Social media: The risks and benefits to banks

Amy Plummer Iowa Banking Law Dickinson Law Firm Des Moines, Iowa

Posted on 08/01/2012 at 10:00 AM by Amy Plummer

We have all heard the hype about social media: Facebook, Twitter, LinkedIn, blogs, chat rooms. Many claim it's the latest, greatest and most cost-effective way to market a business. But does it have the same benefits to the banking industry, and if so, what are the risks? Banks primarily use social media as a marketing tool, and like any form of marketing, it is only as good as the fair message it delivers and the interest it generates among customers.

Therefore, if your bank's Facebook or Twitter page posts little more than your bank's hours, locations and contact information, you may find yourself with very few followers. On the other hand, if your banking institution uses social media to provide incentive to its customers to regularly view and participate in its online forum, whether it be through stories about community involvement, providing relevant educational articles or videos on financial planning, or even job postings at local branches, your bank's social media site may be the most popular in town. As lawyers, we must offer a few words of caution. The risks of social media to banks are, to some extent, unknown. Federal regulations, litigation and case law have not kept up with the speed of social media development. Also, because of the broad reach of the internet, social media posts can be viewed in an unlimited number of jurisdictions.

However, certain general rules do apply. From a regulations standpoint, marketing of bank products must comply with fair lending rules and Regulations E, Z and DD, whether such marketing appears in print form, online or through social media. A commercial message in any medium that promotes a credit transaction, either directly or indirectly, is treated as an advertisement for Regulation Z purposes. Remaining in compliance with traditional banking regulations may be challenging, however, when certain social media sites, such as Twitter, restrict the amount of content which may be included in each post. One reason many banks have not yet jumped on the social media bandwagon is that they are uncomfortable with the lack of control over content written by users.  While it is true that banks cannot fully control third party content, they can and should actively monitor what is being posted on their social media sites and on the internet in general. Banks should develop an internet policy as it relates to employee use of social media on the job. Employees should be prohibited from providing statements on blogs, forums or other forms of social networks regarding the availability, terms or conditions of the bank's products or services. Such marketing information should be left to banking professionals knowledgeable in applicable marketing regulations. Further, any mention of the bank by employees should include a disclaimer statement that his/her opinions are personal, and not those of the bank. Of course, the easiest way to be sure this is enforced is to prohibit mention of the bank and its services or promotions in employees' personal social media posts altogether. Finally, banks should educate employees as to the reason social media policies are in place and establish penalties for not complying with those policies. Consulting with compliance officers and legal counsel is recommended to develop a well thought out social media marketing strategy.  Keep in mind that regulators will be reviewing the bank's social media practices during compliance examinations. With proper planning and oversight, social media can be a great marketing tool for banks and an effective way to communicate with current and potential customers.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

- Amy Plummer

Categories: Amy Plummer, Banking Law


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