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FINRA Issues Guidance in New Social Media Websites Notice

In November, Legal Bytes reported (Regulators Poised to Give Financial Institutions a Slap in the Facebook) that Richard Ketchum, Chief Executive of the Financial Industry Regulatory Authority (FINRA), acknowledged Wall Street is eager to use social media to interact with customers. In the course of his remarks at a recent meeting of the Securities Industry and Financial Markets Association (SIFMA), he noted, “We continue to witness the advent of technologies that will challenge your ability to ensure compliance with regulatory requirements,” and “Social networking is one such innovation.”

Now, supplementing existing FINRA Rules, FINRA has released a notice concerning online media rules (you can download and read a copy of the notice below) whose key components include requirements that securities firms:

  • Must develop policies and require its employees to comply with the new regulatory requirements
  • Must retain records of communications (a compliance requirement of the Securities Exchange Act of 1934) when social media is used to communicate
  • Must ensure that recommendations made through social media are suitable to all investors to whom the recommendation is made (e.g., by limiting or filtering access based on investor/consumer qualifications)

FINRA’s notice takes the position that securities firms must adapt existing rules to social media and essentially mirror the 2003 FINRA definition of “public appearance.” This definition noted that chat room postings were no different than if a firm representative was in a room making statements to a room filled with investors. FINRA’s current notice indicates that information posted or content placed online (static information) is subject to these same rules and must be approved by a firm principal – presumably, even information about individuals in the firm that may be part of an individual’s profile on the firm’s website or in social media platforms. But online interactions that are occurring on the fly (e.g., in real time), while subject to supervisory requirements (e.g., they must be supervised, perhaps even monitored), do not require such approvals.

You can read or download the FINRA Regulatory Notice 10-06 (Social Media Web Sites) [PDF] here.

As mentioned in the Legal Bytes November post, SEC disclosure rules apply to Tweets, blog postings, wall postings and other communication platforms provided by social media sites, and other regulatory agencies are seeking to address the use of social media sites by the entities they regulate (e.g., the FCC, the New York State Insurance Department). So if any of this is of interest and if you need to know more or need help, please contact me, Joseph I. Rosenbaum, or the Rimon attorney with whom you regularly work. We are happy to help.

Update:  Rimon lawyers Christopher P. Bennet, Amy J. Greer, Jacob Thride and Kevin Xu have prepared a Client Alert on the subject which you can read by going to: FINRA Issues Notice for Financial Firms Using Social Media.

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H.R. 4173 = CFPA = Amend FTC Act. Why Should You Care?

Today, the U.S. House of Representatives is scheduled to vote (and likely pass) H.R. 4173. H.R. 4173, entitled the Wall Street Reform and Consumer Protection Act of 2009, but commonly referred to as the CFPA (Consumer Financial Protection Act), has been blogged about on Legal Bytes before (see Congressional Hammer Poised to Strike at Financial Advertising). The provisions to which advertisers might wish to pay particular attention are those that would amend the Federal Trade Commission Act.

Rather than summarizing industry concerns over this legislation, I’ve posted a copy of the Industry Letter, signed and sent to members of Congress on behalf of at least these twenty two (22) U.S. associations and coalitions: American Advertising Federation, American Association of Advertising Agencies, American Escrow Association, American Financial Services Association, American Herbal Products Association, Association of National Advertisers, Consumer Data Industry Association, Consumer Electronics Association, Direct Marketing Association, Direct Selling Association, Electronic Retailing Association, Financial Services Institute, Inc., Financial Services Roundtable, Interactive Advertising Bureau, International Franchise Association, Internet Commerce Coalition, National Association of Manufacturers, National Association of Professional Background Screeners, National Business Coalition on E-Commerce and Privacy, National Retail Federation, Natural Products Association, U.S. Chamber of Commerce.

If you need more information, or if you believe you should have a voice in this process and don’t already have one, Rimon is here to help. You can contact me (Joseph I. Rosenbaum) or, of course, any Rimon attorney with whom you regularly work.

