Monday, May 23, 2016

Advertising Compliance: Getting Ready for the Banking Examination

President & Managing Director
Lenders Compliance Group

Advertising is often central to a loan originator’s marketing plans. After all, if prospective borrowers can’t even find you when they need mortgage loans, there’s nothing left but word of mouth, dropping off bagels at real estate brokers, giving away pens and pads with your name on it, offering occasional, educational and promotional presentations on loan products, and hanging out a website shingle with the hopes that you will be listed on Page 10 of Google Search.

Informing the public of loan products is a highly regulated activity in mortgage banking and finance. Buzz words, restricted words and phrases, and trigger terms can be a nasty nest of vipers that will catch you up in a regulator’s net. The regulatory areas involving mortgage banking advertising include the Fair Housing Act, Equal Credit Opportunity Act (ECOA), Truth in Lending Act (TILA), Federal Trade Commission’s Mortgage Advertising Rules, FHA mandates, Real Estate Settlement Procedures Act (RESPA), Unfair, Deceptive, or Abusive Acts or Practices (UDAAP), fair lending, the SAFE Act, the Fair Credit Reporting Act (FCRA), and state regulations. Clearly, advertising compliance is complex!

My firm looks at thousands of potential advertisements a year that are sent to us by our clients for clearance. Although we provide them with our Advertising Manual, which is deep and broad in application and contains many forms and formats, each advertisement still often needs a review, especially at the commencement of a marketing campaign. Our clients want to comply with federal and/or state advertising regulations; however, they feel continually constrained as to how best to both stay within bounds of regulatory compliance and also create appealing advertisements. Of course, banking examiners don’t much care about how engaging and captivating an advertisement is; these professionals are tasked with protecting the consumer in accordance with required regulatory guidelines.

One of the very first requests a regulator asks at the outset of an examination is to receive for audit all advertisements involving contact with the public during the scope period. Woe be unto the company that does not have each and every advertisement ready and available for audit! And woe be unto the company that lets a regulator somehow uncover an advertisement that was not disclosed at the time of an examination – even if the advertisement had no violations in it, the trust factor with the auditor will not be easily re-established!

As many of you know, Lenders Compliance Group’s orientation is what I call “applied compliance” – not the theoretical approach to compliance that seems to work in theory, but often becomes controversial in the on-going implementation of regulatory compliance. In this article, I am going to provide a practical approach to guiding you through the maze of certain advertising compliance rules as well as regulatory expectations. Obviously, the article is not meant to be comprehensive. But it is aimed at providing suggested ways and means toward the kind of hands-on, applied compliance that my firm handles every single day on behalf of our clients.

This is a two-part article. In this first part, I will discuss some basics, give you the principal ways to prepare for advertising compliance examinations, and highlight the banking examiner’s expectations. In the second part, we’ll explore marketing campaign development, the use of advertising checklists, triggering terms (the advertised words or phrases that “trigger” the need for additional disclosures), and the way advertisements impact fair lending.


First and foremost, let’s be clear about what is a viable advertisement.