Regulation Z Advertising Management Practices
The first edition of the Fed’s Consumer Compliance Outlook has been released, with the main article addressing Regulation Z’s advertising requirements. The article explains the requirements that apply to all types of credit, then discusses the requirements specific to open-end and closed-end credit, and concludes with ways a credit union may manage advertising risks.
What I found most interesting about this article was the section about effective practices to manage Regulation Z advertising risks, so this blog will summarize the practices discussed in the article. However, if the credit union is looking for guidance with specific Regulation Z advertising issues, this article, along with our NAFCU Ad Guide are fantastic resources for understanding what a credit union must include when advertising credit products.
The guidance explains that like most compliance programs, the credit union’s advertising management practices should be tailored to the size and complexity of the credit union, however there are some general principles that may be helpful to all credit unions. The first practice the article discusses is effective oversight by senior management and the board of directors, which is crucial in managing advertising risk. This may include management approval of advertising methods or ensuring proper vendor management due diligence if using a third-party to create advertisements.
The second practice the article advises is implementation of strong policies and procedures to ensure compliance with the advertising requirements of Regulation Z. The article provides a helpful list of possible tools and procedures the credit union may want to utilize:
“(1) creating worksheets or checklists for staff who create advertisements to help them understand the advertising requirements,
(2) ensuring the compliance department completes a secondary review (with a checklist), and approves any advertisements prior to use, and
(3) ensuring the compliance department reviews and verifies any changes made to the website to ensure that all of the changes were made as intended and there are no unintentional compliance implications.”
The article also stresses that strong policies and procedures help to address staff turnover, which the article states was a root cause of Regulation Z violations in previous examinations.
The third practice the article addresses is training. The article explains that credit unions can avoid errors to mitigate risk, promote a compliance culture, and improve customer service by having well-trained staff. The credit union may want to review its internal training requirements to determine if the credit union provides periodic Regulation Z advertising training to appropriate staff and if the training is tailored to the employees’ roles.
The final practice the article notes for successful oversight of compliance with Regulation Z advertising requirements are audits and corrective action. The guidance states that an effective audit will incorporate different mediums such as webpages, print advertisements, and rate sheets. If issues are discovered the article explains that the credit union should ensure corrective action is implemented, which addresses the root cause of the issue.
In addition to the Regulation Z advertising requirements, the newsletter also highlights technology and fintech innovation, and the FFIEC statement on the LIBOR transition.