20 January 2016
In part 1
of this two-part series, we addressed the legal standard for deceptive advertising within the consumer finance space and two of the top five lessons learned from 2015 enforcement actions against those that advertise consumer financial products and services. In part 2 we'll discuss the final three lessons learned from 2015 and an overview of what these trends mean for companies offering consumer financial products. Top Lessons from 2015 Enforcement Actions 3. Honor the Advertisements
Once the terms and features of the products have been advertised, institutions must honor what has been offered. In a number of 2015 enforcement actions, regulators examined (1) whether the advertised features and terms were actually available to consumers, and (2) whether the advertised features were substantiated.
Regulators will compare advertisements to the actual products and services that consumers receive in evaluating a deception claim. In the Federal Trade Commission’s March 2015 sweep of auto dealers, the FTC claimed deception in certain advertisements that displayed rates that most consumers could not qualify for, with the qualification requirements appearing in minuscule text at the bottom of the ads. The FTC also noted that many of the advertisements contained other terms that were not available or not generally available to consumers. In its crackdown on automobile sales and leasing ads, the FTC also alleged that ads containing cars with features such as sunroofs and spoilers that cost more than the displayed rates and terms were deceptive.
In an April 2015 consent order with a bank, the Consumer Financial Protection Bureau alleged deception where the advertisements indicated that the bank would not charge consumers overdraft fees in connection with ATM and one-time debit card transactions unless the consumer opted in, but charged those fees anyway. In a May 2015 action, the CFPB alleged that a payment processor advertised a special offer where consumers could obtain deferred interest or money back on a future purchase, and then failed to honor the advertised promotional benefits. In a July 2015 CFPB action against a payment processor and mortgage servicer, the CFPB claimed that the interest rate savings for a biweekly mortgage payment program displayed in website and direct mail advertisements were “unsubstantiated by the facts and therefore are deceptive.”
Institutions should properly vet advertisements to ensure that the advertised rates and terms are actually available to consumers and that the company’s business practices align with advertised offers. 4. Ensure Proper Vendor Oversight
Providers of consumer financial products and services continue to be held responsible for deceptive sales tactics of retailers and vendors marketing the providers’ products. In 2015, regulators took action against a number of financial institutions arising out of failed oversight of retailers and other vendors or inadequate training and monitoring of those who market the products.
In a June 2015 Office of the Comptroller of the Currency action against a bank, the OCC held the bank responsible for the conduct of a telemarketer, alleging that the bank’s vendor misled consumers into purchasing a more expensive identity protection product during telemarketing calls. In a July 2015 joint CFPB and OCC consent order regarding a bank’s credit card add-on products, the regulators took issue with how in-store retail associates marketed and explained the bank’s products. The regulators alleged that the bank failed to ensure that the retailers provided the proper terms and conditions to consumers when enrolling them for a store credit card and associated add-on products. Finally, in an August 2015 CFPB action against a company that administered health care financing products, the bureau held the company responsible for failing to properly train and monitor health care providers on how to sell the company’s loan products, because the health care providers failed to explain the costs of a deferred-interest product.
Institutions can ultimately be held responsible for the actions of vendors and service providers that market on their behalf. Institutions should therefore ensure that they have a proper vendor monitoring system in place that could include call monitoring, training, mystery shopping, and review of consumer-facing materials, such as sales scripts and brochures. 5. Disclose the Source
In 2015, regulators actively pursued deception claims against institutions that did not properly disclose the source of the advertisements. The advertisements implied an affiliation with government agencies, unions, universities and, in one case, a veterans organization. In most of these actions, the regulators alleged that the advertisements were formatted in a way that obscured the “true source” of the ad and were, therefore, deceptive.
In a February 2015 sweep, the CFPB brought three actions against mortgage advertisers, alleging that the companies’ advertisements suggested the companies were or were affiliated with a government entity in violation of the Mortgage Acts and Practices — Advertising Rule and the prohibition on deceptive acts and practices. The CFPB scrutinized the logos and verbiage contained on envelopes, whether the name of the actual lender was obscured, and whether the lenders’ websites implied a government affiliation. In an April 2015 CFPB action, the bureau brought similar claims against another lender and cited recorded phone calls indicating that borrowers thought they were calling a government agency as further evidence of the allegedly misleading nature of the company’s advertisements.
In a CFPB action against a lender in February 2015, the bureau alleged that a lender’s marketing materials made it appear that they were sent by a veterans organization that endorsed the lender, and that those materials and phone scripts that also contained an endorsement failed to disclose the financial relationship between the two parties. As part of the prospective relief, the respondent must ensure adherence to the FTC’s Guide Concerning the Use of Endorsements and Testimonials in Advertisements.
