Mitigating Compliance Risk for Digital Marketing and Social Media

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Digital marketing and social media are a must-have for every financial institution. They are invaluable tools, enabling you to reach the right person at the right time with the right message, reduce marketing costs and increase ROI. Their successful implementation can be linked to a 3-step process—data collection and analysis followed by informed action. However, to mitigate compliance risk, digital marketing and social media posts must adhere to the same fair lending and regulatory guidelines and practices as other forms of marketing.

A marketer’s dream. A compliance officer’s nightmare.

Financial institutions collect a tremendous amount of data on their customers. They know addresses, age, gender, ethnicity, marital status, financial status, credit card purchases, vehicle age … priceless data that enables precise targeting. However, certain data triggers may open the window for digital redlining and other fair lending risks if they rely on protected class definitions.

Does this mean financial institutions should shun digital marketing and all its benefits? How do we make sure our institutions are protected from compliance risk in a world where marketing relies on data filters? Let’s explore the ramifications of using targeted, digital marketing and social media in the world of banks, credit unions and regulators.

Does Digital Marketing reach everyone equally?

While the vast majority of Americans use the internet regularly, 10% of the US population is not digitally engaged. Of those, 14% are Hispanic, 15% are black and 27% are over 65 years old.1 These are all protected classes, and they occupy a digital desert; with no data coming in, not even targeted direct mail can reach them. We also have to consider the credit-invisible population, those who have not had the chance or opportunity to develop a credit score, good or bad.

If digital marketing and social media do not reach these individuals, this could be considered disparate impact and/or treatment. It pays to be overly cautious and to decide early how to reach these small, but important, populations.

The Pitfalls of Digital Marketing and Social Media

The more internet-based marketing is used to target advertising, the more likely target data may inadvertently categorize consumers by protected classes. Knowing Alice is a 65-year old Hispanic female who likes to browse fashion is great for shoes. It’s not so great for financial institutions as most of the indicators can be considered protected classes – over 65, Hispanic, female, etc.

With the help of cookies, data is collected and attached to an individual through email addresses, phone number and other personal forms of identification. Algorithms ensure Alice, who has visited numerous real estate sites, sees mortgage offers and links to relevant posts. Sounds innocent enough. But what if Alice’s data excludes (or includes) her based on gender, age or national origin? This opens financial institutions to possible compliance risk.

Compliance Risk and Digital Marketing

Banks and credit unions are increasingly engaged in digital marketing. It’s a cost-effective and powerful platform to reach customers and prospects where they are most engaged with a message that resonates. It often involves collecting real-time consumer data that can be used to create detailed profiles and data triggers for communications, such as product viewed, product bought, income and ethnicity. Triggers based on protected classes, even if it’s done unintentionally, could put your financial institution under scrutiny for fair lending risk.

Compliance Risk and Social Media

Today’s consumer wants more. They want to engage with brands that reflect their values and deliver more than targeted offers. Social media channels are where they turn. They look for meaningful communication that sets your financial institution apart from others. Insightful articles on debt consolidation, Facebook posts about employees and tweets on community involvement are just a few ways you can connect with your customers on a deeper level and reinforce brand loyalty. A strong social media presence helps set your financial institution apart, enhances existing relationships and helps attract prospects. However, the same fair lending risks arise as in digital marketing.

The Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA) provide clear guidance on what is acceptable for marketing and advertising. To ensure targeted digital marketing and social media  posts avoid the pitfalls of compliance risk, financial institutions must make sure their efforts follow all guidelines. Finding a partner with a deep understanding of the financial world can help you navigate the complexities of compliant digital marketing and social media presence.

The Solution

Marquis Compliance Professional Services can help you navigate the digital world. Marquis Compliance Professionals Services experts have a deep understanding that enables them to recognize the risk factors of targeted marketing. They can help develop policies and procedures to collect and analyze data. By implementing risk mitigation tools like demographic balance testing, back-end testing of campaign results and reviewing matching factors, Marquis’ experts can help you avoid and/or uncover fair lending risks.

Marquis’ marketing and compliance solutions were developed specifically for the financial industry. With over 30 years of experience dedicated to financial institutions of all sizes, they understand the unique dynamic between compliance and marketing. They can provide proven and effective strategies to collect, analyze and act on data. Leveraging their unique perspective can help elevate marketing efforts and mitigate risk before it becomes an issue.

CONCLUSION

Digital marketing and a strong social media presence are extremely cost-effective mediums that enable financial institutions to enrich relationships and deliver a message that resonates. Ignoring digital marketing and social media will only handicap your institution’s marketing efforts.

