely on compliant disclosures to prevent UDAAP orfair Lending risks associated with is an Advertisement? Print media Radio Television Brochures Direct mail Email Internet (websites, bannerads) Google Adwords Telemarketing scripts Any other consumer-facingsolicitations5 Truth in Lending Act and Implementing Regulation Z Consumer Leasing Act fair Lending (ECOA, Regulation B, and the fair Housing Act) Truth in Savings Act Mortgage Acts and Practices advertising Rule Telemarketing Sales Rule fair Credit Reporting Act Prohibition on unfair, deceptive, or abusive acts or practices State lawsWhat Rules Could Apply?

2 fair Lending ANDADVERTISING7 Overt discrimination:Open and direct discriminatory conduct. Disparate treatment:Treating a person differently or lessfavorably because of a prohibited basis. Disparate impact: Differential outcomes that result frompractices that are facially neutral but that in fact fall moreharshly on one group than another. Does not require proof of intent to discriminate. If the company can demonstrate that the practice is necessary to achieve asubstantial, legitimate, nondiscriminatory interest, the practice is not of Discrimination8 Redlining: When a creditor provides unequal access to creditor unequal terms of credit because of the race, ethnicity, orother prohibited characteristics of the residents in the area.

3 Reverse Redlining: Targeting certain borrowers or areas withless advantageous products or services based on prohibitedcharacteristics. Steering: means guiding consumers toward a specific productor service on a prohibited basis, rather than based on theconsumer s needs or other legitimate of Discrimination9 Under Regulation B, a creditor may affirmatively solicit orencourage members of traditionally disadvantaged groups toapply for credit, especially groups that might not normallyseek credit from that creditor. ECOA permits special purpose credit programs, which incertain circumstances may permit preferential credit terms ortargeted advertising on a prohibited basis. Likewise, regulators have generally approved of CRA speciallending programs to low- and moderate-income borrowersand marketing to Protected ClassesAlthough the above marketing practices are permissible, if affirmative marketing to aprotected class is for a product that is seen as predatory or otherwise unfavorable, itmay be challenged as reverse Third party marketing companies can mine vast amounts of data fromsocial media about individuals that could potentially be used for marketingpurposes, including credit history of an individual s online friends, one srelationship status, online purchases, and organizations that an individual likes.

4 Use of this information could present disparate treatment or disparateimpact risks. Digital divide issues. advertising or offering special products or discounts through social media ,mobile, or other online channels could present fair Lending issues inasmuchas groups have different levels or types of online or mobile MediaUDAAP AND ADVERTISING12 An otherwise compliant disclosure does not eliminate UDAAP risk. Written disclosures may beinsufficient to correcta misleadingstatement or representation, particularly where the consumer isdirected awayfrom qualifying limitations in the text or iscounseledthat reading the disclosures is unnecessary. Likewise, oral disclosures or fine print are generallyinsufficient tocurea misleading headline or prominent written representation.

5 A deceptive act or practicecannotbe cured bysubsequenttruthfuldisclosures. Target markets and distribution practices can also createUDAAP and fair Lending s Not Just About the Disclosures13 A practice is deceptive if: A representation, omission, act, or practicemisleads or is likelyto misleadthe consumer. A consumer s interpretation of the representation, omission,act, or practice isreasonableunder the circumstances. The misleading representation, omission, act, or practice Is the statementprominentenough for the consumer tonotice? Is the informationpresentedin an easy-to-understandformat that does not contradict other informationprovided and is presented at a time when the consumer sattention is not distracted elsewhere?

6 Is theplacementof the information in a location whereconsumers can be expected to look or hear? Is the information in closeproximityto the claim itqualifies?Likely to Mislead15 Regulators consider a misrepresentation, omission, orpractice material if it is likely to affect a consumer schoice of or conduct regarding a product. Certain items are presumed material, such as the price orcost of a product or PRACTICES17 Consider whether the target audience creates fair lendingor UDAAP risks. Are only certain existing customers being targeted for theadvertisement based on a prohibited characteristic? Are the advertisements only being distributed in certain mediamarkets based on a prohibited characteristic ( , television orradio ads)?

7 Are the advertisements steering consumers toward lessfavorable products or services?Step Away from the Ad: Target Audience18 Does the advertisement create confusion about theproduct or service being offered? Tell it like it is: If it is a lease, call it a lease. If it is a loan,call it a loan. Don t forget the net impression. Recent example: The CFPB filed a complaint in August 2015 against a companythat advertised what the CFPB considers to be a loan product asa pension buyout and pension advance and actively deniedthat the product was a the Product19 All media : Font size and color matter. Evaluate how effective the ad directs the consumers to thedisclosures. Beware of the block of text. TV: consider how long the disclosures appear on thescreen.

8 Radio and TV: listen for the cadence and speed of oraldisclosures. Don t forget the net and Conspicuously Disclose Terms andConditions20 Ensure that the advertised features and terms aregenerally available to consumers. Would most consumers be ineligible for the advertised terms? Consider whether the advertised claims are substantiated. Avoid: Creating a false sense of urgency Displaying results that are not typical advertising false promotions Don t forget the net the Advertisements21 fair Lending considerations: Do not use words, symbols, models, or other forms ofcommunication in advertising that express, imply, or suggest adiscriminatory preference or a policy of exclusion. Evaluate the diversity of your stock photos.

9 UDAAP considerations: Avoid images that imply affiliation with or endorsement by thegovernment, unions, universities, celebrities, etc. Be careful with creative formatting that could confuse aconsumer into thinking your advertisement is not Careful with Images22 Many elements of the net impression may beoutsourced by your institution: Telemarketing Inbound call handling Development of creative content Failed oversight or inadequate training and monitoringcreate additional risks. Consider including call monitoring, training, mysteryshopping, and reviews of consumer-facing materials aspart of your vendor management oversight t Forget the Vendors23 Claims matter: Evaluate the net consumer experiencefrom the point of solicitation to the point of sale, andeverything in between.

10 Images matter: Consider the diversity of the images andwhether the images imply an inaccurate term, feature, orendorsement. Omissions matter: If the absence of certain informationwould impact the effectiveness of the ad, then themissing information is probably Line: Net ImpressionCOMPLIANCE MANAGEMENTFOR ADVERTISING25 The CFPB filed a consent order against an online payment platform,claiming the company misled customers related to the security of itsonline payment system and security practices. No actual breach ofcustomer data was reported, rather the CFPB s complaint wasagainst the company s deceptive marketing . The following claims were made by the online payment platform: Respondent represented to consumers that its network andtransactions were safe and secure.