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Anti-Social? I’ll Still Share Our Social Media Presentations

In case you weren’t able to attend any of our three seminars on Social Media, we’ll still let you get a glimpse of what you missed. First, you missed Joe Rosenbaum and Anthony Traymore in San Francisco and Palo Alto, and in Century City (L.A.), where we were joined by Kate O’Brien, where we presented: “Social Media: It’s 10:00 p.m. Do You Know Where Your Brand Is?”

If that alone didn’t make you sad, you also missed all the substantive insights and experiences that were shared, the audio-visual effects, the examples and live experience of our presenters and local hosts, as well as the hospitality of three of Rimon’s West Coast offices.

What you don’t have to miss is a copy (in PDF form) of the presentations – each of which had slight variations. You can see and download each by selecting the live link on each city below.

While the base presentations were much the same in all three places, in San Francisco we focused a bit more on social media in financial services and corporate securities law. In Silicon Valley (Palo Alto), we did a somewhat deeper dive into the implications of social media in online gaming and entertainment, and in Century City, we focused on user-generated content, open-forum platforms and competitive advertising.

While the results are still being tabulated, we do know that a significant number of our clients and guests received continuing legal education credit (CLE) for attending, in addition to a meal – worth the price of free admission anywhere. We haven’t looked at all the evaluations yet either, but no one fell asleep, everyone stayed through the closing credits and a rousing rendition of the Social Media Blues, and many of our attendees stayed for follow-up questions.

We also received a number of inquiries about the possibility of individual companies or groups hosting a Social Media seminar presented by Rimon, and we are happy to do so for yours – we are an accredited CLE provider in most jurisdictions, if that is important to the legal folks – but many have asked about presenting to senior executives, business development, marketing, media and other professionals as well.

Not only can we tailor a seminar to your particular company, your brands and/or your industry, but we have developed, and will continue to develop, modules and focused presentation materials regarding online gaming and virtual worlds; promotions (e.g., sweepstakes, contests, product placements, branded entertainment); advertising and marketing (e.g., testimonials, endorsements, buzz, viral and word-of-mouth); labor and employment; corporate policy, public relations and crisis management; financial services; media and entertainment, including motion pictures and machinima; pharmaceutical, health and life sciences; technology and e-commerce; digital rights management (e.g., user-generated content, hybrid media); privacy, data protection and security; target marketing, location-based and behavioral advertising; regulatory requirements – both government and SRO (e.g., FTC, FCC, CSPC, FDA, PCI compliance, FACTA, GLB, HIPAA); cloud computing, and so much more – and we haven’t even mentioned our international or global experience, expertise or resources in other jurisdictions around the world.

If you are interested, please contact me (Joseph I. Rosenbaum) and we can work with you to help you engage us in your social media conversation with topics that are relevant to you. We will also be updating the research work already released in our Social Media White Paper with some of the materials and further work we continue to do in this area. Stay tuned – social media is not a fad.

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Joe Rosenbaum – A Busy Week (Lexblog & American Banker)

Joseph I. ("Joe") Rosenbaum had a busy week. In an interview with the editors of Lexblog, Joe tells Lexblog why blogging on Legal Bytes is both fun and informative. You can read the entire interview on the Lexblog page "Real Lawyers Have Blogs".

Joe was also quoted in an article by Maria Aspan in the American Banker, about the announcement by American Express that it was acquiring Revolution Money – part of Amex’ efforts to continue to evolve and provide a broader (and increasingly relevant online and digital) range of payment options for consumers and merchants. If you are interested, feel free to read Maria’s entire story, "Amex Tries to Buy a ‘Revolution’".

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Federal Reserve Board Has a Free Gift (Card) For You

Remember when Legal Bytes posted that little note about gift cards now being part of the Credit Card Accountability Responsibility and Disclosure Act of 2009, for the first time formally bringing gift cards under federal regulation? Remember we told you that as part of the process, “by July 2010, the Federal Reserve Board is to have crafted and approved new rules covering consumer disclosures (i.e., advertising, application forms, etc.)”?

