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Proposed Social Media Guidance Issued

Mortgage News

While there are many benefits to the use of social media, a host of risks exist for lenders and banks. Mortgage firms, in particular, need to ensure that their social media communications comply with existing laws and regulations. Federal financial regulators have issued proposed guidance for use of the medium.

Social media is defined in the proposal as “a form of interactive online communication in which users can generate and share content through text, images, audio, and/or video.”

Among the examples cited are micro-blogging sites like Facebook, Google Plus, MySpace and Twitter; forums, blogs, customer review web sites and bulletin boards like Yelp; photo and video-sharing sites like Flickr and YouTube; and professional networking sites like LinkedIn.

The proposed guidance, Social Media: Consumer Compliance Risk Management Guidance, was issued Tuesday by the Federal Financial Institutions Examination Council.

Members of the FFIEC include the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corp., the National Credit Union Administration and the State Liaison Committee.

Among the uses of social media are marketing, generating leads and public feedback. It is also used to engage current customers.

The proposal noted that interaction on social media sites tends to be informal and less secure, presenting a unique set of challenges for financial institutions.

Potential risks include harm to consumers, compliance and legal exposure. Operational and reputation risks are also present.

The guidance is intended to help companies understand and manage the risks.

“A financial institution should have a risk management program that allows it to identify, measure, monitor, and control the risks related to social media,” the proposal states. “The size and complexity of the risk management program should be commensurate with the breadth of the financial institution’s involvement in this medium.”

Firms should have clear strategic goals for their social media campaigns. They should also have controls in place as well as ongoing risk assessments.

Social media policies and procedures need to be established, and employees need to be educated about the policies. A due diligence process needs to be in place to monitor third-party service providers.

An oversight process for monitoring information posted to proprietary social media sites needs to be in place.

The use of social media must comply with all existing lending laws since there is no exception in existing laws for the medium. These laws include Fair Lending Laws, the Equal Credit Opportunity Act (Regulation B3) and the Fair Housing Act.

Time frames required under Regulation B, which implements the ECOA, must be adhered to in social media.

If an applicant applied through social media for credit and is denied, adverse action notices are still required.

“It is also important to note that creditors may not, with limited exceptions, request certain information, such as information about an applicant’s race, color, religion, national origin or sex,” according to the notice. “Since social media platforms may collect such information about participants in various ways, a creditor should ensure that it is not requesting, collecting, or otherwise using such information in violation of applicable fair lending laws.”

The guidance indicated that any social media communication where a lender advertises credit products must comply with Regulation Z’s advertising provisions. Reg Z implements the Truth in Lending Act. However, for electronic advertisements like those delivered through social media, Reg Z allows the required information to be posted on a different page as long as the ad clearly refers to the page location.

Applications submitted through social media are subject to all required Reg Z disclosures.

Section 8 of the Real Estate Settlement Procedures Act doesn’t allow fee splitting, kickbacks or giving anything of value in return for referrals, and this applies to business generated through social media. RESPA disclosures are required for any application generated through social media.

The proposal indicated that debt collectors are generally prohibited from publicly disclosing that a borrower owes a debt by the Fair Debt Collection Practices Act, and this applies to social media. That means it can’t be used to inappropriately contact consumers, their families or their friends.

Similarly, privacy rules established through the Gramm-Leach-Bliley Act Privacy Rules and Data Security Guidelines apply to social media.

Lenders that send unsolicited communications to consumers via social media might be subject to the CAN-SPAM Act and Telephone Consumer Protection Act as well as the Fair Credit Reporting Act.

Since employee’s use of their own social media communications could be viewed as a reflection of a financial institution’s official policies, companies should establish appropriate policies to address employee participation in social media.

The proposal suggested that financial institutions should take steps to protect against malicious software that can take over social media.

“Upon finalization of the FFIEC guidance, the SLC will encourage the adoption of the guidance by state regulators,” the proposal states. “State agencies that adopt the guidance will expect the entities that they regulate to use the guidance in their efforts to ensure that their risk management and consumer protection practices adequately address the compliance and reputation risks raised by activities conducted via social media.”

The FFIEC wants feedback about the existence of other types of social media as well as other uses of the medium. It also wants to know if other consumer protection laws, regulations or policies are implicated by the use of social media. In addition, the agency wants to know whether there are any technological or other impediments to compliance with otherwise applicable laws, regulations, and policies.

Public comments are being accepted for 60 days at www.regulations.gov.

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