Regulators Poised to Give Financial Institutions a Slap in the Facebook

This post was also written by Anthony S. Traymore.

A few weeks ago, Legal Bytes reported that, buried in the new financial services “reform” legislation, is the establishment of a brand new regulatory agency – the Consumer Financial Protection Agency (see Congressional Hammer Poised to Strike at Financial Advertising). Guess what. Not to be outdone, the regulators are in the act – pardon the pun – already. Witness recent statements by Richard Ketchum, Chief Executive of the Financial Industry Regulatory Authority (FINRA). In recent statements, Ketchum acknowledged that Wall Street is eager to use social media like Facebook, Twitter and Linked In to interact with customers and, that to a large extent, the growth of the use of these sites is inevitable. But at a recent Securities Industry and Financial Markets Association (SIFMA) meeting, he noted, “We continue to witness the advent of technologies that will challenge your ability to ensure compliance with regulatory requirements,” and “Social networking is one such innovation.”

At that same meeting, Ketchum raised the issue that retention functionality available on social media services may not be sufficient to ensure a financial service firm’s compliance with applicable regulations, including the FINRA Rules. If you aren’t a broker-dealer, don’t read the next sentence. But if you are: Imagine how social media services used by brokers to communicate with clients could impact FINRA Rules concerning Communications and Disclosures (see, Section 2200). FINRA has now set up a taskforce comprised of industry professionals to explore how firms may utilize social media to better communicate with their customers without “compromising investor protection.”

Such studies and evolutionary (or revolutionary) regulation are increasingly common these days. As our loyal readers already know, Legal Bytes reported previously (FTC Releases Updated Endorsement & Testimonial Guidelines and Rimon Analysis of the New FTC Endorsement and Testimonial Guidelines), that the FTC’s revised Guides Concerning the Use of Endorsements and Testimonials in Advertising will become effective Dec. 1, 2009. These revised guidelines represent updates to the prior guides, and acknowledge the proliferation of false claims, phony testimonials, and spurious endorsements (or negative comments) by consumers, experts, organizations and celebrities, through the use of blogs and other “word of mouth” marketing tools. As described in a recent Wall Street Journal article, the SEC disclosure rules apply to Tweets, blog postings, wall postings and other communication platforms provided by social media sites. Other regulatory agencies are similarly seeking to address the use of social media sites by the entities they regulate (e.g., the FCC, the New York State Insurance Department).

Do you have a social media policy?  The complexities are enormous. Internal (during work) and external (non-working hours). Employees, agents, contractors and suppliers. Domain names, URLs and trademarks (which include service marks, for you purists in the audience). Approved content or ad hoc comments. Official presence or not – condoned or not. Today, activities outside the scope of employment are often considered not attributable back to the company absent special circumstances or relationships. Will social media break down those barriers further? If so, what can companies do to reach their customers while continuing to protect their most valuable assets – their employees and their brands? Does a company have the right to regulate conduct outside the workplace, even if it involves reference to the company? Oh, and by the way, you do know that social media, enabled by the borderless web, doesn’t really pay attention to national boundaries, AND that means it’s not just U.S. law you may need to worry about – even if you are a U.S. company. If you are an international, multinational or global company . . . good luck. No, not good luck. Call us. Our Advertising Technology & Media Law group has unparalleled breadth and depth in understanding, working with, and advising clients in this brave new world.

So if any of this is of passing interest, stay tuned. If it is or becomes a pressing need, please contact Joseph I. Rosenbaum or Anthony S. Traymore, and let us help you avoid being anti-social. Of course, if you are already a Rimon client, feel free to contact the Rimon attorney with whom you regularly work, and he or she will be happy to coordinate your legal needs with us.

Congressional Hammer Poised to Strike at Financial Advertising

The late Will Rogers, that wonderful American humorist from Oklahoma, once said: "This country has come to feel the same when Congress is in session as when the baby gets hold of a hammer." Presumably, the image conjured up by that remark relates to just how much damage can be done before someone takes the hammer away! Well, in those days, Mr. Rogers lauded then-President Franklin D. Roosevelt for taking the hammer away from Congress before they did too much damage. If the strong response the newest Administration/Congressional initiative has evoked from the banking, advertising and media industries is any indication, one might conclude that President Obama has been providing too many hammers these days. This may be a little longer than my usual blog post, but read on . . . you won’t be disappointed.  

To provide a little context for the consternation, a few months ago, gift cards were inserted (for the first time) into federal legislation, ostensibly targeted at the practices of financial institutions applicable to credit cards. Where previously state legislation reigned supreme, the promotion of gift cards, disclosures regarding dormancy or inactivity fees, expiration dates, among other things, became part of U.S. federal law under the new Credit Card Act of 2009.. The legislation was intended to prevent abuses in the credit card industry and protect consumers, and in that spirit, a section covering gift cards seemed like a nice idea. But when it came to gift cards, it was unclear what problems had arisen that were not already (or couldn’t be) dealt with by state law – what was broken that needed to be fixed by federal regulators. Is concentrating regulatory power and discretionary rulemaking in the hands of federal agencies, simply for the sake of control, always a good thing?

So in case you haven’t heard, let’s talk about the newly proposed Consumer Finance Protection Agency (the “CFPA”). The CFPA is part of the Administration’s regulatory reform proposal submitted to Congress a few months ago, intended to provide a new regulatory framework for the financial services industry and, among other things, prevent practices and problems that led to the current crisis in the financial industry. Well, if you are a banker, broker-dealer, insurer or a financial officer, you probably already know the government is considering such major reforms and a restructuring of the current regulatory scheme.