Well today, the Federal Reserve Board announced proposed rules that would restrict gift card fees, limit expiration dates to a minimum of five years (after issuance or the last time funds were loaded), and prohibit dormancy, inactivity, and service fees, unless it was limited to once per month, the consumer was notified, and the inactivity has lasted for at least one year.

The FRB has been busy around Regulation E (EFT). Last week, the FRB announced its Final Rule surrounding ATM and one-time debit card overdrafts (See “The Fed Notices an Overdraft – Decides to Close the ATM Window”, posted on Legal Bytes earlier today). These regulations are also promulgated under Regulation E, and although the proposed rules have not yet been published in the Federal Register (expected soon), you can download a copy here: Federal Register – Gift Card Rulemaking Notice.

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The Fed Notices an Overdraft – Decides to Close the ATM Window

This post was written by Roberta G. Torian and Joseph I. Rosenbaum.

On Nov. 12, the Federal Reserve Board released its final rule on overdrafts for ATM and one-time debit card transactions (the “Final Rule”), which amends Regulation E. Although it hasn’t been published in the Federal Register yet, Legal Bytes thought you might like a little heads-up as to what is in the new Final Rule.

To start, a financial institution will have to obtain a consumer’s consent – in advance – to assess a fee for paying an overdraft in an ATM or one-time debit card transaction. To get consent, the financial institution must provide a description, give the consumer an opportunity to opt-in; and if consent is given (which can be revoked at any time), give the consumer written or electronic confirmation. While existing customers who haven’t opted in to the overdraft program by then can’t be charged a fee for these overdrafts after Aug. 15, 2010, for everyone else, compliance is required by July 1, 2010.

Here’s one you might not have considered. What if the system in place with the financial institution doesn’t distinguish between various types of overdrafts (e.g., one-time debit card versus recurring debit card transactions)? Well there is a safe harbor, but you’ll have to call Roberta G. Torian (or read the Final Rule yourself).

Now, the Final Rule doesn’t mean a financial institution is required to pay overdrafts, whether or not a consumer has consented, and it still allows them to maintain policies on overdraft limits, frequency, and other factors that would restrict the customer’s overdraft privileges. In other words, it doesn’t change an institution’s right to manage its overdraft program or risk – only the situations where it can charge a fee to the consumer.

The Final Rule does, however, delve a bit more deeply into the marketing and cross-selling considerations financial institutions must comply with. For example, the Final Rule prohibits conditioning other account services on opting in to the overdraft service. Furthermore, the consumer must be offered the same account terms, conditions and features, whether or not they opt-in to the overdraft program.

The Federal Reserve Board has created a model form for use by financial institutions (one that can be modified to fit the individual programs available) to obtain the consumer’s opt-in consent, and that highlight the disclosures required by the Final Rule. The form was developed because the Final Rule also prohibits including this new overdraft "consent" as part of the basic account agreement when a consumer opens an account. In other words, you need to give the consumer a meaningful opportunity to decide whether to opt-in, and not simply bury the "consent" in a string of clauses and terms.

Although the rule has not yet been published in the Federal Register, you can download a copy of the Final Rule right here. But if you really want to know the (opt) ins and (opt) outs of Regulation E, contact Roberta G. Torian, Joe Rosenbaum or any of the lawyers at Rimon with whom you work. Rimon has a full service Financial Institutions Group that can help virtually any financial institution with legal support, service, and representation, whenever and wherever the need arises. Call us, we are happy to help.

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Regulators Poised to Give Financial Institutions a Slap in the Facebook

This post was also written by Anthony S. Traymore.

A few weeks ago, Legal Bytes reported that, buried in the new financial services “reform” legislation, is the establishment of a brand new regulatory agency – the Consumer Financial Protection Agency (see Congressional Hammer Poised to Strike at Financial Advertising). Guess what. Not to be outdone, the regulators are in the act – pardon the pun – already. Witness recent statements by Richard Ketchum, Chief Executive of the Financial Industry Regulatory Authority (FINRA). In recent statements, Ketchum acknowledged that Wall Street is eager to use social media like Facebook, Twitter and Linked In to interact with customers and, that to a large extent, the growth of the use of these sites is inevitable. But at a recent Securities Industry and Financial Markets Association (SIFMA) meeting, he noted, “We continue to witness the advent of technologies that will challenge your ability to ensure compliance with regulatory requirements,” and “Social networking is one such innovation.”

