Compliance Risk Compliance risk is the risk to earnings or capital arising from violations of, or non-conformance with, law, rules, regulations, prescribed practices, or ethical standards. Compliance risk arises in situations where the laws or rules governing certain activities or clients may be ambiguous or untested. Compliance risk exposes the institution to fines, civil money penalties, payment of damages. * Civil and Criminal * Compliance risk can lead to a diminished reputation, limited business opportunities, and lack of contract enforceability. A portion of compliance risk is sometimes referred to as legal risk. This is not limited solely to risk from failure to comply with consumer protection laws; it encompasses all laws as well as prudent ethical standards.
Reputation Risk Reputation risk is the risk to earnings or capital arising from negative public opinion. This affects your ability to establish new relationships or services, or continue servicing existing relationships. This risk can expose you to litigation, financial loss, or damage to its reputation. Reputation risk creates the responsibility to exercise an abundance of caution in dealing with their customers and community. The assessment of reputation risk recognizes the potential impact of the public’s opinion on a company’s value. This risk is inherent in all activities.
Why Do I Care About Compliance?Because I have to…
Federal Trade Commission Reg Z (12 C.F.R. 226.2 (a)(2)) an advertisement is any medium that promotes, directly or indirectly, a credit transaction. The FTC has the authority to act in the interest of all consumers to prevent deceptive or unfair acts and practices. Advertisements must be: truthful and fair not misleading
FTC Advertising GuidanceTruthful and Fair Misrepresentation (false or misleading information): Misrepresent material facts or Make false promises In order to influence, persuade or induce an applicant for a mortgage loan. Conceal any material factors, terms or conditions of a transaction pertinent to an applicant for a mortgage loan. The F word … Fraud
Federal Trade CommissionAdvertising Guidance Puffing: usually not considered misrepresentation … an opinion that is not necessarily intended as a representation of fact “best customer service in town” Negligence: misrepresentation through negligence may not be actionable fraud, but we are obligated to protect the consumer by being factually accurate in our advertising.
Federal Trade CommissionAdvertising Guidance When claiming fraud or deception … May not be necessary to prove financial harm in the transaction. Remember … misstatement, misrepresentation or ommission. Material Facts are those that if known, might have caused a reasonable consumer to make a different decision. You need to know your required TILA disclosures
Triggering Terms Requiring Disclosure The amount of the down payment The amount of any payment The number of payments The period of repayment The amount of any finance charge
Terms That Do NOT Trigger RequiredDisclosures “No down payment.” “12% Annual Percentage Rate loan available here.” “Easy monthly payments.” “FHA financing available.” or “100% VA financing available.” “Terms to fit your budget.”
Required Advertising Disclosures If any triggering terms are used in an ad, all of these disclosures must be made: Amount or percentage of down payment Terms of repayment APR (spelled out in full); if the note rate may increase (e.g., ARMs), that fact must also be disclosed If an ad discloses on the APR, the additional disclosures are not required
Reg Z: Misleading Statements andMisrepresentation226.24 Prohibits: Making any statement that the product offered is a “government loan program”, government- sponsored loan”, or is otherwise endorsed by the gov’t. Using the term “counselor” in an advertisement to refer to a for-profit …
Reg Z: Misleading Statements andMisrepresentation226.24 Prohibits: Using the name of the consumer’s current lender in an advertisement that is not sent by or on behalf of the consumer’s current lender, unless the advertisement also discloses with equal prominence the name of the person or the creditor making the advertisement and includes a clear and conspicuous statement that the person making the advertisement is not associated with, or acting on behalf of, the consumer’s current lender.
FTC Policy Statement on Deception An ad is deceptive if it contains a statement – or omits information – that is likely to mislead consumers acting reasonably under the circumstances or is material to a consumer’s decision … Practices related to mortgage ads that have been found to be misleading or deceptive include: False representations or omissions Misleading price claims Use of bait and switch techniques Failure to perform promised services
FTC Policy Statement on Unfairness An ad is unfair if: It causes, or is likely to cause, substantial consumer injury which a consumer could not possibly avoid; and, It is not outweighed by the benefit to consumers. For an injury to be considered unfair, it must be substantial and in most cases involves monetary harm. Also, could the consumer have reasonably avoided injury? Ex. predatory lending schemes
Questions to Consider • Does your advertising make your customers satisfied that they do business with you? • Are you avoiding impossible promises and guarantees? • Are your advertised programs readily available? • Do you mean to sell what you advertise?• Do your ads avoid misleading inferences?• Do your advertised terms agree with the facts?• Is your advertising easy to understand without asterisks and fine print?• Do you believe your own comparatives?
