Facebook and Twitter: Are Nice--But Are They Compliant?

• Author: Farrell, Kathlyn L.
• Position: Social Media

For many banks, the biggest obstacle to initiating social media marketing is resolving the compliance issues. Here's an overview of the major problem areas.

[ILLUSTRATION OMITTED]

The regulatory compliance issues surrounding social networking activities of financial institutions fall into five categories:

* Advertising regulations.

* Fair lending/CRA compliance.

* Records compliance.

* Information security.

* Bank Secrecy Act (BSA)/anti-money laundering regulations and Reg. E.

This article provides a perspective on the types of issues that should be reviewed when managing the risks of using social networking as a customer service tool. As with any new compliance challenge, compliance officers will need to determine their institutions' specific risk, establish review and monitoring procedures, and determine how to use the customer information to bolster their banks' compliance efforts.

Advertising Compliance

Typical social networking sites aimed at consumers, such as Facebook and MySpace, are perfect for communicating to consumers about bank products. A random sample of bank pages viewed during a 30-day period found that institutions in their posts mention all types of financial products, stream video commercials and. post product brochures. Also noted: lots of compliance errors.

For regulatory purposes, banks' messages on social media sites generally fall into the category of advertisements. Whether messages from consumers are considered "advertisements" is a complex question. Because the bank ultimately controls the site and should remove information that is incorrect, a reasonable view would be that any communication that clears the bank's review and remains visible to the public does qualify as an advertisement for regulatory purposes. What regulations should the compliance officer consider?

Regulation Z requirements for loan advertising

Reg. Z has a plethora of requirements that apply to advertisements of loan products. Generally, if an advertisement states specific terms, only those actually offered by the bank should be included. There are many other loan-related advertising rules in Reg. Z, including the following:

* If triggering terms are used for open-end or closed-end loans, the other requisite disclosures must also be included (in electronic ads, the other terms can be referenced by a link).

* New requirements for home loan products require more extensive disclosures if rates or payments are mentioned in the ad; HELOC advertising requirements have also been extensively rewritten.

* There are new rules regarding the use of the term "fixed" in connection with loans where the rate or payment may increase under certain circumstances, as well as new rules for advertising ARM loans.

* The 2008 changes to Reg. 7 include rules regarding misrepresentations (e.g., misleading comparisons, misrepresenting government endorsements and so forth).

* Reg. Z has a host of advertising rules related to credit cards (revisions to these rules are effective in 2010) so mentioning rates--especially introductory or promotional rates--would require additional disclosures.

In a social networking environment--where the bank's posts strive for informality'' and where consumers can make their own posts--making sure that all information is strictly in compliance with the advertising rules could be a challenge. Here are a couple of actual posts (with identifying information removed):

A Twitter post:

Mortgage rate update--30-year fixed 5375% APR. 15-year fixed 4.875%, FHA 5.50%.Apply today at [web address]

A brochure posted on Facebook:

1. Home Equity Line of Credit with NO CLOSING COSTS (6 mo. Introductory rate) 3-50 APR*, then as low as 4.50% APR*

The Facebook posting seems to be a reprint of an ad that appeared in a printed format. The asterisks probably referred the reader to the additional disclosures, but unfortunately those disclosures did not appear on the Facebook page. In cases where brochures are reproduced on a site, the entire document should appear.

Regulation DD deposit advertising

Reg. DD's deposit advertising rules apply to information posted by the bank. For example, if the APY is stated, the other requisite disclosures must be stated. The mention of bonuses also requires additional disclosures.

The following Tweet was noted:

While you're there, open a CD (up to 3% interest) or savings account.

A Facebook entry from the beginning of July 2009 offered the following:

Become a Facebook fan to get a 4%) CD during the month of July

FDIC membership advertising requirements

In nearly all cases the bank should include the "Member FDIC" or similar logotype on its page or with its logo. In our review of Facebook pages and. Twitter messages, this logo was absent in the majority of cases, even when deposit accounts were specifically mentioned.

Fair Housing Act

If the bank mentions a loan to be secured by the borrower's home, the equal housing lender logo should be included, and no advertising communication can indicate illegal discrimination. This was a widespread error we noted when reviewing Facebook pages with mentions of home-related lending. In the home...