BUT, have the finance folks told the marketing and advertising professionals to start worrying too? Perhaps now would be a good time to do so! In referring to the CFPA, Edward L. Yingling, President of the American Bankers Association, has said, “This agency would have broad powers that go beyond every consumer law that has ever been enacted.” You see, the newly proposed Consumer Financial Protection Agency Act of 2009, now fast-tracking its way through the U.S. House of Representatives, would restructure the Federal Trade Commission and give much of its current responsibility for regulating financial services-related advertising and marketing to a brand new regulatory agency – the newly proposed CFPA. I direct your attention to Subtitle C – Specific Authorities (Sections 131 – 139) of the Act, which would give the new CFPA the authority to review not only consumer lending practices, but also fraud and deceptive advertising, to determine and establish rules governing whether or not marketing practices and advertising are misleading, or if consumer financial products and services are being advertised and marketed fairly to consumers. By the way, the CFPA would also be empowered to interpret and enforce the new Credit Card Act of 2009 noted above. Would it surprise you that the Association of National Advertisers and the U.S. Chamber of Commerce would worry about what a new and potentially confusing and overlapping regulatory scheme, and a completely new regulatory agency, will mean for the advertising, agency and media industries?

If you thought all you had to worry about were things like privacy, behavioral advertising, free speech, blogger liability for claims, ‘Net neutrality, cloud computing, celebrity endorsements and social media – tweet, tweet – think again. Just yesterday, Advertising Age reported that some media industry professionals fear certain aspects of the new legislation will hold media liable for simply running advertisements related to financial services and products that the newly created CFPA believes are misleading. That would effectively push media into the role of de facto censors of advertising content. In other words, it would be a "safer" path (read less legal liability) to simply refuse to accept or run advertising that it determines might be too risky. One section of the proposed bill would empower the CFPA to create standards regarding what is or is not lawful in financial services advertising. Another section could be construed to extend liability to anyone in the chain of development, insertion, creation, displaying or broadcasting an unlawful advertisement. Could that be you?

Continue reading “Congressional Hammer Poised to Strike at Financial Advertising”

Rimon Analysis of the New FTC Endorsement and Testimonial Guidelines

A few days ago, Legal Bytes alerted you to the fact that the Federal Trade Commission has issued revised "Guides Concerning the Use of Endorsements and Testimonials in Advertising". These revisions update the FTC’s Guides, last modified in 1980, that provide direction to advertisers and agencies regarding compliance with the FTC Act.

John P. Feldman, a partner in our Washington, D.C. office and a key member of our Advertising Technology & Media law team, has prepared (and you can view and download) an Analysis of the New Guides. Of course, no memorandum prepared for general information or a summary of this type can provide legal advice, and you should be careful not to rely on it since everyone’s circumstances and the facts of each situation will differ – at a minimum, based on the type of product or service, the target audience, and the advertising media, among other things. That said, the summary will give you a good overview of what is in the Guides and what is different or updated from the prior Guides.

Of course, if you need specific guidance or need to know more about the FTC Guides, or the implications to social media advertising and marketing or traditional advertising, feel free to contact John P. Feldman, Douglas J. Wood or Joseph I. Rosenbaum, or the Rimon attorney with whom you regularly work.

FTC Releases Updated Endorsement & Testimonial Guidelines

Although it will be published in the Federal Register shortly, you can download and read the text of the Federal Trade Commission’s  revised "Guides Concerning the Use of Endorsements and Testimonials in Advertising" issued earlier today, right on Legal Bytes now. As reported previously in Legal Bytes, the final revisions are intended to update the FTC’s guidance, last revised in 1980, that provide advice to advertisers and agencies regarding compliance with the FTC Act.

While the prior guidelines allowed advertisers to use a “results not typical” disclaimer, that is no longer a safe haven from liability, and advertisers will be required to disclose what a consumer should generally expect when purchasing or using the product. Furthermore, any connection that a consumer might not reasonably know between an advertiser and an endorser needs to be disclosed. In recent years, comments by bloggers, through word of mouth, buzz or viral marketing were never addressed in the Guides. The updated version now deals with and provides examples of when these rise to a level of connection requiring disclosure.. For example, if a blogger receives any consideration in cash or in kind (e.g., free gaming console to try) to review products or services, that would now be considered an endorsement that requires disclosure – even if the review remains unbiased. 

The fact that a consumer should be informed about a material connection between the advertiser and the maker of the statements is now firmly embedded in the FTC Guides, even though these cases were always subject to review on a case-by-case basis. Of course, what constitutes a “material” connection will still be subject to a factual determination, but if a company, for example, sponsors research about its products or services (or potentially about the products or services of a competitor, if the results will be used in a comparative ad), then the company must disclose its sponsorship in the ad. Similarly, although consumers may expect celebrities to be paid for appearing in commercials, if an endorsement is made outside that context – for example, on a talk show, at a book signing, at a motion picture premiere, or on Facebook, Twitter or other social media – any material relationships must be disclosed.

The proposed new guidelines were the subject of a seminar, "Trust Me, I’m a Satisfied Customer: Testimonials & Endorsements in the United States", presented by Joseph I. Rosenbaum, at the University of Limerick in July. You can go to the previous Legal Bytes blog post and download a copy of the presentation at any time.  "

Want to know more about the FTC Guides, or the implications to social media advertising and marketing, or traditional advertising? Feel free to contact me or the Rimon attorney with whom you regularly work.