Recent regulatory activity, especially by the CFPB, is serving notice to all financial institutions to pay close attention to their advertisements to make sure they are not considered deceptive. Sometimes these fines are not especially large, but the headlines are. What can we learn from these actions to avoid becoming the next big news story?
Let’s review three prominent actions the CFPB has taken revolving around deceptive advertising.
Deceptive Free Checking Ads
This scenario had to do with a bank that entered into a consent order about allegedly free checking. This case is interesting in that the CFPB did not find that the bank’s checking program itself was deceptive, only that the advertisement about the program was considered to be problematic.
In its ad, the bank touted its free checking account as having no fees or minimum balance requirements. However, the bank failed to disclose that the free checking account had a minimum activity requirement. If the consumer failed to have sufficient activity on the account, then the account would automatically convert to an account with a monthly fee.
Even though the bank’s disclosure at account opening mentioned the conversion feature, the fact that the ad itself didn’t mention it is what resulted in the action against the bank. That action consisted of an order to refund over $2 million to 59,000 accounts and pay a $200,000 fine.
The takeaway here is to make sure your advertisements contain the necessary warnings and disclaimers, because the examiners most likely will be looking.
The second action had to do with three mortgage companies who were hit for ads that misrepresented the relationship between the lender and the government.
One of the lenders sent out more than one million direct mail pieces claiming to be a HUD-approved lender, when they were not, or they sent out a letter referencing HUD No. 12-045 and instructing the recipient to call an “assigned FHA loan specialist.” The name of the lender was buried in a disclaimer on the reverse side of the ad.
The second lender sent out 100,000 pieces featuring an FHA-approved lender logo and a web address (FHAdept.us) that the CFPB contended implies an affiliation with the government.
The third lender sent out a thousands mailers with an official-looking seal and a heading that read, “Government Lending Division.”
Chances are that as a consumer, you’ve received mail with official looking seals and government-sounding names before. But the key takeaway here is if you’re a financial institution, stay away from ads that imply any type of government affiliation.
Credit Card Balance Transfers
And the final area to be aware of has to do with the CFPB’s bulletin [2014-02] that was released last year concerning credit card issuers who advertise that consumers can, for a limited time, transfer existing credit card balances and receive a zero or very low promotional APR. The problem arises when the ads don’t make it clear that consumers will only receive the promotional rate if they pay off all of the transfer balance plus any new charges they make within the grace period.
Each of these areas may have once fallen under the category of caveat emptor, but it is clear that in today’s environment of protecting the consumer, the tables have turned. As such, make sure your institution has a “seller beware” mindset before approving your new advertisements.