Unfair Deceptive Abusive Acts or Practices
What are two guidelines for marketing materials
1. Do not misrepresent 2. Focus on impression
When using terms like "up to" or "as low as" what recommended target percentage of customers should it apply to?
If using words like "up to" or "as low as" be sure most customers will be eligible. For example, if there is a loan rate that is "as low as," be sure at least half your customers will receive this rate.
What are examples of sources that complaints can derive from?
• Branches • Call centers • Escalated claims • Regulators • External organizations—BBB, Chambers of Commerce, etc. • Website • Social media
What should the UDAAP program include for risk management practices?
1. Training 2. Risk Assessment 3. Monitoring 4. Change management
Elaborate on the first risk management practice (Training)/What components should it include?
1. Training Your UDAAP training program should include all employees and third parties. • Reinforce the importance of being fair and transparent • Establish an escalation path • Provide targeted training for sales, collections, and other high risk personnel • Train often and provide various methods of 'refresher' training
What are 5 best practice guideliness to avoiding UDAAP review?
1. be clear 2. communicate transparently 3. deliver what you promise 4. respond to feedback --respond quickly/respectfully --cure the cuases of customer misunderstanding 5. earn your good reputation everyday
What considerations must you have for the second element (Consumers are acting reasonably in the circumstances presented) of deceptive a/p.?
• Consider the intended audience and be especially clear with the less financially savvy such as o Students o Elderly o Subprime credit applicants o Limited English proficiency o Military • Look at the net impression and the totality of the circumstances • Fine print cannot correct a conspicuous statement
What are some conditions that should be included in Marketing Material, as a result of the LAREDO case?
• Disclosures should be in at least 10 point font • If you are using asterisks, they should direct customers to a specific location • Marketing content, including disclosures, should be readable and easily understandable • All conditions for getting the product must be explicitly stated • And finally, marketing and advertising should be reviewed by legal and compliance staff who also review customer complaints
What are necessary guidelines related to collections?
• Do not threaten action you do not intend to take • Do not make harassing phone calls • Be clear about time barred debt and implications for making payments on statute of limitations • Do not make false promises; do not state a debt will be forgiven/waived with a settlement if it will not be • Ensure customers fully understand implications of settlements, deferments, and any other type of payment plans
What specific items should sales employees perform to be in compliance?
• Explain all material product terms so the customer can make an informed decision • Explain the following items: o Costs o Benefits o Limitations • Obtain affirmative customer consent on all purchases
How do elements of "unfair" definition work together?
-Injury cannot be reasonably avoided -Not outweighed by countervailing benefits to consumer /competition
Describe the unfair element of not outweighed by countervailing benefits of competition.
-Look to net benefits weighing --consumer costs --regulatory burden -Public policy is considered with all other evidence
What do you need to know about UDAAP?
-can be vague and not overly prespcriptive -does not have an implementing regulation -can be cited with other regs (This creates the issue that even if your bank is in compliance with a specific reg. it may still run into UDAAP issues) -Intent is irrelevant
What is a primary way to prevent UDAAP and what are areas that should be included?
-develop a formal UDAAP program -Complaint monitoring program -Compliance risk management -analysis in product development -review of marketing materials -adherence to guideline disclosures -consider sales practices in both deposits and lending. -servicing/ affects timeliness
When addressing countervailing benefits of competition, public policy is considered with all other evidence. What is included as "all other evidence"?
-the target market -substantial impact -other relevant factors
Describe the two guidelines for marketing materials
1. Do not misrepresent Banks should also ensure these materials do not misrepresent such terms either through statements in the material or by omitting important information. 2. Focus on impression Focus on the overall impression of materials. • Prominence—the statement should be big enough to attract attention • Presentation—wording and format should be understandable • Placement—the information should be in a location where consumers can be expected to look
What are the three elements of definition of deceptive?
1.Representation, omission, or practice that is likely to mislead consumers 2. Consumers are acting reasonably in the circumstances presented 3. The representation, omission, or practice is material Acts or practices that are likely to mislead may be considered deceptive.
Regulatory Evolution outline
1914—Congress writes the Federal Trade Commission (FTC) Act. 1975—FTC Act Amendment gives the Federal Reserve rule-writing authority. 1985—Regulation AA. This regulated unfair and deceptive practices for consumer loans, excluding the purchase of real estate. The following specific requirements were later added to the FTC Act: • Required co-signer notices—required banks to provide co-signers disclosures before signing loan documents • Prohibited certain contractual provisions that limited consumer rights to go to court • Prohibited "pyramiding" late fees
How can marketing a free checking account result in UDAAP violation?