In May 2015, the CFPB brought a deception claim against a payment processor alleging that the company’s advertisements misrepresented the company’s affiliation with the consumer’s mortgage lender, where the respondent’s direct mail ads contained the name of the consumer’s mortgage lender or servicer and where customer service representatives were directed to obscure the processor’s (lack of) relationship with the consumer’s lender or servicer.
Regulators also brought actions against organizations whose advertisements implied an affiliation with consumers’ educational institutions. In an October 2015 CFPB complaint, the bureau alleged deception where direct mail advertisements contained an official-looking seal and the name of the student’s university. In December 2015, the Federal Reserve and the Federal Deposit Insurance Corporation entered into a consent order with a bank affiliate whose student loan disbursement product direct mail advertisements and website included a university’s logo and school name more prominently than the affiliate’s name and logo.
In December 2015, the FTC issued an “Enforcement Policy Statement on Deceptively Formatted Advertisements,” reiterating the agency’s position that advertisements should be identified as such to consumers. While this guidance focuses on natively formatted advertisements, particularly in the digital context, the document provides a useful guide on how the FTC evaluates whether advertisements mislead consumers by obscuring the advertiser through creative formatting.
Institutions should review the FTC’s most recent guidance on deceptively formatted advertisements as well as the endorsement guide to ensure that the advertisement format, including logos, labels and packaging, and any endorsements do not disguise the advertiser or otherwise obscure the true source of the advertisement. Conclusion
What constitutes deceptive advertising continues to be shaped by enforcement actions and guidance issued by regulators. In the evolving age of digital advertising and outsourcing, institutions should consider evaluating their compliance management systems to integrate lessons learned from recent enforcement actions to enhance vendor oversight and ensure a robust advertisement review process.
 See also, Federal Trade Commission, FTC Policy Statement Regarding Advertising Substantiation (March 11, 1983), available at https://www.ftc.gov/public-statements/1983/03/ftc-policy-statement-regarding-advertising-substantiation.
 In the Matter of Regions Bank, No. 2015-CFPB-0009 (April 28, 2015).
 Complaint, Consumer Financial Protection Bureau v. PayPal and Bill Me Later, No. 1:15-cv-01426 (D. Md. May 19, 2015).
 In the Matter of Paymap, No. 2015-CFPB-0017 (July 28, 2015); In the Matter of LoanCare, No. 2015-CFPB-0018 (July 28, 2015).
 In the Matter of Wells Fargo Bank, N.A., No. AA-EC-2015-13 (June 3, 2015).
 In the Matter of Citibank, N.A., et al, No. 2015-CFPB-0015 (July 21, 2015); In the Matter of Citibank, N.A., et al, No. AA-EC-2015-52 (July 21, 2015).
 In the Matter of Springstone Financial, No. 2015-CFPB-0021 (Aug. 19, 2015).
 See, e.g., Consumer Financial Protection Bureau, Bulletin 2012-03: Service Providers (April 13, 2012), available at http://files.consumerfinance.gov/f/201204_cfpb_bulletin_service-providers.pdf.
 12 C.F.R. § 1014.3(n).
 Complaint, Consumer Financial Protection Bureau v. All Financial Services, No. 1:15-cv-00420 (D. Md. Feb. 12, 2015), In the Matter of American Preferred Lending, No. 2015-CFPB-0005 (Feb. 12, 2105); In the Matter of Flagship Financial Group, No. 2015-CFPB-0006 (Feb. 12, 2015).
 In the Matter of RMK Financial Corp., No. 2015-CFPB-0007 (April 9, 2015).
 In the Matter of NewDay Financial, No. 2015-CFPB-0004 (Feb. 10, 2015).
 Complaint, Consumer Financial Protection Bureau v. Nationwide Biweekly Admin., No. 3:15-cv-02106 (N.D. Cal. May 11, 2015).
 Complaint, Consumer Financial Protection Bureau v. Global Financial Support et al, No. 3:15-cv-02440 (S.D. Cal. Oct. 29, 2015).
 In the Matter of WEX Bank, No. FDIC-15-0117b and FDIC-15-0119k (Dec. 21, 2015); In the Matter of Higher One, No. FDIC-15-0129b and FDIC-15-0130k (Dec. 18, 2015); In the Matter of Higher One, No. 15-026-E-I and 15-026-CMP-I (Dec. 23, 2015).
 Federal Trade Commission, Enforcement Policy Statement on Deceptively Formatted Advertisements (Dec. 22, 2015), available at https://www.ftc.gov/system/files/documents/public_statements/896923/151222deceptiveenforcement.pdf.