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Wrangling Social Media

It’s communication. It’s sharing. It’s information. It’s the tool du jour for customer engagement, and businesses around the world are discovering how social media is contributing to success and growth.

From a compliance standpoint, social media is a fertile field for problems. This week we will pull together resources to help you orchestrate and oversee social media use for your financial institution.

Generating a substantial following via social media is frequently a major objective for small and medium sized businesses, including lenders, who are looking to quickly expand their footprint while minimizing their customer acquisition costs. A recent Digital Risk survey, for instance, found that nearly 30% of recent homebuyers found their home through the internet, indicating that buyers are open to nontraditional sources of information when looking to purchase. Before getting too far down the road though, lenders should remember that compliance with new social media regulations imposes unique constraints on individuals involved with the lending business.[1]

What are the regulatory guidelines and rules applicable to social media?

RESPA

The Real Estate Settlement Procedures Act of 1974 (RESPA), which became effective on June 20, 1975, is the regulatory backbone of compliance with advertising on social media.  In an effort to prohibit improper dealing between the various parties to the lending process, Section 8 of RESPA makes it illegal to give or accept a fee, kickback, or anything of value in exchange for referrals of settlement service business involving a   federally related mortgage loan.   RESPA also prohibits fee splitting and receiving unearned fees for services not actually performed.[2] The Section 8 provision of RESPA continues to be highly enforced by regulators, as it aligns with the CFPB’s broad goals of protecting consumers of financial products from unfair and deceptive business practices, including the use of social media.

FFIEC Guidance

The CFPB and the Federal Financial Institutions Examination Council (FFIEC) have attempted to bring clarity to RESPA Section 8 and its effect on the dissemination of content through social media.  It has become evident that the use of social media presents a strong new opportunity for financial institutions to attract new customers, including those from the millennial generation that lenders predicted would soon enter the housing market.

The FFEIC issued a Social Media Guidance (Guidance) and the CFPB offered rules to complement this Guidance in late 2013.   The Guidance defines social media as a form of online communication where users can generate and share content through text, audio, video, and/or images. In addition to listing specific social media sites included in their definition, the Guidance’s definition even extends to social media games; however, the Guidance distinguishes standalone email and text as falling outside this definition. Numerous other commercial sources have been developed surrounding the social media benefits and challenges to the industry, such as one presented in 2014 by Chapman and Cutler LLP.[3]

Enforcement Reinforcement

Published guidance and rules present the benchmarks, and industry training and compliance aids offer assistance to understand and implement to standards. But, nothing gets industry attention like enforcement.

While social media has not yet been named as prima facie evidence of violations, the CFPB has been aggressive to find and penalize financial institutions for deceptive practices, misrepresentations, and violations of Section 8. Many of the violations cited have occurred in the financial institution’s marketing and advertising operations, and, with the rise of social media use, dramatically increases its risk level.

Mitigation and Management

Compliance is all about managing risk. In the August 2015 Mortgage Compliance Magazine, we showed the Guidance recommends the risk management program should be developed in collaboration with specialists in compliance, legal, technology, information security, human resources, and marketing.  It also states the components of a risk management program should include the following:

  • A governance structure with clear roles in which the board of directors or senior management directs how using social media contributes to goals of the company.
  • Policies and procedures regarding use and monitoring of social media and compliance with all applicable consumer protection laws and regulations, and a process through which those policies and procedures are periodically updated to comply with changing laws and regulations.
  • A risk management process for selecting and managing third-party relationships in connection with social media, which should include a thorough evaluation, the performance of appropriate due diligence, and an evaluation of the third party’s reputation.
  • An employee training program which incorporates policies and procedures for official use of social media. The program should address acceptable posting both for the official company site and on personal profiles.
  • An oversight process for monitoring information posted to social media sites, administered by the institution or a contracted third party.
  • Audit and compliance functions to ensure ongoing compliance with the institution’s social media policies and procedures.
  • Parameters for providing appropriate reporting to a financial institution’s board of directors or senior management of the effectiveness of the social media program and if the stated objectives are being achieved.[4]

Forward to the Future

Risk management is about looking at what you have done or are doing and making adjustments; and it is about looking to the future to anticipate what challenges lay ahead. The January 2017 Mortgage Compliance Magazine offered social media predictions for the lending and mortgage industry in 2017, including:

  • Playing ‘bigger’ with more professional business pages;
  • Using more video to reach potential borrowers;
  • Becoming more comfortable with pre- and post-publication monitoring process automation
  • Implementing an uptick in self-governance of social media posts; and
  • Increasing pre-screening of advertising content ahead of state and federal audits.[5]

Social Media Bottom Line

Regardless of your financial institution’s size or complexity, urban or rural location, fewer or greater array of products and services, social media has become omnipresent. For all areas of the Compliance Management System (CMS), ensure the social media factor is included in the equation.

 

Around the Industry:

Effective Now:

Looking for training resources for your board of directors? NCUA offers on-line series with quizzes and certificates of completion.

On the Horizon:

Have you read the CFPB fair lending priorities for 2017?

MCM Q&A

What NFIP reforms might the mortgage industry see in 2017? Get the scoop here.

 

 

[1] “Social Media: Reaping the Rewards While Navigating the Minefield; D. Hoffman; August 2015 Mortgage Compliance Magazine; http://www.mortgagecompliancemagazine.com/featured/social-media-reaping-the-rewards-while-navigating-the-minefield/

[2] Ibid.

[3] https://www.aba.com/Tools/Offers/Documents/1Chapman_Social_Media_Guide_Financial_Institutions_0514.pdf

[4] “Social Media: Reaping the Rewards While Navigating the Minefield; D. Hoffman; August 2015 Mortgage Compliance Magazine; http://www.mortgagecompliancemagazine.com/featured/social-media-reaping-the-rewards-while-navigating-the-minefield/

[5] “Title: 5 Social Media Predictions for the Lending & Mortgage Industry in 2017;” S. Ferguson; January 2017 Mortgage Compliance Magazinehttp://www.mortgagecompliancemagazine.com/marketing/title-5-social-media-predictions-lending-mortgage-industry-2017/

 

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