Every marketing department knows the power of a good advertisement, but making exaggerated claims in marketing materials for financial products or services designed to make the product or service appear more attractive or valuable than it actually is can lead to a UDAAP violation. Deceptive advertising is one of the most common violations of UDAAP. This can include making any false or misleading statements about a product or service, such as claiming that a product or service is “free” when it actually has hidden fees.
The CFPB has brought many enforcement actions against financial institutions for deceptive marketing practices. A few noteworthy examples include the consent order against an online lender for deceptive marketing tactics which involved luring customers with false promises that repeat borrowing would allow them to unlock lower interest rates, which turned out to be false (you can read more about that complaint here). The Bureau also famously took action against a large bank that engaged in deceptive marketing tactics to sell the company’s credit card add-on products to consumers (see here).
Without a formal regulation in place, UDAAP compliance continues to be a bit of a gray area, but let’s review what we do know about deceptive marketing and how you can ensure that your credit union’s advertising materials remain in compliance with UDAAP.
First, let’s review the definition of a deceptive act or practice. An act or practice is deceptive where: (1) a representation, omission or practice misleads or is likely to mislead the consumer; (2) a consumer’s interpretation of the representation, omission, or practice is considered reasonable under the circumstances; and (3) the misleading representation, omission or practice is material. Some examples of statements that have been deemed “deceptive” in advertising materials include statements such as claiming “lifetime interest rate guaranteed” on a variable rate loan; or advertising a 3% interest rate on a 30 year mortgage to get consumers in the door, knowing that very few applicants will be able to qualify. It is crucial that all representations are factually based, and all materials must describe clearly, prominently, and accurately the costs, benefits, and other material terms. The material limitations or conditions of the terms or availability of the product must be spelled out clearly.
When reviewing your credit union’s marketing materials for compliance, keep in mind “the four Ps:” Prominence, Presentation, Placement and Proximity. Ask yourself the following questions:
- Is the statement big enough for consumers to notice and read?
- Is the wording and format easy to understand?
- Is it where the member would reasonably look for it or expect to find it?
- Is it near the claim it qualifies?
It is also important to consider different member populations, especially those that may not be as financially savvy, and ask yourself if the statements could potentially mislead someone without a lot of experience or expertise. Following these tips could help your institution to mitigate potential UDAAP risk.
UDAAP continues to remain a high priority for the Bureau, as just last week they issued a new circular warning that operators of digital comparison-shopping tools can violate the prohibition on abusive acts or practices if they distort the shopping experience by steering consumers to certain products or services based on remuneration to the operator. Credit unions must remain vigilant in their UDAAP compliance not just in marketing but across all lines of business.