Lenders will need to determine if their social media initiatives and new regulatory guidance can coexist.
That’s because the Federal Financial Institutions Examination Council has released guidance that would require federal and state regulators to examine lenders’ use of social media and determine if they complied with consumer protection laws.
Moreover, the guidance requires that lenders’ risk management practices address the consumer compliance, legal, reputation and operational risk that social media poses to the mortgage industry. FFIEC defined social media as interactive online communication that enables users to generate and share content including text, images, audio and video.
In the post-mortgage-bubble world, scrutinizing social media devotees for transgressions against borrowers is necessary to preserve the integrity of the mortgage market, to protect lenders’ reputations and to prevent borrowers from falling prey to unscrupulous sales practices.
But I’m not sure the regulator’s scalpel can cut with enough precision to protect the consumer and preserve the use of social media as a marketing, communications, or customer service tool for lenders.
Many organizations will review the proposed rules and conclude that it is prudent to market through another channel, eliminate the use of social media, and cut their losses. Opportunities that social media would have afforded lenders to capture efficiencies gains and save money will be lost. Also, they lose the chance to develop a technology that may over time have served them well.
For those that choose to persevere, the burden of compliance will hit some organizations harder than others and many will have to alter the way they do business. For instance, many effected organizations will have to enhance systems to ensure that controls are in-place that address risk in all of its forms.
Community banks will have to implement the most changes, as will third-party service providers that many institutions rely on to manage their social media programs. Many large banks already have controls in place.
But there is another dynamic at play here—a cultural clash between social media devotees and financial regulators.
The appeal of social media is that a large number of people can be reached in a friendly, disarming and educational manner. It’s a creative, fragmented, informal communications network that relies on humor, art, savvy repartee, and a million points of creativity to shape its direction.
With good reason, few regulators demonstrate much appetite for creativity, fun, much less grassroots control of regulations when it comes to rulemaking. Fewer still promulgate rules with artistic fervor, humor, or charming conversation.
Regulators prefer to define the rules, monitor for compliance, and swoop in with fines and penalties against transgressors.
That’s an effective, laudable way to regulate, but it does, undoubtedly, crimp the activities of social media mortgage gurus.
FFIEC contends, however, that it is not imposing “additional obligations on supervised financial institutions,” but I don’t agree with that assertion.
That’s because the guidance increases the responsibility that these organizations assume for monitoring the way their employees deploy social media—and would force lenders to make a choice between continuing to use it or move on to something else.
So regulators may downplay the effect the rules will have—but one result would be to reduce the effectiveness of social media as a business tool.
Lenders won’t continue to develop their social media capabilities once it’s determined that the return on investment is significantly less than the potential reputation risk and penalties from a transgression.
Matt Strickberger is the managing partner of OnPoint PR and Consulting LLC, a public relations firm that represents lenders, servicers, technology companies and others. He was editor of Mortgage Technology magazine from 1997-2000. If you have comments or suggestions for future columns, email him at mstrickberger@onpoint-pr.com.