Partnering with Marquis and Marquis Compliance Professional Services can help improve digital marketing and social media efforts and minimize inadvertently triggering compliance risk.

FOOTNOTES:

1 Pew Research Center, Internet/Broadband Fact Sheet: 2019 https://www.pewresearch.org/internet/fact-sheet/internet-broadband/

The Value of a Compliance Management System

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A financial institution’s Compliance Management System (CMS) is the backbone of risk management and also acts as the pathway to success (or failure) when it comes to reviews, exams and audits. The CMS should cover all of an institution’s risk areas ranging from loan processes to customer/member complaints. A robust and comprehensive CMS helps ensure proper procedures are being followed, uncovers risks before potential issues arise and helps assure compliance with regulatory demands and requirements.

The CMS touches almost every department, from marketing to administration. The FDIC, just one of the regulatory bodies of several who evaluate the efficacy of a CMS, has provided guidance that a CMS is how financial institutions 1) learn about compliance responsibilities, 2) make sure employees know and understand compliance responsibilities, 3) review operations to ensure responsibilities are fulfilled and requirements met, 4) define risk areas and take corrective action and 5) update materials as needed.1

A CMS that has been implemented and functioning the way it is intended can save a financial institution from compliance failure and fines as well as a loss of reputation.

CMS Structure

Before examining preventative measures, let’s delve into what’s expected from a CMS. Although regulatory bodies are looking for the same general and overall components, emphasis can differ based on the scope of the audit or exam, the examiner, and of course the regulatory body doing the examination.

The FDIC presents three elements considered essential for an effective CMS.

Board and Management Oversight
It is imperative that the Board and Management be committed to compliance efforts. A culture of compliance encourages cross-enterprise support and is supported by a well-defined policy, clear expectations and a compliance officer with the authority to do what is necessary to keep the institution as free from risk as possible. This is often referred to as the “tone at the top”.

The Compliance Program
A strong compliance program includes policies, procedures, training and monitoring guidelines that are clearly stated and carried out. Response to consumer complaints is an integral part of the compliance program. The path for escalation and resolution should be adopted and consistently applied enterprise-wide.

The Compliance Audit

An independent review of how an institution adheres to internal policies and procedures, and how these policies and procedures comply with consumer protection laws and regulations, helps ensure compliance and identify risk.

The CFPB breaks a CMS into two main elements: Board and Management Oversight and the Compliance program. When reviewing a CMS, the CFPB examiners apply the following five modules.2

Module 1: Board and Management Oversight
Examiners focus on the Board and Management’s commitment to the CMS, change management, identifying risk and understanding its source and the ability to proactively identify risk and take corrective action.

Module 2: Compliance Program
A solid CMS includes a clearly defined compliance program that details policies and procedures, provides effective and relevant training, performs routine monitoring and audits and has a responsive customer/member complaint system in place.

Module 3: Service Provider Oversight
Financial institutions are responsible for their service providers. They must ensure service providers are in compliance with Federal standards to avert consumer harm and avoid liability.

Module 4: Violations of Law and Consumer Harm
If a violation is discovered, examiners will consider the cause, severity, duration and prevalence of the violation. Examiners will delve into the CMS to make sure it identified the issue and triggered the necessary corrective action.

Module 5: Examiner Conclusion and Wrap-up
No matter the institution’s risk profile, examiners will conclude by summarizing and recording their findings and identifying weak spots. They must also review their findings with the bank or credit unions and outline considerations for the following exam and/or any follow-up deemed necessary.

In a broader sense, like the FDIC and CFPB, other regulatory bodies’ examinations consider different components necessary for an effective CMS. But, on a more granular level, each cover similar topics, each nuanced by that body’s particular area of concern. For example, the CFPB’s Compliance Program includes policies and procedures, training, monitoring and/or audits and the consumer complaint process while the FDIC spreads these essential components over the Compliance Program and the Compliance Audit.

With almost every detail of a CMS requiring a host of supporting documents, processes, tools, controls and functions, it’s imperative for the compliance officer to ensure their institution’s CMS answers the needs of each regulatory body. Doing it alone can be overwhelming. That’s where Marquis can help.

CMS Development and Maintenance

Identifying risk and weak spots can be challenging when reviewing how a CMS is functioning and details can be missed if the right questions are not asked and evaluated. Enlisting the help of Marquis Compliance Professional Services will ensure your CMS will effectively manage risk, support compliance and prevent consumer harm. Here at Marquis, we are well versed in the ins and outs of building, refining, and maintaining an effective CMS and will apply this expertise to your compliance program. We get what each regulatory body is looking for.