At that same meeting, Ketchum raised the issue that retention functionality available on social media services may not be sufficient to ensure a financial service firm’s compliance with applicable regulations, including the FINRA Rules. If you aren’t a broker-dealer, don’t read the next sentence. But if you are: Imagine how social media services used by brokers to communicate with clients could impact FINRA Rules concerning Communications and Disclosures (see, Section 2200). FINRA has now set up a taskforce comprised of industry professionals to explore how firms may utilize social media to better communicate with their customers without “compromising investor protection.”

Such studies and evolutionary (or revolutionary) regulation are increasingly common these days. As our loyal readers already know, Legal Bytes reported previously (FTC Releases Updated Endorsement & Testimonial Guidelines and Rimon Analysis of the New FTC Endorsement and Testimonial Guidelines), that the FTC’s revised Guides Concerning the Use of Endorsements and Testimonials in Advertising will become effective Dec. 1, 2009. These revised guidelines represent updates to the prior guides, and acknowledge the proliferation of false claims, phony testimonials, and spurious endorsements (or negative comments) by consumers, experts, organizations and celebrities, through the use of blogs and other “word of mouth” marketing tools. As described in a recent Wall Street Journal article, the SEC disclosure rules apply to Tweets, blog postings, wall postings and other communication platforms provided by social media sites. Other regulatory agencies are similarly seeking to address the use of social media sites by the entities they regulate (e.g., the FCC, the New York State Insurance Department).

Do you have a social media policy?  The complexities are enormous. Internal (during work) and external (non-working hours). Employees, agents, contractors and suppliers. Domain names, URLs and trademarks (which include service marks, for you purists in the audience). Approved content or ad hoc comments. Official presence or not – condoned or not. Today, activities outside the scope of employment are often considered not attributable back to the company absent special circumstances or relationships. Will social media break down those barriers further? If so, what can companies do to reach their customers while continuing to protect their most valuable assets – their employees and their brands? Does a company have the right to regulate conduct outside the workplace, even if it involves reference to the company? Oh, and by the way, you do know that social media, enabled by the borderless web, doesn’t really pay attention to national boundaries, AND that means it’s not just U.S. law you may need to worry about – even if you are a U.S. company. If you are an international, multinational or global company . . . good luck. No, not good luck. Call us. Our Advertising Technology & Media Law group has unparalleled breadth and depth in understanding, working with, and advising clients in this brave new world.

So if any of this is of passing interest, stay tuned. If it is or becomes a pressing need, please contact Joseph I. Rosenbaum or Anthony S. Traymore, and let us help you avoid being anti-social. Of course, if you are already a Rimon client, feel free to contact the Rimon attorney with whom you regularly work, and he or she will be happy to coordinate your legal needs with us.

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Rosenbaum Quoted in American Banker

Joseph I. (“Joe”) Rosenbaum was recently interviewed by American Banker reporter Maria Aspan in connection with advertising and marketing consumer credit cards, and certain legal implications in brand marketing and advertising, including some of the more subtle viral and social media campaigns. Joe’s quotes appear in an article by Ms. Aspan entitled, "Barclaycard U.S. Taking Baby Steps in the Public Eye".

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Give Credit (Card), No Give a Gift (Card)! Why Not Give Both?

Although consumer credit regulation is hardly new – Regulation E, the Fair Credit Reporting Act, Regulation Z and laws regulating disclosures, debt collection practices, billing statements and the like have been around for decades – for the first time in U.S. history, Federal legislation is tackling pricing, rate modifications, advertising disclosures and fees, and adding a gift card angle as well. 

While the House has not yet passed this or any other version of the legislation, those in the know believe a similar, if not identical, bill will be approved by the House of Representatives and that the President is likely to sign it. 

