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140 characters won't cut it when regulators address social media--and bankers react

ABA comment letter boils down to 22--"Why is this necessary?"

Twitter may, in the claim of some, be changing the world 140 characters or less at a time. But when the regulators took on the challenge of proposing guidance on banks and social media, and when the industry reacted to the proposal, it took a lot more characters to get either job done.

Feds get social in a hurry

In late January the Federal Financial Institutions Examination Council issued a wide-ranging proposed guidance concerning consumer compliance risk management and social media.

While other financial regulators--notably the Securities and Exchange Commission and the Financial Industry Regulatory Authority--have addressed social media and their regulated companies, the prudential banking agencies, the Consumer Financial Protection Bureau, and the National Credit Union Administration hadn't done anything comprehensive before issuing the interagency proposal via the Exam Council.

The regulators' proposal seemed to be an effort to not only make up for lost time, but to get ahead of the curve. And some observers noted that the CFPB's hand seemed evident here and there, with an emphasis on risk to the consumer, not just risk to the institution of consumer financial activity, in a social media context.

For years, social media has been compared to the Wild West, and for many a good reason.

But it looks like more needs to be worked out before the U.S. Marshall can fully assert jurisdiction over the Territory, given the long list of shortcomings ABA cited in its comment letter of March 25. The comment period is now closed.

Why are we doing this, exactly?

As noted at the beginning of this blog, with factors like Twitter's 140-character limit, Facebook's continuous changes in style and tools, and much more, social media is a constantly changing challenge. ABA makes the point in its 13-page comment letter that while many larger institutions have aggressively tackled social media as both a marketing and customer relations tool, as well as a place to watch for consumer complaints and commentary about them, many smaller banks have sat it out. Some banks still don't take social media seriously, and many bankers remain too busy working to do social. (See banker Jane Haskin's review of the book Socialized! for a view on that.)

"The proposal presumes that all banks are voluntarily and actively using social media and every bank has the sophistication and resources to monitor and respond across a multiplying universe of social media platforms," wrote ABA Senior Counsel Denyette DePierro on behalf of the association. "It would be preferable if the Proposal recognized that bank use of social media occurs across a continuum of sophistication, activity, and engagement, and accordingly, supervisory expectations were gauged to a bank's use, access, and risks."

The letter recommended narrowing the scope to "active and voluntary users of social media, and offering guidance where it is needed--particularly the expansion of the Regulation Z ‘One Click Rule' and the extension of the FDIC ‘practicality' exception to social media."

The former essentially holds that online, disclosure language can be one click away from advertising verbiage. The latter excepts communications where disclosure in full is impossible due to constraints. This includes matchbooks, pens, pencils, key chains, and, ABA argues, social media communications such as tweets.

ABA questioned the agencies' issuance of the proposed guidance in the first place.

"If merely an informal review of issues of concern for new bank users of social media, the material would be more appropriate as an interpretive letter, agency handbook, or telephone briefing," the letter stated.

And ABA criticized the basis of other elements of the proposal:

"Social media is a form of communication with new and existing customers. In an attempt to be forward-looking, the guidance makes recommendations for social media beyond mere communication methods and suggests that social media channels can be used as a customer service tool or account-opening platform for submitting applications or facilitating payments. Presently, social media channels do not enable financial institutions to embed servicing tools or account-opening platforms into a landing page. The common use of social media channels is to communicate with customers and then redirect them to the bank webpage or customer service representative."

Your bank's good name in the social media sphere

A key issue that's come up when the proposal is discussed is the agencies' ideas about social media monitoring. Essentially, they would have banks monitor and address complaints and other communications made about the institution--even if a bank does absolutely nothing of its own in social media and bars employees from using it at work and from doing it on the bank's behalf on their own.

Now, many experts say that you can't sit out social media, that even if you don't play, you can be attacked or otherwise, and that you need to be aware of what's being said about the bank.

However, being required to do so is a matter ABA took issue with.

For institutions with no social media activity, the proposal as written "creates substantial burden to monitor social media as well as to implement a social media risk management program and enhance employee training unnecessarily."

Read more about it

Bankers interested in this proposal should review ABA's detailed letter in its entirety. ABA members can find it here

All comments on the issue can be found at the government's Search for FFIEC 2013-0001

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