Due Diligence in Advertising Regulations

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Questions and Answers

What does Regulation Z primarily define advertisements as?

Commercial messages promoting products directly.

Advertisements that guarantee customer satisfaction.

Any promotional material related to consumer goods.

Commercial messages provided in any medium that promote credit transactions. (correct)

Which of the following is a key step lenders must take regarding advertisements?

Conduct a due diligence review before publication. (correct)

Avoid all forms of advertising to prevent violations.

Publish advertisements without any review.

Only rely on state regulations for compliance.

According to the Better Business Bureau, which question should be considered before publishing an advertisement?

Is your advertisement financially beneficial to competitors?

Is the advertised merchandise readily available? (correct)

Does it contain complex legal jargon?

Does it promote impossible guarantees?

What does UDAAP stand for?

Unfair, Deceptive, or Abusive Acts or Practices. Signup and view all the answers

Which of the following can be considered a violation of RESPA Section 8?

Exchanging a 'thing of value' for referrals. Signup and view all the answers

What aspect of advertisements is included under UDAAP regulations?

Content and means of payment in advertisements. Signup and view all the answers

Which of the following should NOT be avoided in advertisements according to best practices?

Including fine print with additional terms. Signup and view all the answers

What must be ensured regarding the terms of an advertisement?

They must align with the actual facts. Signup and view all the answers

Which of the following actions could potentially violate advertising regulations for a mortgage loan originator (MLO)?

Paying for a significant placement on a broker's website Signup and view all the answers

Under the FTC’s Telemarketing Sales Rule, which scenario allows a mortgage loan originator (MLO) to legally call a consumer on the Do Not Call list?

Contacting a consumer who made an inquiry two months prior Signup and view all the answers

What must an MLO maintain to demonstrate compliance in shared advertising arrangements?

Detailed documentation of the payment arrangements Signup and view all the answers

When is it prohibited for an MLO to call a consumer despite having an established business relationship?

When the consumer explicitly asks not to be called Signup and view all the answers

Which statement correctly describes the 'thing of value' in relation to advertising regulations?

An implied understanding can lead to a violation. Signup and view all the answers

Which of these is NOT a condition under which an MLO can call a consumer on the Do Not Call list?

The consumer used the lender’s services 19 months prior Signup and view all the answers

In which scenario is shared advertising permissible among settlement service providers?

When all parties pay their proportional share of the costs Signup and view all the answers

What is a risk associated with MLOs passing out coupons for title services?

Receiving a gift card for the coupons’ usage can imply a kickback Signup and view all the answers

Study Notes

Due Diligence Review of Advertisements

Advertisements are broadly defined as any commercial message promoting credit transactions (print, TV, radio, internet, signage).
Lenders are responsible to both state and federal regulators for ad content.
Pre-publication review is crucial.
Before publishing, consider questions such as: customer satisfaction, avoidance of unrealistic promises, merchandise availability, intent to sell advertised items, avoiding misleading inferences, accuracy of advertised terms, easy understanding without excessive fine print, agreement with comparative ads, and appeal of the ad itself.
The Better Business Bureau recommends these questions.

Types of Advertisements Subject to Federal Regulations

All ads potentially fall under UDAAP if not covered by specific mortgage lending regulations.
RESPA Section 8 prohibits kickbacks (exchange of value for referrals).
"Thing of value" is undefined but includes free advertising or access.
Examples of potential violations: MLO paying for real estate broker site placement (exceeding reasonable cost), paying for shared advertising with real estate agents or office signage, offering coupons that lead to gifts when used at title companies, and uneven or unequal contributions to shared marketing costs by settlement service providers.
Detailed documentation of advertising arrangements is essential to prove no illegal kickbacks.
Important aspect with shared advertising: there's no specific definition or limit for a "thing of value" and an implied agreement to provide referrals could be a violation.

Rules Surrounding Contact (Established Business Relationship)

MLOs making calls to consumers must comply with the FTC's Telemarketing Sales Rule.
This rule prohibits calling consumers on the Do Not Call list.
An exception exists for established business relationships, allowing calls within 18 months of a loan application or within 3 months of the application/inquiry date.
The 18-month period runs from the last payment or transaction with the lender.
Consenting consumers can be called regardless of being on the DNC list.
If a consumer requests no calls, the rule applies regardless of an established relationship.

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Description

This quiz explores the complexities of due diligence in advertising, particularly concerning credit transactions. It covers regulatory responsibilities, the importance of pre-publication review, and questions necessary for compliance. Test your knowledge of the regulations that govern advertising practices for lenders.