Are you a bank, payment card association, credit union or financial institution that issues credit cards or gift cards? Here are highlights of the bill that passed the Senate:

  • When marketing, a card issuer would not be permitted to increase any advertised ‘teaser’ rates for at least a year after a new account was opened for the consumer, and promotional rates advertised to consumers must remain in effect for at least six month;
  • Unless the credit-issuing institution can get proof that anyone under 21 can actually repay their credit card debt, credit cards can only be issued to individuals under the age of 21 if a parent, legal guardian or guarantor agrees in writing to be responsible for the debts;
  • If a consumer pays more than the minimum balance due, the excess must be applied to the balance with the highest interest rate;
  • Card issuers will not be allowed to change rates retroactively on existing balances (there is an exception where the consumer is past due by 60 days – which, I guess, presumes that when a consumer can’t afford to pay their balance within 60 days, it’s ok to raise their rates since they probably won’t be able to afford to pay a higher rate either);
  • Bills for balances due must be sent at least three weeks (21 days) before their due date;
  • Card issuers will no longer be able to charge additional fees to consumers for alternate payment mechanisms (e.g., by mail, telephone, online, electronic, wire transfers), unless the consumer requests and the issuer offers some type of ‘expedited’ service;
  • Consumers must be asked if they want to allow ‘over-limit’ credit transactions and if they do not affirmatively consent, the card issuer will not be permitted to charge a fee if the issuer still authorizes the transaction (e.g., your credit limit is $1,000 and you charge something for $1,001 and the authorization system approves the transaction anyway);
  • Changes in the terms and conditions that apply to consumer cardholders will require at least 45 days’ notice; and
  • The minimum amount of time a gift card must remain valid for use will be 5 years. First, it is likely this will apply to gift cards that are consumer-oriented and where full value is paid, and not to discounted, bulk sales, non-consumer, incentive, employer or promotional gift cards – but then the legislation isn’t final yet, is it? Furthermore, the Federal legislation is not likely to preempt more consumer-friendly State law (e.g., California prohibits any expiration date on such gift cards), but it will place a minimum level of consumer protection against earlier expiration, even in States that have no applicable regulation.

There is also consideration being given to removing any current legal and contractual restrictions on merchants that would allow them to differentially price their products and services based on the incremental costs (or savings) of accepting different forms of payment. When credit and debit cards were scarce and cash was king (cash, as in ‘currency’), regulation and industry groups frowned upon differential pricing, arguing that allowing a merchant to charge more for the use of a credit card was discriminatory to the consumer – even though the cost of accepting such payment instruments was higher (the merchant pays a fee (discount rate) to the card-issuing enterprise for the privilege of accepting the particular brand of card). Furthermore, the growth of corporate and purchasing cards and the use of payment instruments in B2B transactions has resulted in situations where a manufacturer accepts a purchasing card (procurement-based credit card) in payment of sales to distributors, wholesalers and retailers – a fee is charged to the manufacturer for the card transaction. This chain continues until a consumer makes a retail purchase, and if any or all of these transactions involve branded payment instruments and not cash, travelers’ checks, bearer bonds or two goats and a chicken, today, a fee would most likely accrue on each payment-card transaction at each step of the way . . . significantly raising the cost to everyone and ultimately the consumer. Stay tuned.

So: Consumer Credit? Co-branded promotions? Loyalty Rewards Programs? Gift Cards? Premiums and Incentives? Retail Promotions? Payment Card Industry (PCI) Data Security Standards? Privacy & Data Protection? Identity Theft? Data Breach? Pre-Screening? Online Digital Payment Systems? Corporate Cards? Purchasing Cards? E-Commerce? Regulation E? Regulation Z? Statement Insert Advertising; Credit/Demographic Market Segmentation? Free? APR? Limited Time Offer?

Any of these sound familiar? It’s what we do? Our Advertising Technology & Media Law Group; our Financial Institutions Group; our Data Security and Identity Theft Group . . . need we say more . . . If you need help (or you are just over stimulated by the flurry of legislation, regulation and excitement), call us or email me at joseph.rosenbaum@rimonlaw.com. We can help.