Advertising Positive Feedback the Right Way: Customer Testimonials & Mortgage Compliance

For as long as companies have advertised their wares and services, customer testimonials have been a powerful method of attracting new business. After all, what better way to show a potential client your track record of good work than through the words of an already-established happy customer? Testimonials can highlight your expertise, promote a sense of trust, and emphasize the quality of your service in an engaging and honest way. However, using testimonials comes with a serious responsibility to comply with federal and state regulations.

As with all other forms of advertising, testimonials can be mishandled to the point that the law becomes involved. From the Federal Trade Commission (FTC) to state mortgage regulators, missteps in testimonial usage can land you in varying degrees of hot water. Ensuring that you remain in compliance is not just a legal concern – it’s vital for preserving your professional reputation. Let’s go over how testimonials can potentially violate mortgage regulations and talk about some best practices to keep your advertising efforts on track.

Understanding the Regulatory Landscape

When it comes to the mortgage industry, we don’t have to tell you that regulation doesn’t merely come from one single entity. Rather, there is a vast network of rules and guidelines to follow at both the federal and state levels. At the federal level, two major regulatory frameworks often come into play:

1. Federal Trade Commission (FTC) Endorsement Guidelines: If a testimonial is considered an endorsement, the testimonial must adhere to the FTC’s Endorsement Guides. These rules are in place to ensure that consumers are not deceived by any form of misleading advertising, including reviews that are false or have hidden connections (such as undisclosed incentives or business relationships).
2. Truth in Lending Act (TILA) and Regulation Z: As a mortgage professional, your communications – including endorsements and testimonials – cannot be deceptive about rates, costs, or loan terms. If a testimonial misrepresents terms or downplays important qualifying information, you run the risk of violating TILA and related state regulations.

Violations can lead to severe consequences ranging from hefty fines to enhanced regulatory scrutiny. Ensuring your testimonials adhere to these rules will protect both you and your clients. After all, ethical transparency sets the foundation for long-term success in the mortgage industry.

How Testimonials Can Run Afoul of Regulations

• Misleading or Incomplete Statements
  A simple oversight in a testimonial, even unintentional, can misrepresent crucial details about a loan program. For instance, if a customer highlights an exceptionally low-interest rate but fails to disclose that it was available only under specific conditions (e.g., excellent credit score, high down payment, or limited time frame), a regulator could view that omission as misleading advertising. Testimonials must reflect typical experiences and include any disclosures necessary to give consumers a clear, complete picture of their realistic options.
• Undisclosed Incentives
  Offering a gift, discount, or other benefit in exchange for a positive testimonial is not inherently illegal. What makes such an agreement a serious compliance risk is failing to disclose the nature of these incentives. The FTC requires that any “material connection” between the endorser and the business must be made clear. If your borrower was promised or given something of value (such as a gift card) to leave a review, it must be clearly disclosed so potential borrowers understand the context of their testimonial.
• Selective or Biased Presentation
  Cherry-picking only favorable testimonials can also be problematic. While it’s not strictly illegal to display only positive reviews, the practice may raise compliance red flags if the reviews you choose to publish suggests that consumers generally experience only perfect outcomes. If the overall impression is that everyone qualifies for your best terms or that the process is always entirely smooth, that can be construed as consumer deception. Mortgage organizations should be careful to provide a fair, representative sampling of consumer reviews and not attempt to mischaracterize the experiences of typical borrowers.
• Exaggerations and Unsubstantiated Claims
  Testimonials that make grandiose claims like “I saved thousands more than I could have anywhere else!” or “Guaranteed approval!” are misleading if such claims are not true or cannot be backed up with actual data. Regulators are trained to closely scrutinize statements that convey guarantees, especially in mortgage lending. Ensure that your testimonials accurately reflect a customer’s experience without creating false expectations.

Best Practices for Compliant Testimonial Use

Now that we’ve established how crucial it is for mortgage organizations to vet testimonials for their accuracy and to request them under a fair and transparent framework of compliance, here are a few best practices any marketing professional can use to ensure the testimonials they receive and advertise stay within industry regulations:

1. Document and Retain Proof
   Keep records of communications related to all testimonials – emails, requests for reviews, any incentives or discounts offered – and the context in which reviews were obtained. This documentation can serve as evidence of compliance if your advertising practices are ever questioned by regulators.
2. Obtain Written Permission
   Always secure written consent to use testimonials in your marketing materials. Along with being a sound practice to protect customer privacy, it is especially important if you’re using personal details or including specific loan information. Written permission also helps confirm that the endorser stands by their statement as accurate and consents to the loan details being shared.
3. Include Clear and Conspicuous Disclosures
   If you offered an incentive or if there are material terms that need clarifying (ex.: the advertised rate only applies for first-time homebuyers), make sure that is disclosed in a clear, straightforward manner. Burying disclaimers in fine print or using vague language can be viewed as intentional deception. Instead, place disclosures where consumers are likely to see them, and ensure they’re understandable to the average layperson.
4. Avoid Blanket or Sweeping Guarantees
   Mortgage lending is heavily dependent on a slew of individual borrower qualifiers, including credit scores, debt-to-income ratios, and more. Testimonials should never indicate “guaranteed” approvals or universal rates, because that simply isn’t how the industry works. Instead, ensure that your testimonial content and accompanying statements always clarify that outcomes can vary, based on individual circumstances.
5. Stay Current with Regulatory Updates
   To put it mildly, mortgage regulations are subject to change. Regulations are always evolving, and guidance from the Consumer Financial Protection Bureau (CFPB) or the FTC can evolve with new technologies and marketing platforms. Keep up with changes to TILA/Regulation Z and the FTC’s Endorsement Guidelines. Develop a proactive plan to review testimonial practices whenever regulatory updates occur.

Building Trust Through Responsible Marketing

Compliance can be burdensome, but adhering to regulations will strengthen your brand in the eyes of borrowers. Today’s consumers are well-informed, and many understand that if a testimonial looks too good to be true, it probably is. When you maintain transparency and truthfulness, you reinforce trust in your operations. Clients appreciate honesty and authenticity, especially in the high-stakes environment of mortgage lending, where a family’s home and financial well-being are often on the line.

Staying compliant with mortgage regulations regarding testimonials is much more than checking a bureaucratic box. It is about upholding professional standards and ensuring a transparent environment for your clients. By educating yourself and your team on FTC guidelines, TILA/Regulation Z provisions, and additional state regulations, you reduce legal risk and bolster your company’s reputation as a trustworthy, client-centric mortgage provider. By investing in compliant testimonial practices, you’ll demonstrate your commitment to ethical business operations and, in turn, cultivate long-lasting, positive relationships with your clients.

For more information and guidance on how you can ensure compliance when using customer testimonials, reach out to ActiveComply today to see how we can help you!