Conclusion

With recent submissions barely in the rear-view mirror, focus on the risks of potential CMS shortcomings should be on the top of all our minds. Now is the time to refresh and update your CMS. With the help of partners like Marquis Compliance Professional Services, by the time submission season or your next Compliance Exam rolls around your CMS can be addressing the examination nuances of the FED, FDIC, OCC and CFPB.

1 FDIC.gov https://www.fdic.gov/regulations/resources/director/presentations/cms.pdf

2 CFPB https://files.consumerfinance.gov/f/documents/201708_cfpb_compliance-management-review_supervision-and-examination-manual.pdf

Leadership and Your Response to COVID-19

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It is an uncharted time for all of us. We have experienced delays in our clients’ plans to conduct their scheduled marketing efforts and are fielding an array of questions from customers who are searching for leadership. We challenge you to be a voice of calm, reason, and leadership.

Here are some positioning ideas for you to use as you assist your customers/members with their plans over the next 90 days.

An overall strategic communications plan centers around three words: commitment, community, and connection. These words are not meant to be platitudes, but action items. Each is an opportunity to DEMONSTRATE what you are doing to be part of the solution and a leader in your market.

This is a time to focus less on automation and more on personal relationships. Automation cannot solve this marketing challenge, but it provides a personal interaction with your customers/members to listen and learn how the institution can assist the individual and the community. Here is a plan divided into 30-day segments.

Next 30 days. Most institutions reading this are often the centerpieces of the community. Your market will look to you for leadership. Marketers should be on the frontline of this effort and demonstrate to the community their institution is leading when it comes to community involvement, assistance, and sanity in this time of uncertainty. Now is NOT the time to send another email to remind customers/members to wash their hands, practice social distance, and avoid hoarding. Customers/members get plenty of that on a media outlet called everywhere. Nor is it the time for a generic message of “we are committed to the health and safety of our employees, customers/members, and community.” No kidding. These messages are meaningless and are already on the home page of thousands of businesses.

What are you DOING? Are you offering to run errands for elderly customers/members? Assisting local business by offering interest-free bridge loans in order to make payroll? Offering retail customers the option to skip an upcoming loan payment? You get my point. SHOW how you are an integral part of the community, providing connection to the market, and committed to its longevity.

This is not bragging. It is about reassuring the community the financial institution is a leader.

Next 60 days. We have already seen the Federal Reserve lower rates to near zero. Money is cheap. This move to make access to cash easier is only half of what is economically required to weather this storm. The government must encourage spending. We only spend when we are confident we have jobs. Washington has passed a massive stimulus package. This includes direct cash payments to citizens, small business payroll assistance, and tax deferrals. You should have messaging prepared around what this directly means to your customers/members. These messages should not be product based, but rather about what the stimulus means to them. The overall arc for the communications should be to connect the customer/member to the institution by (1) explaining what is happening from a local perspective, and (2) making common sense out of the news coming from Washington. Institutions should think hyper local. Highlight success and inspirational messages thereby connecting the institution to the community.

Next 90 days. By this time, we will see the stimulus kick in and the positive impact of social distancing. If our response to the virus goes as planned, we will reach the 10-week mark and we should return to “normal”.

What will be the next area of concern is the upending of small business and the impact it will have on the population. For reference, 99.9% of all businesses are considered small (less than 500 employees). This group employs 48% of the working population. And while the .01% of big business employ an equal number of citizens, there are millions of small businesses that feed their supply chain. In other words, we are all economically connected. The main difference is a small business most likely does not have the liquidity to sustain its operation, hence the stimulus packages. Again, consumer spending will be critical to the recovery.

From your perspective, the financial implications will no doubt be concerning. If a business cannot make payroll, an employee cannot make rent, and a landlord cannot make the mortgage payment. The messaging will need to focus on what your institution and the community are doing to encourage spending from the institution’s perspective – borrowing. Communications should focus on buying local, spending local, and promoting the successes within the community. Operationally, the institution should be well positioned (technology and staff) to provide lightening quick approvals, clear communication, and a welcoming 5-star environment.

Stay Safe & Prosper!

