This COMPLY Podcast episode is part 2 of a discussion between John Zanzarella, PerformLine’s SVP of Sales, Jonathan Pompan, Partner at Venable LLP, and Brian Serafin, Counsel at Weiner Brodsky Kider, as they take a deep dive into recent regulatory activity around UDAAP and deceptive advertising and best practices for getting ahead of risk.
They discuss:
- Problematic terms in marketing materials, such as “instant,” “free,” and “affordable”
- The FDIC’s updated advertising rule and how it impacts both banks and non-banks
- Best practices for ensuring transparent communication in marketing
Show Notes:
- Top UDAAP Compliance Issues Across Marketing Content: https://content.performline.com/report/the-top-udaap-compliance-issues-across-published-content
- FDIC’s Advertising Rule and Updates for Digital Marketing Materials: https://performline.com/blog-post/fdic-advertising-rule-updates-digital-marketing-materials/
- Expert Insights on UDAAP and Deceptive Advertising, Part 1: https://performline.com/blog-post/episode-47-expert-insights-on-udaap-and-deceptive-advertising-pt-1/
- Connect with John: https://www.linkedin.com/in/johnzanzarella/
- Connect with Jonathan: https://www.linkedin.com/in/jonathan-pompan-43535935/
- Connect with Brian: https://www.linkedin.com/in/brian-serafin-23297620/
- Connect with Gianna: https://www.linkedin.com/in/gianna-kennedy/
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About COMPLY: The Marketing Compliance Podcast
The state of marketing compliance and regulation is evolving faster than ever, especially for those in the consumer finance space. On the COMPLY Podcast, we sit down with the biggest names in marketing, compliance, regulations, and innovation as they share their playbooks to help you take your compliance practice to the next level.
Episode Transcript:
Gianna:
Hey there COMPLY podcast listeners and welcome to this week’s episode. This episode is part 2 of a discussion between John Zanzarella, PerformLine’s SVP of Sales, Jonathan Pompan, Partner at Venable LLP, and Brian Serafin, Counsel at Weiner Brodsky Kider. Listen as they discuss problematic terms in marketing materials, such as “instant,” “free,” and “affordable,” the FDIC’s updated advertising rule and how it impacts both banks and non-banks, and best practices for ensuring transparent communication in marketing materials. As always thanks for listening and enjoy!
John:
It’s interesting. I mean, when we think about, you know, terms like free and instant, those are some of the more popular ones that we see mentioned. But what are some of the other terms that you see as potentially being problematic, that are kind of those broad general terms that are maybe hard to back?
Brian:
So just, I mean, you know, sort of historically, companies could get away with what they called puffery, kind of this idea that they’re using these sort of superlative explanations for what the product is, but that people aren’t really supposed to take it literally. Maybe that used to be the case. But again, nowadays there’s this much greater focus on accuracy.
And then particularly what the customer is going to understand what these terms mean. You know, I think a lot of times when you’re trying to figure out how to understand these terms you shouldn’t be looking at necessarily what a “reasonably prudent person” would use. The direction now is more to look at how the least sophisticated consumer might view the issue.
And so again, you’re kind of going back to some of these other terms. You might see things like affordable, which might be one of them, or low cost. Again, it’s sort of things that could have different meanings to different people. Sometimes vagueness can help you when you don’t want to be specific, but also sometimes vagueness is not your friend because different people can take different meanings. And if a certain group of consumers, even if not all consumers, but a subset of consumers is consistently misunderstanding the term you’re using, then that’s going to start creating a lot of risk.
Jonathan:
And John, the risk in some cases can be massive, particularly for online and digital advertising that’s not targeted and is broad-brushed. A number of organizations get inbound inquiries from online advertising where those impressions that are made are voluminous. The other thing is that the FTC, in some respects, doesn’t even care about whether an individual consumer has actually seen an advertisement. Reliance is not necessary for them to demonstrate, as far as the courts are concerned, that there’s been any type of misleading, deceptive statement. So you can have statements that are made on a website in one place, a consumer that comes in through an entirely different channel, and the FTC and the CFPB could still build a case around that.
So, in addition to free and instant, there are several other terms that marketers and compliance teams need to be cautious about in financial advertising. These terms can be problematic. They’re not always problematic, but they’re ones to, you know, maybe delve into a little deeper and make sure that the product and the terms match. Terms like no fees or zero fees are similar to free. They can be misleading if there are any hidden charges or conditions or limitations that apply. And increasingly, government agencies are taking the view that any extra fees, even if they’re for add-on products or services, somehow implicate the cost of the service. Therefore, you’ve got to be careful what’s included or not included when doing an analysis of what no fee means. No fee for what? Is it no fee for the bank account, or is it no fee for the bank account in certain circumstances? How does that play out?
