New Rules (with Old Problems) In Social Media

In many ways, Peach State FCU symbolizes the essence of the credit union industry: Created in 1961 with a specific goal of serving local educators in a few Georgia counties, it now has more than 41,000 members, while employees of all sponsor Boards of Education and select groups and associations are also eligible to join.

Like all good businesses, Peach State likes to stay current, and that’s why, earlier this fall, it launched social media initiatives through promoted posts on Twitter and Facebook. It was working—the institution says it had soon doubled the number of followers. In November, however, Twitter instituted new rules that “restrict the promotion of financial services and related content.”

For the record, this is not an absolute ban. Financial services providers can indeed use promoted posts, but there’s an approval process that must be followed, and some products, such as short-term mortgages, still can’t be publicized.

If Peach State represents one end of the financial services spectrum—a small, focused institution serving a very specific purpose—then JP Morgan Chase surely represents the other. So what can the two have in common?

On December 6, the Wall Street behemoth sent out an innocuous Tweet from its corporate account promoting an upcoming Twitter Q&A about leadership and careers and featuring the hashtag #AskJPM. It was totally innocuous and uncontroversial. . .except for the fact that just a few minutes earlier, Twitter had gone public with underwriting help from Chase. That first Tweet didn’t get much attention, but a second one a week later certainly did. The #AskJPM hashtag soon became a minefield of nasty messages, most flailing the company for its supposed lack of ethics.

Social Media Tablet

While Chase has had its share of PR nightmares in the recent past, from bribery scandals to the Bernie Madoff fiasco, it surely wasn’t expecting this one. The company hastily scrambled to fix the damage, dropping the Q&A as a bad idea and promising to “back to the drawing board.”

Of course, it’s way too late for that. ‘Social business’ isn’t just coming, it’s been here for a while. The lines between personal and corporate communications, previously blurred by a plethora of mobile apps, have been essentially obliterated by the ubiquity of social media. And the problem isn’t that the rules have changed, it’s that they keep changing on a regular basis.

Just this month, the Federal Financial Institutions Examination Council (FFIEC) released its long-awaited guidelines for this process. Officially intended for financial marketers, “Social Media: Consumer Compliance Risk Management Guidance” actually deserves a broader audience in that it provides a clear overview of this rapidly evolving field, covering both the promise and the potential pitfalls. It doesn’t outline new laws per se, but plays an invaluable role in examining common practices and helping to negotiate current regulations.

Case in point: Twitter itself, which experienced a major snafu in this same timeframe. In mid-December, the company sparked howls of protest when it instituted a rule that enabled blocked Twitter users to anonymously view or Tweet the very users who blocked them. It was done with the best of intentions—Twitter wanted to protect those who sought to filter out abusive messages but feared retaliation—but the change had the opposite effect, and the company almost immediately had to reverse course.It’s important to remember that even a document like this, comprehensive as it is, offers little more than a snapshot in time. Regulations in the traditional sense, like Sarbanes-Oxley and Dodd-Frank, take years to create and implement. Rules around Twitter and LinkedIn, meanwhile, can turn on a dime, evolving as fast as the technologies that enable them.

The simple truth is that new technologies will keep emerging, and the rules will keep changing. In the long run, this is a good thing—each advance fosters better communication and greater competition. But in the meantime, it’s imperative that we monitor new tools as they emerge, stay abreast of changes in user behavior and expectations, and adapt our own practices to stay both current and compliant. It’s a tall order to be sure, but vital nonetheless.

*Image courtesy of  samuiblue -

The Best of Times for Worst-Case Scenarios

Can a worst-case scenario keep getting worse? When it comes to the Senate Banking Committee, which has considerable power in regulating the industry, this is how many in the business see it.

The current problem goes back to the creation of the U.S. Consumer Financial Protection Bureau (CFPB), which was founded after the passing of the Dodd–Frank Wall Street Reform and Consumer Protection Act, which in turn was prompted by the financial crisis at the end of the last decade. The very idea of a single governmental body with jurisdiction over banks, credit unions, securities firms, mortgage-servicing operations and debt collectors was bad enough, but what really elevated the issue to worst-case status was the driving force behind the agency: academic and policy advocate Elizabeth Warren.

The issue became so contentious that it led to furious lobbying on both sides of the aisle and even an all-star reunion of ‘Saturday Night Live’ alumni reprising their impressions of U.S. Presidents (with a cameo from Jim Carrey) to prod the current occupant of the White House into backing the bureau. It worked, kind of: the CFPB did come to life but without Ms. Warren.

Worst case averted? Not quite. The ousted champion publicly mulled a run for the Senate herself, causing major heartburn among her critics—a presence in the Senate could give her more power than she would have had as director of the CFPB. When she tossed her hat in the ring, many banking heavyweights threw their support behind her opponent, incumbent Senator Scott Brown. It didn’t work—she won by a big margin, and the industry began to fear the worst.

