Financial Firms Could See More Ad Curbs

New Law, Regulatory Body Likely to Mean New Rules for Marketers

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SAN DIEGO ( -- Financial marketers, brace yourselves: Your advertising leeway may soon be further curtailed, thanks to the new Bureau of Consumer Financial Protection created by the recently enacted financial-reform law.

The new federal agency's future rulemaking on a host of ambiguous issues -- such as drafting a definition for "abusive" advertising practices or mandating how much information must be included in ads -- could result in overly cumbersome, cost-prohibitive and possibly even onerous requirements, according to industry watchers.

Then again, many of the actual rules promulgated might not result in the radical changes that some in the financial industry fear. The new law is an ambiguous outline of Congress' intentions; regulators have yet to hone the actual rules, which could be very stringent or very slack.

"There's going to be a need for more clear disclosures -- no question about that," said Susan Weinstock, financial-reform campaign director for the Consumer Federation of America. The new law requires that ads clearly describe the costs, benefits and risks of a particular financial product or service, written in "plain language" with an "easily readable type font." "But I'm not sure how much the new law will translate into wholesale changes in the advertising of these products," Ms. Weinstock said.

Regardless, financial advertisers should count on making room for more rules on their compliance plate. "It's clear that since Congress has spent so much time getting this legislation passed, the bureau is going to be watched very closely, and so regulators are going to feel pressured to get something out of the gate -- which means more regulation," said Dan Jaffe, exec VP-government relations for the Association of National Advertisers.

For now, financial marketers themselves are keeping mum. JPMorgan Chase & Co., Citigroup, Regions Financial Corp., SunTrust Banks, Zions Bancorp., Wells Fargo & Co. and Fifth Third Bancorp declined to be interviewed for this article, saying it's too soon to comment. Bank of America Corp., U.S. Bancorp, PNC Financial Group, BB&T Corp. and Capital One Financial Corp. did not return phone calls.

Dan Marks, CMO of First Tennessee Bank, the banking unit of First Horizon National Corp., responded in an e-mail, "First Tennessee and many regional banks have a great reputation for customer loyalty because we offer easy-to-understand products and transparent customer service. Once the head of the bureau is selected, we will able to more reasonably begin assessing the likely impacts."

And a spokesperson for KeyBank responded in an e-mail: "Key supports strong consumer protection and the creation of the Financial Stability Oversight Council. We are hopeful that the Oversight Council and the new independent Consumer Financial Protection Bureau will work together to ensure the best protection for consumers, while not placing undue financial burdens on the financial services industry. Key will continue to work closely with regulators and monitor the legislative process. Key will continue to advocate for reforms that enhance consumer protections while also ensuring a stable financial services industry."

The anticipated rules come on the heels of the new Credit Card Accountability, Responsibility and Disclosure Act and the changes in overdraft-protection rules by the Federal Reserve, which have left the financial industry struggling to adjust. In response to restrictions on interest-rate hikes in the credit-card law that went into effect last year, many financial marketers have raised late fees and cash-advance fees.

The new overdraft-protection rules go into effect Aug. 15. In advance of that date, banks are required to ask their customers if they want to continue to opt into their overdraft-protection programs, or else face fees for insufficient funds when they overdraw their accounts, because banks will no longer pay for their drafts. Many banks will likely continue to advertise overdraft-protection products after August, to assuage angry customers who were confused about the new rules and want their drafts paid.

New responsibilities
For the new bureau, created by the Dodd-Frank Wall Street Reform and Consumer Protection Act this month, first on the agenda is the nomination by President Barack Obama of someone to lead it. Liberals are heavily advocating for the selection of Elizabeth Warren, a Harvard law professor who has been chairman of the congressional panel that oversees the government's handling of the Troubled Asset Relief Program. Financial-industry officials, on the other hand, would prefer that Obama nominate someone from within the industry who they claim better understands the complexity of the issues.

Once Treasury Secretary Timothy Geithner transfers consumer-protection powers to the bureau (which could take as few as six months or as many as 18 months), the agency would oversee a host of existing consumer-protection laws, such as the Truth-in-Lending Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act and the Home Ownership and Equity Protection Act.

But the new bureau also has the power to make rules on consumer issues not covered by these laws, such as requiring more detailed information in ads or restricting the types of rates charged on payday loans, and observers say it could be some time before the extent of the bureau's reach would be known.

One thing is certain: Regulators will have to grapple with defining what exactly constitutes an "abusive" practice, a term introduced in the new law that expands the current ban of false, deceptive and unfair advertising practices, Mr. Jaffe said.

"'Abusive' means something over and above what has been unfair and deceptive in the past," Mr. Jaffe said. "It's a much more elusive concept, and it's going to have to be parsed out by the regulatory agencies -- and also by the courts."

One looming question is how far regulators can stretch the ban, banning entire products, for example, Mr. Jaffe said.

Some observers are speculating that regulators might not try to define "abusive" in terms of the language in ads, but possibly the method with which financial marketers advertise their products and services. Regulators could deem methods "abusive" if they are considered overbearing or at times hostile -- but Mr. Jaffe said it was too soon to speculate on what those methods could be.

In any event, if advertisers or marketers are found to be abusive, the new law calls for civil monetary penalties. Moreover, the rules and regulations about unfair and deceptive practices in ads that are already on the books -- such as misleading or unclear information about the interest rate offered on car loans -- will likely be enforced to a greater extent, now that the bureau has been created specifically for that purpose, said Alan Kaplinsky, chairman of the consumer financial services group at Ballard Spahr in Philadelphia.

"The federal banking agencies have also had the right to enforce Section 5 of the FTC Act, but they have had a lot of things on their plate, and so they have not been as focused on deceptive advertising as much as the new bureau will be," Mr. Kaplinsky said.

Robert Cook, a partner at law firm Hudson Cook in Hanover, Md., said that the new bureau could also require financial companies to include an extensive list of the costs in any advertisement of consumer products, particularly those that have been heavily targeted by consumer-advocate groups, such as payday loans, tax-refund-anticipation loans and overdraft-protection products.

"The sheer volume of information that could be required could either make the ads too expensive or unattractive, or both," Mr. Cook said.

There is also concern that the actual rule-making process itself might change, said Clark Rector, exec VP-government affairs for the American Advertising Federation.

Currently, the Federal Trade Commission conducts a thorough investigation of industry practices before making any rule pertaining to advertising, a process that also allows for the industry to cross-examine third-party witnesses, Mr. Rector said. The FTC also has to detail the potential economic impacts of any of its proposed rules.

But the new bureau could adopt a rule-making process already prevalent among banking regulators that would limit the industry's response in a comment period before final rules are promulgated, he said.

"There is some concern that when the bureau does get up and running, the process may not be as open as we would prefer," he said.

Dick O' Brien, exec VP-director of government relations for the American Association of Advertising Agencies, believes that reputable financial companies that historically have been very careful when advertising their products should not have to worry too much about how the new bureau will come down on them.

"The intent of the new law is to prevent bad guys from doing bad things -- companies who dupe the public in order to take advantage of them," Mr. O' Brien said. "If you're an honest company who can deliver on your promises, then you should be OK."

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