You also have situations where words like guaranteed and claims of guaranteed approval or pre-approval can be problematic if that’s not truly what’s happening. Low rates, best rates, lower rates, stuff of that nature can also be difficult. But in some cases, they could be substantiated. And that’s one way, for instance, for compliance to work with marketing teams and legal to get claims approved for particular advertising or marketing. If there’s substantiation available and claim support, then it goes into the file. If the claims are accurate and not otherwise misleading, you might be good to go depending on what it is.
Also, in the lending world, no credit check is seen a lot. In some cases, products and services truly don’t require a credit check. But in some cases, they might, and it might be that, for instance, a third-party lead generator is not doing the credit check, but the end lender is. So you have to be careful there in how that’s messaged. Particularly if it’s automatic. In other words, there’s no ability to stop that process once an inquiry is made. Things like instant approval, timing considerations, particularly timing that is not under the control of the person making the claim, can be challenging to do.
John:
Yeah, for anyone who’s listening and interested in some of those words and phrases, PerformLine offers a UDAAP report that includes a lot of them. Same as cash, Jonathan, is another one that we see highlighted often as potentially problematic. But that’s great. So I’m going to shift gears once again to our next regulator of discussion, the FDIC. This year we’ve seen several cease and desist letters to non-banks for misrepresenting FDIC insurance coverage. It’s been a very hot topic, especially the last 14 months or so. Brian, we’ll start with you. Maybe you could share some of the implications of this for companies.
Brian:
Sure. So just as a little bit of background, in December of 2023, the FDIC released new rules regarding the use of the FDIC logo and what companies can and cannot say with respect to their products and services being FDIC insured, and how that information is supposed to be presented. So this is certainly something that’s been on their mind recently.
In the last few months, we’ve seen issues come up a lot in either the cryptocurrency space or the fintech space, or companies that are offering services that are similar or relate to the banking process, making claims about being FDIC insured, even though that company is not literally FDIC insured. Just to give an example, there are some fintech companies that offer a product designed to help you save money. And the fintech company, once they receive the money from you, they actually place it into an FDIC insured bank. They place the money into an FDIC insured bank. So from their perspective, maybe they thought, oh, the money’s in an FDIC insured account, and we should be able to say that. But the fact is that particular company, the company that the consumer is dealing with, is not actually the FDIC insured institution. That’s what’s giving the FDIC some pause and having them send out these letters to make sure companies are being very clear in their representations. If you are dealing with another bank, you have to be very clear who that bank is and what their role in the process is. There’s also a lot of issue with companies where they might offer a mix of products or mix of services, and some might be FDIC insured, but some might not be. And you can’t conflate the two. You have to be very clear that this one is insured, this one is not insured. You don’t want the consumers to get this net impression that everything they’re dealing with is insured.
Jonathan:
Yeah, John, and those are terrific points. I would add that the FDIC issue and cease and desist letters to non-banks for misrepresenting FDIC insurance coverage is emblematic of the complexities and risks that come from banking-as-a-service and bank-non-bank partnership relationships that abound today. Now, many of those are not cookie-cutter. They’re very different, and in some cases, they involve the movement and use of bank services for account holding, where this FDIC insurance issue can arise.
But you also have situations where banking-as-a-service implicates issues such as money transmission regulation on the state level, as well as the federal level, and other compliance considerations. It really depends on the combination. This is a symptom of a larger ecosystem of bank-non-bank partnerships that arise where you can have many different issues arise, one of which is the potential misuse of FDIC insurance coverage labeling or labeling that doesn’t match what’s happening behind the scenes, despite what people might think, including people within the organization. There are implications for non-banks and banks, and they are different. For banks, you’re going to see a lot of increased pressure to mind third-party service providers, but for non-banks, there’s also the potential for increased scrutiny by sponsoring banks as well as their regulators. The Consumer Financial Protection Bureau (CFPB) is also important. The CFPB doesn’t necessarily have jurisdiction over the sponsoring bank given the nature and size of those banks, but in a fintech banking-as-a-service relationship, the bank may be small enough not to be covered by routine supervision and examination by the CFPB. That doesn’t mean the fintech partner is off the hook for CFPB scrutiny. This is where exams and investigations could arise. Increased scrutiny by the FTC as well could lead to legal actions, fines, and reputational damage. The bank partnership relationships typically pass the risks on to the fintech. There is regulatory risk for the bank, but the non-bank will take the potential financial hit.