Actually, as discussed on this blog, the only thing worse than her being in the Senate was her landing a seat on the U.S. Senate Banking Committee, a plum assignment not often given to freshmen senators. Again, that’s exactly what happened. To the surprise of absolutely no one, she has since led the charge against lax enforcement of banking regulations.

So it can’t get any worse, can it? Think again.

Senate Banking Committee Chairman Tim Johnson (D-S.D.) recently announced his retirement. No, Sen. Warren does not have the seniority to get the job, but guess who might: Sen. Sherrod Brown (D-Ohio). This has given inside-the-Beltway types a lot to worry about. If it really does happen, banking lobbyists might have some busy days ahead.

For the record, this is far from a done deal.  First of all, nothing is going to change until after the next election, which is not till November 2014, nearly two years from now.  If there’s a change in direction and Republicans take over the Senate, as sometimes happens in off-year elections, then all this will be moot anyway.

Moreover, even if the Democrats retain control, Sen. Brown is actually fourth in line for the chairmanship. But as has been noted, the current ranking member, Sen. Jack Reed (D-R.I.),  might have his eye on the top spot at the Senate Armed Services Committee, another position that will be vacant next fall. The next in line, Sen. Charles Schumer (D-N.Y.), gets much of his campaign support from Wall Street, and the one after him, Sen. Bob Menendez (D-N.J.), has many financial services professionals in his constituency. In other words, it’s not impossible.

So are we at worst-case levels?

There’s no question that  Sen. Brown has been a harsh critic of what he perceives as industry excesses—he has publicly railed against the ‘too big to fail’ trend, which he sees partly as the result of thirty-seven banks merging thirty-three times. In particular, as he points out, “In 1995, the six biggest US banks had assets equal to 18% of GDP. Today, they are about 63% of GDP.” It also probably doesn’t help that he won big in the most recent elections after many in the industry supported his opponent.

But perhaps that’s the problem.

The reality is that there isn’t a constant, inexorable march toward greater regulation and harsher penalties—governmental pressures ebb and flow with the times, and even  administrations thought to be unfriendly have led to boom times for banks nationwide (anyone remember the ’90s?). Going all-in against specific candidates and office-holders, even if it helps avert short-term problems, hurts the industry in the long term.

Rather than bracing against an endless series of worst-case scenarios, working furiously against critics and throwing money at losing campaigns, it might be more beneficial to step back, take a breath and reach across the aisle. We have a sharply divided government because the nation itself is sharply divided, and in some ways this is exactly how it’s supposed to work.

Constantly picking sides (especially the losing side) doesn’t help anyone.  Regardless of who runs the CFPB, the Senate, or the Banking Committee, it’s categorically not a worst-case scenario. We need to work with whoever is there, and if that means we have to alter some basic operating practices, then that’s what we’ll do. We’ve done it before, many times, and will again.

In fact, embracing change rather than fighting it might just make us stronger. And wouldn’t that be for the best?

Fast Facts: Dodd-Frank Cumulative Weight

The Financial Services Roundtable recently released another iteration of its Fast Facts, reliable, bullet-point research about issues facing the financial services industry. Topics span TARP, Dodd-Frank, insurance, lending, retirement savings and more.  Below are some updated Fast Facts on The Dodd-Frank Act, which was passed in July 2012 in an effort to reform the financial industry. To date, the complex legislation has been met with mixed success and unintended consequences.

FACT: According to a Davis Polk report, as of March 1, 2013, 148 of the 398 total rulemakings required by Dodd Frank have been finalized, with 129 yet to be proposed.

  • 279 rulemaking requirement deadlines have passed. 176 of these deadlines have been missed, and only 103 have been met with finalized rules.
  • Over the month of February, 12 out of 42 deadlines were met with finalized rules, and no new rules were proposed.

FACT: The General Accounting Office stated that the Dodd Frank Act has had two main financial impacts on institutions; increased regulatory compliance and other costs, and reduced revenue due to restrictions on certain activities.

FACT: In order to understand and comply with the far reaching regulations of the act, agencies and financial institutions have hired more full time employees.

FACT: In August 2012, Standard & Poor’s reported that the Dodd Frank Act could reduce pretax earnings for eight of the largest banks by between $22 billion and $34 billion each year.

  • Much of the higher projected costs reflect the regulators’ likelihood to take a more strict interpretation of the Volcker Rule.
  • The Volcker Rule’s restrictions on proprietary trading and investment in hedge and private equity funds will eliminate past sources of trading and income for some banks.

FACT: The Dodd Frank Act required banks to hold more capital while restricting what qualifies as capital, making payments to investors or retaining earnings more difficult.

The FDIC has announced plans to double the size of the Deposit Insurance Fund, which would take an additional $50 billion out of the industry’s earnings and capital.

You can view all previous Fast Facts at Copyright © 2013 The Financial Services Roundtable, All rights reserved.