Understanding the FTC's Endorsement Guidelines for Mortgage Advertising

In the highly competitive mortgage industry, advertising plays a crucial role in attracting potential clients. After all, potential customers won’t know about you unless they learn about you and the services you offer. Among the various tools used in marketing, testimonials and endorsements are particularly powerful. They lend genuine credibility to your services from people who can speak to their experiences with your company, and can significantly influence consumer decisions. However, while leveraging these tools can be beneficial, mortgage professionals must be cautious and are legally bound to comply with the Federal Trade Commission (FTC) Endorsement Guidelines. Failure to do so could result in severe consequences and damage to your reputation.

So what does the FTC have to say about endorsements and what are their mandatory guidelines as they apply to mortgage advertising? Let’s learn more about these guidelines and talk about practical tips to help you stay compliant.

What Are the FTC's Endorsement Guidelines?

In a nutshell, the FTC’s Endorsement Guidelines are designed to ensure that endorsements and testimonials in advertising are truthful and not misleading. These guidelines are grounded in the principle that any advertising claims, whether explicit or implied, must be substantiated. This means that endorsements must reflect the honest opinions, findings, beliefs, or experiences of the endorser and cannot simply be ‘paid for’ as part of a marketing strategy.

Key principles of the FTC Endorsement Guidelines include:

1. Truthfulness: Endorsements must reflect the honest opinions and experiences of the endorser. False or misleading endorsements are prohibited. In other words, an actor cannot ‘stand in’ for an actual customer and claim to be them and speak for them, without disclosing the fact that said actor is not speaking with personal knowledge or authority.
2. Disclosure of Material Connections: If there *is* a material connection between the endorser and the advertiser, it must be clearly and conspicuously disclosed. A material connection could be anything that might affect the credibility of the endorsement, such as a financial relationship, gifts, or employment. Even if it is agreed by both sides that the material connection did not affect the outcome of the endorsement, it must be disclosed so that potential customers are aware of the relationship.
3. Substantiation: Any claims made through endorsements must be supported by evidence and cannot simply be a good, albeit unprovable, story. For example, if a customer endorses a mortgage product by claiming it offers the lowest interest rates, this claim must be backed by factual data.
4. Applicability: If a testimonial or endorsement includes a statement about the results consumers can expect, these results must be typical to the average consumer. If they are not, the advertisement must clearly disclose what the typical results are.

Applying these Guidelines Within Mortgage Advertising

Now that we know the main principles behind the FTC’s Endorsement Guidelines, it should seem fairly straightforward how to navigate within the law. Even so, here’s how lenders can directly apply this knowledge toward full regulatory compliance:

• Crosscheck Data to Ensure Truthful Endorsements

When using testimonials from satisfied clients, it is essential that these endorsements accurately reflect the experiences of the individuals. Avoid exaggerating or misrepresenting the effectiveness of your mortgage products or services. For example, if a customer praises your mortgage rates, be sure to confirm that this endorsement is based on accurate, up-to-date information, and not made-up figures that do not reflect the reality of your products and rates.

• Disclose All Material Connections

If you incentivize customers or other parties to endorse your mortgage services – such as offering a discount or a referral fee – this strategy in and of itself is not against the law. However, the relationship must be disclosed. The disclosure of this relationship should be clear, prominent, and in a location where consumers are likely to see it. Simply burying the disclosure in the fine print is not sufficient to remain in compliance. This law does not only apply to customers but related industry professionals as well, such as real estate agents or appraisers.

• Substantiate Claims Beyond Doubt

Mortgage professionals must ensure that any and all claims made in testimonials or endorsements are backed by concrete evidence. For instance, if a customer claims that your mortgage service saved them a significant amount of money, you should have data to substantiate this claim, rather than taking their word for it. Unsupported claims can be considered deceptive and may lead to FTC enforcement actions.

• Transparently Share Typical Results

If a testimonial suggests that consumers can expect a particular outcome – like the ability for the lender to secure mortgages with unusually low interest rates – it is imperative that you verify whether these claimed results are typical for most customers. If the results are atypical, you must clearly disclose what consumers should generally expect. One way to highlight this possible discrepancy might be to include a statement like, "Your results may vary depending on your credit score and other factors."

Common Mistakes to Avoid

Although the above guidelines and tips may seem relatively straightforward, some lenders – whether consciously or unconsciously – may take steps that may initially appear to be within regulatory boundaries but are actually severe violations. To remain fully compliant, mortgage professionals should avoid these common pitfalls:

1. Using Undisclosed Paid Endorsements: Paying for endorsements without disclosing the payment is a clear and direct violation of the FTC’s guidelines, even if the endorsement is honest and truthful. Always disclose any compensation or incentives provided in exchange for endorsements.
2. Cherry-Picking Testimonials: Avoid selecting only the most positive testimonials while ignoring those that might reflect typical experiences. Every company wants their hard work to shine through, but sweeping negative customer experiences under the rug creates a misleading impression of your services.
3. Omitting Disclosures in Social Media Posts: Social media platforms are commonly used for advertising, but it’s important to remember that the FTC’s rules apply there as well. Disclosures must be included in all social media endorsements, and the safest way to do so is to use clear language like "Ad" or "Sponsored" within disclosures to avoid confusion as to what is, and isn’t, being claimed.

Other Best Practices for Compliance

Now that we know what to do – and what NOT to do – when it comes to complying with the FTC’s Endorsement Guidelines, here are a few additional tips to help you navigate these tricky complexities:

• Train Your Team: Everyone involved in your marketing efforts need to be familiar with the FTC’s Endorsement Guidelines, from the bottom to the top. Regular training sessions can help your team stay up-to-date with any changes or updates to the guidelines. If you aren’t sure how to stay within the Endorsement Guideline boundaries, you risk running afoul of the FTC and their regulators.
• Regularly Review and Update Endorsements: Periodically review the endorsements and testimonials you use in your advertising to ensure they remain accurate and relevant. If a testimonial is outdated or no longer reflects the typical experience of your customers, consider replacing it, or at least updating the language of the accompanying disclosure.
• Document Substantiation: Keep detailed records of any evidence that supports the claims made in your endorsements. This documentation will be invaluable if you are ever required to demonstrate the accuracy of your claims to the FTC.
• Seek Legal Advice: If you are unsure about whether your advertising complies with the FTC’s guidelines, there is no harm in consulting with legal counsel who specializes in advertising law. While knowledge of the Guidelines is expected of any lender, trickier situations may benefit from expert advice. This can help you avoid potential pitfalls and ensure that your marketing practices are in full compliance with the law.

Using Endorsements the Right Way

Becoming and remaining compliant with the FTC's Endorsement Guidelines is not just a legal obligation, but also a critical aspect of maintaining trust with your customers. Gone are the days of unregulated, ‘wild west’ advertising where deception and trickery can be used to usher customers in the door under false pretenses. Remember, transparency and honesty are key to building long-term relationships with your clients and ensuring the continued success of your mortgage business. Effective use of endorsements within the letter of the law is a powerful step towards building these relationships, when used appropriately and fairly.

For further information and detailed guidance on remaining compliant with these and other industry regulations, reach out to ActiveComply today!