Fintechs need to take a close look at compliance requirements and understand that the compliance requirements that apply to them aren’t just unique to their product or service. They have to understand the broader world the bank works within. The sponsoring bank may or may not have a whole list of requirements, but they need to drill down more and understand that. For the FDIC insurance coverage issue, they have to understand which deposits, if there are deposits, are insured, under what conditions, and what they need to do to perfect that coverage. Recently in the news, there was information about a prominent fintech that declared bankruptcy under a receivership where they had ledger issues. The claims they were making around FDIC insurance may not have been true because of their own actions. It’s important to keep an eye on what’s happening and not have a set-it-and-forget-it situation. Changes in the way money flows or consumer information is stored can make a huge difference. Reputational risk is also a concern.
John:
So how do you approach that, Jonathan? Do you take a risk-based approach and say, hey, we’re just not going to market that our fintech or tech partners are offering FDIC insurance, or do you have it set up where you’re revisiting it on a regular basis to make sure it’s set up appropriately and matches the product and the regulation at the time of marketing?
Jonathan:
I don’t think it’s as extreme for all organizations as just not making the claim, especially if a core aspect of the financial product or service should reasonably include that. If the bank is the funds are held at the bank. But it’s going to depend on the facts. Non-banks might need to revise their operational processes, training programs, compliance frameworks, and the cadence in which they’re understanding how the products and services work to ensure that all representations are accurate and compliant. Organizations need to take a systemic and pragmatic approach. It’s not a one-size-fits-all solution.
Brian:
Can I add something before we move on? Just one other thought. From looking at some of these cease and desist letters that the FDIC sent out, a lot of them would give examples of problematic ads or statements. A lot of them would be social media posts where you’re limited in terms of the amount of space you have, the number of characters you can use. You have to be cognizant about where you’re making these representations and what mediums you’re advertising on. If you have a lot of space, you can give a lot of detail. If you’re limited in terms of what you can say, you have to be very careful about the specificity of your claims. If you say FDIC insured but mean the money is stored in accounts at such-and-such bank which is FDIC insured, you have to make sure you’re making these claims in a medium where you can give all the appropriate representations, explanations, and disclaimers.
John:
Great, makes sense. Cool. So the last topic and then we’ll have some final remarks is the concept of transparent communication in the context of financial services marketing. We hear it come up a lot. We know it’s important. Maybe you could share some best practices with the audience on allowing for that transparent communication in their marketing materials.
Jonathan:
Sure, John. Transparent communication is critically important in marketing materials, especially. It starts with understanding the product or service that’s being promoted. The buck stops there. If the advertising and marketing don’t match, it’s not going to work for many reasons, legally and regulatory sure, but also from a standpoint of consumer satisfaction and reputation. It’s critically important to have transparent communication.
How to perfect that can be challenging. But it’s important to have a process where those involved in marketing and advertising and developing the marketing campaigns understand the product and service as much, if not more, than anyone else involved in the organization. Equally important is having compliance and legal along for the ride. It can be helpful for everyone to be involved, especially when making adjustments and tweaks when products and services are being developed. If someone says, hey, we would like to be able to say X, Y, and Z about this, but those aren’t product features built in at the beginning, they’re not going to be there. If they are in the advertising, someone will need to end up taking the pencil and whiting it out. It’s important to have an active monitoring program and periodic audits. That will only mitigate issues after they potentially arise. That’s why it’s important to do all that front-end work.
Organizations want to wait until something is launched, until there’s consumer interest or commitment by the organization to get the p’s and q’s right, to dot the i’s and cross the t’s. It’s important to understand that that is part of the risk calculus. Those wanting to have more involvement on the front end can offset potential risk on the back end.
Brian:
Those are all really good points. One other thing is you have to look at the product from the consumer’s perspective. What is the consumer actually seeing? What are they doing when they sign up? Where are they clicking on the website? Where are they going? If you only talk about a product in the abstract, it’s easy to miss those details that affect what the consumer is seeing and how they are learning about the product from your marketing and advertising.
One issue we’ve seen with the CFPB and the FTC is what they call dark patterns. These are websites where, just because of the way the information is presented, the consumer is missing out on some important details, or they’re not understanding what they’re clicking, or they’re missing the fact that if they need to opt out of something, they need to affirmatively do so. It’s about understanding what the consumer is seeing and not just looking at products in the abstract.