Clear and Conspicuous FTC Dot Com Disclosure provides guidance on making disclosures clear and conspicuous. placement and proximity are critical. Place disclosures near, and when possible, on the same screen as triggering claim. Use text or visual cues to encourage consumers to scroll down when it is necessary to view a disclosure.
Clear and Conspicuous If using hyperlinks to lead to disclosures, make the link obvious, label the hyperlink appropriately to convey the importance of the information it leads to, and take consumers directly to the disclosure. Note: burying disclosures in a link probably will not meet the letter of the law.
Clear and Conspicuous Prominently display disclosures so they are noticeable to consumers, and evaluate the size, color and graphic treatment of the disclosure in relation to other parts of the page. Review the entire ad to ensure that other elements – text, graphics, hyperlinks or sound – do not distract consumers’ attention from the disclosure. Repeat disclosures – as needed – on lengthy websites and in connection with repeated claims.
Clear and Conspicuous Repeat disclosures – as needed – on lengthy websites and in connection with repeated claims. Display visual disclosures for a duration sufficient for consumers to notice, read and understand them. Use clear language and syntax so that consumers understand the disclosures.
Federal Fair Housing Act or Title VIII ofthe Civil Rights Act of 1968A. Prohibits discrimination based on: 1. Race 2. Color 3. Religion 4. Sex 5. National origin 6. Disability 7. Familial statusB. Covers all housing transactions and services including advertising, rentals, sales, lending, and insurance, as well as harassment.C. Prohibits using discriminatory advertising or any other notice that indicates a limitation or preference or intent to make any limitation, preference, or discrimination.
IMPLY vs. INFERIMPLY = to put the suggestion into the message (sender implies)INFER = to take the suggestion out of the message (receiver infers)IMPLICATION = what the sender has impliedINFERENCE = what the receiver has inferred
Fair Housing in AdvertisingA. Prohibits using discriminatory advertising that indicates a limitation or preference.B. Advertising can not convey a message • preference for or against any protected group, whether through words, pictures or other images.
Fair Housing in AdvertisingB. Use of Words, Phrases or Symbols1. The use of words, phrases, and symbols to convey overt or implicit discriminatory preferences or limitations is prohibited.
Fair Housing in Advertisingcatchwords - words and phrases used in a discriminatory context should be avoided. (e.g. restricted, exclusive, private, integrated) Catchwords convey preferences for one group over another or send signals about a communitys makeup.symbols and logotypes which imply a protected class
Fair Housing in Advertisingcolloquialisms - words or phrases used regionally or locally that seeks to imitate informal speech which imply or suggest a protected class Colloquialisms or colloquial language is considered to be characteristic of or only appropriate for casual, ordinary, familiar, or informal conversation rather than formal speech or writing. Slang or Dialect
Fair Housing in Advertising 24 CFR Part 109 is no longer officially part of the Code of Federal Regulations. Part 109 was withdrawn from the Code of Federal Regulations by directive no. FR-4029-F- 01, effective May 1, 1996. We have included the Part 109 regulations here because they still apparently represent the position of HUD on advertising, except as superceded by Roberta Achtenbergs memo of Jan. 9, 1995.
Human Model Advertising1. Real estate and Lending advertising including photos or drawings may not be used to indicate exclusiveness.2. Should be clearly definable as reasonably representing majority and minority groups in the metropolitan area, both sexes, and when appropriate, families with children.3. Should portray persons in equal social settings and indicate to the general public that the housing is open to all without regard to race, color, religion, sex, handicap (disability) familial status or national origin, and is not for the exclusive use of one such group.
D. Equal Housing Opportunity Symbols1. All advertising for the sale, rental, or financing of housing should contain an equal housing opportunity logo, statement or slogan.2. Logo or statement should be a part of each advertisement and should be placed in visible location and be a comparable size of other symbols or text used in the advertisement.3. Applicable to advertisement for sale, rental and financing of housing.
Ragin v. The New York TimesRagin v. The New York Times Co., 923 F.2d 995 (2d Cir.), cert. denied, 502 U.S. 821 (1991): The New York Times, a publisher, was found in violation of the Fair Housing Act for the longstanding practice of allowing the publication of advertisements using "human models" that did not reasonably represent the percentage of blacks and other minorities in the New York City metropolitan area. The ruling showed that a plaintiff alleging discrimination need not establish that the defendant intended to express a racial preference in the ad.
Things to Consider Email correspondence Websites Blog correspondence (posts and comments) Links to 3rd Party Sites Real Estate Advice Online Services Zillow Advice, Trulia Advice. Yahoo! Answers, LinkedIn Answers Interaction in online communities and social media platforms Facebook Twitter