Prospecting—Intelligent Farming Strategies

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Finding new customers/members is essential to growth for any financial institution. Consider this; there are about 36 million consumers who might be convinced to switch financial institutions. The opportunity is out there. According to an online Harris Poll, 38% of consumers considered opening an account at their neighborhood bank or credit union, but only 5% said they might actually do it. Convincing them to switch to your institution is the challenge.

Prospects are out there and they are interested in switching to local banks and credit unions. To reach and motivate them, your offers must be timely and relevant in addition to websites being easy to find and navigate.

To SEO or SEM …

The first step for most consumers is usually an online search. There are 3.5 billion Google searches a day! And that grows about 10% every year. Search Engine Optimization (SEO) and Search Engine Marketing (SEM) have been around a while now. When implemented properly, there should be an increase in the quality and quantity of web traffic. SEO attracts organic traffic to your site and takes more time to build. But it is unique to your brand and message. And it’s free. SEM isn’t. For an established fee, SEM helps gain visibility and funnel traffic to your site. In its ideal form, your institution appears at or near the top of the search results page.

This is not an either/or proposition. They both increase traffic and brand credibility; they both need to be part of your marketing budget. SEO may take more time to ramp up, however, it’s more sustainable and not easy for competitors to imitate. On the other hand, SEM delivers faster results, scales easily and targets specific segments. Used together, they optimize your search strategy to drive more viable leads.

When developing your search engine strategy:

  • Determine keywords based on strengths
  • Create compelling, keyword-rich content
  • Tell your unique story
  • Think like a customer/member

Location-based Marketing

Mobile has disrupted everything by transforming customer experience and expectations. The one term tied to mobile is “on the go.” People are no longer attached to one place. Location-based marketing takes advantage of that mobility by delivering offers based on physical proximity.

Geo-fencing

Geo-fencing creates a virtual perimeter around a business solely to target advertising. When a compatible device enters the perimeter, it receives an alert and/or email. For example, if a potential lead is playing on their phone within a defined perimeter, the lead might receive targeted advertisements for other businesses within the geo-fencing zones.

  • Establishes virtual fences to give marketers incredible control over placement.
  • Utilizes a virtual barrier around a phone’s IP address.
  • Displays ads on a device within the pre-established area
  • Targets those entering and leaving the perimeter, regardless of whether the location is your own or that of another

Geo-targeting

Geo-targeting is more focused than geo-fencing. It delivers messages based on location, past purchases and data points like demographics and P$ycle. The more data you have, the more you know about your customer/member and the better you can deliver relevant messaging. Data sources and segmentation are essential for a successful geo-targeting campaign. Using an industry benchmark of 0.40%, financial institutions’ click-through rate (CTR) performances for geo-targeted mobile displays improved to 0.64%.

  • Find the right venues where your prospects are most likely to be
  • Exclude locations where your prospects are not likely to be
  • Use location-based keywords
  • Analyze data sources
  • Use segmentation

Beacons

Bluetooth beacons are discreet, wireless transmitters retailers place around their stores. When beacons detect a shopper’s Bluetooth enabled app, it sends a signal and the app is activated and the shopper receives relevant communications. For instance, in the retail world, someone browsing boys clothing could be alerted to a great sale on hoodies or sneakers. Financial institutions can set up branch beacons to enhance customer/member experience and deliver relevant offerings. Standard push notifications garner a 7.8% open rate; beacon notifications average a 22.5% open rate. This low-cost solution is an effective way to deliver relevant messaging to a targeted audience.

  • Improves in-branch conversion rates
  • Alerts customers/members to relevant targeted offers
  • Tracks and guides in-store movement

Responding to prospects.

You’ve optimized SEO and SEM strategy. You’ve expanded and enhanced location-based marketing. The leads are coming in. Wouldn’t it be great to engage in real-time while they are still actively engaged? We’ve all experienced it. Search for ACME Shoelaces, and shoelace ads and banners start appearing. Marquis enables similar prospect communication through WebTrax, a part of our DocuMatix on Demand digital product suite. But, instead of showing banners and ads, it sends emails and letters. It enables an automated, secure, non-invasive method to monitor traffic and make offers. Once a lead visits your site, WebTrax notes which pages are viewed, then automatically sends communications based on the pages visited. One Marquis client attributes over 50 accounts and $1 million in balances directly to WebTrax, with a 5.6% response rate over a 90-day tracking period.

When leads visit your site and opt in, they receive relevant, personalized offers they can relate to. It shows your bank or credit union is interested in them as unique individuals and understands their needs. This is key in attracting 58% of consumers who prefer community financial institutions, hopefully motivating them to make the switch and open an account.