One other thing is you really need to track consumer complaints. Those are one of the best ways to find out if consumers are having actual problems. Sometimes they’re phoned in or emailed in directly to the company. Sometimes it’s through the CFPB’s complaint portal, or the Better Business Bureau, or a similar online organization. You need to track those and see if there are any trends in terms of what consumers are complaining about, issues they’re seeing, or concerns they’re raising about the sign-up process or what they’re paying. By tracking those, you get a view of what problems people are having with your product or service or how it’s marketed or advertised. By tracking those and taking corrective action, if you see trends, those are some of the best ways to ensure compliance and focus on the consumer perspective and how they’re reacting.
John:
Let me just add to that, Brian. For the audience here today, when you think about viewing the marketing or advertising through the eyes of the consumer, where would that happen in practice within an organization? Would it be the marketing team putting together the campaign, the compliance team reviewing the campaign, or is it a shared responsibility?
Brian:
I think it’s a shared responsibility. Compliance, marketing, the website design folks, all need to look at it. For the compliance department, especially when looking at the layout of the website, it’s hard to do with just a checklist. You need to take a more holistic view of everything being shown, how it’s shown, what can be seen at any one time on the screen. It’s a process for everyone to be involved in, and they need to know upfront before designing the marketing campaign or before it gets to compliance what to look out for. Make sure marketing people are receiving the same training on compliance as the compliance department. You don’t want the problem to arise only after it gets to compliance. Hopefully, someone will catch it earlier on. It’s about making sure all teams are aware of these issues and focusing on them from the beginning, not siloing their own activity and passing it along without further involvement.
John:
Cool. We have a few minutes left. Any final takeaways or closing thoughts you want to share with the group? Jonathan, we’ll start with you.
Jonathan:
John, it’s a challenging environment for compliance these days. There’s no shortage of potential pitfalls and evolving policy positions by the government, particularly on the federal level, but it’s creeping into the states as well. State AGs and state financial services regulators are taking their cues from the CFPB in terms of compliance expectations, even if it’s not black-letter law or regulation. There’s a trend of broad and vague standards, particularly with UDAAP, and the CFPB has wide discretion, leading to inconsistencies in how companies are treated. Companies may feel singled out through regulation via enforcement or investigation, leading to penalties and public scrutiny. It’s not positive for consumers, industry, or compliance staff. Lack of clarity makes it challenging for companies, but compliance staff must build that into the compliance culture. Legal fights will be for the legal department, but compliance must stay a step ahead, understand where regulators are on issues, and factor that into compliance discussions. This ensures those developing and approving advertising and marketing have access to information and analyses to make informed business decisions. Regulatory burdens won’t subside, leading to increased compliance costs. Not investing in compliance can jeopardize a company, products, services, and ultimately consumers, leading to increased costs and reduced services.
John:
Thanks for that, Jonathan. Brian, any closing thoughts?
Brian:
Sure. Everything Jonathan said, I agree with 100%. Today we focused on UDAAP and the FTC. There’s a whole world of compliance-related statutes that can affect marketing, depending on the product. The Truth in Savings Act, Truth in Lending Act, Mortgage Acts and Practices Rule, state laws can impact issues. It’s crucial to have knowledgeable compliance staff to review marketing and advertising for all important points. The best time to build up your compliance department was a while back. The second-best time is today. Companies may cut compliance departments to save money in tough times, but long-term, this exposes them to risk. If the presidential administration changes, compliance requirements could increase. Statute limitations can run back years, so a violation under a permissive administration could be pursued later. Compliance should be integrated when putting products together and advertising them. Keeping compliance in the forefront is critical, making sure all teams are aware of issues and focusing on them from the beginning.
John:
Yeah, super important. Building a business with compliance as part of the DNA makes it less dependent on who the regulator is or how regulations change. Compliance can be a catalyst for growth if included in the conversation early. Thank you, Jonathan and Brian. Thank you to the PerformLine marketing team, and thank you to the audience. Let us know the topics you want to hear on our podcast. Have a great day.
Gianna:
Thanks for listening to this week’s podcast! If you missed part 1 of the discussion, we’ll link it in today’s show notes. As always for the latest content on all things marketing compliance you can head to performline.com/resources. And for the most up-to-date pieces of industry news, events, and content be sure to follow PerformLine on LinkedIn. Thanks again for listening, and we’ll see you next time!
Rhonda McGill