A bank advertises a free checking product. When customers are signing up for the product, the bank fully explains that they must complete 10 transactions a month to stay in the product. If they do not, they will be transitioned to a fee-based account. Regulators felt the disclosures were not sufficient to overcome the strong marketing of the word "free."
What is an example of a UDAAP violation in the servicing department?
A bank services student loans. Often customers have multiple loans, one for each year in school. If a customer paid more than the minimum required amount, bank systems were programmed to apply it to the oldest loan in the group. Regulators cited this process as a UDAAP issue. Overpayments should have been applied to the loan with the highest interest rate.
Define material as it relates to a deceptive practice.
A deceptive practice must be material, that is, the practice must be likely to affect a customer's choice to buy or use the product. Generally, it would be related to purpose, cost, benefits, or limitations.
Define bait and switch
A dishonest marketing tactic in which a marketer advertises a very attractive price/rate/term that is really a teaser rate meant to attract customers. Once the customer comes into the store/office to inquire about the advertised price/rate (the "bait"), the advertiser will attempt to sell the customer a more expensive product (the "switch").
Provide an example of how a law firm used as a third party for collections can violate UDAAP
A law firm served as a third-party collection agency for a bank. It regularly threatened debtors with a law suit. However, it was unusual for the firm to actually file a suit. It is a UDAAP violation to threaten action that either cannot or will not be taken.
Explain the third element of deceptive act/practice (The misleading representation, omission, or practice must be material)
A practice is material if it is a representation, omission or practice that is likely to affect a customer's decision regarding a product or service. The guidelines also clarify that information about costs, benefits or restrictions on the use or availability of a product or service are always considered material, and when express claims are made with respect to a financial product or service, they will also be presumed to be material. Finally, when an institution knowingly makes a false claim, or knew or should have known that the customer needed the omitted information to evaluate the product or service, it will be presumed to be material.
Explain the first element of deceptive act/practice (Representation, omission, or practice that is likely to mislead consumers).
Deception is not limited to situations in which a customer has already been misled. Instead, an act or practice may be found to be deceptive if it is likely to mislead customers. Deceptive representations include the following elements: • Express misrepresentation • Implied misrepresentation • Omission of material information*** ***For omissions, the focus is on whether the omitted information is necessary to prevent a customer from being misled.
EXAMPLE CASE of how two components of the element, "Unfair" (1. injury cannot be reasonably avoided. 2. Not outweighed by counter vailing benefits to consumer/competition) work together- Illegal practices in servicing subprime loans
A subprime mortgage company was cited with engaging in unfair, deceptive, and illegal practices in the servicing of subprime mortgage loans. Among other things, it was alleged that in servicing loans, the company charged an undisclosed fee to customers to obtain the payoff amount on their mortgages. This was judged to be unfair for the following reasons: • It caused substantial customer injury—customers had to pay a fee that was unauthorized to be able to obtain a payoff amount on their mortgages. The latter fee was never disclosed and was only imposed when a customer called to obtain the payoff figure from the mortgage company • The injury was not reasonably avoidable—the customers had no choice but to pay the fees to maintain the account or to obtain the necessary payoff information
Which three statements are correct? Select the correct answers and click Submit. Answer choices: A. UDAAP can be vague B. Even if your bank is in compliance with a specific regulation, it may still run into a UDAAP issue C. If your bank is in compliance with specific regulations, it will not run into a UDAAP issue D. Intent is irrelevant
A, B, D
What three areas should be considered in a UDAAP marketing review? Select the correct answers and click Submit. Answer choices: A. Marketing messages should be complete and accurate B. Determine whether marketing materials could mislead the average customer C. Ensure that the product can actually be delivered, given the back-office abilities D. Bank decor should convey a professional image
A, B, and C are correct. D is incorrect because bank decor is not taken into account in a UDAAP marketing review.
Self Check Quiz Congress has defined "abusive" to be an act that does any one of which three things? Select the correct answers and click Submit. Answer choices: A. Takes advantage of a consumer's lack of understanding of the material risks, costs or conditions of the product or service B. Takes advantage of a consumer's inability to protect his/her interests in selecting or using the financial product or service C. Takes advantage of a consumer's reasonable reliance that the bank is acting in his or her best interest D. Omits material information
A, B, and C are correct. D is incorrect because it is not a definition of abusive, but is part of the definition of deceptive.
Self Check Quiz What three items should be included in limited-time promotions? Select the correct answers and click Submit. Answer choices: A. The duration should be clear B. Validate changes that increase costs or reduce value C. Send clear and timely notices of fees and other changes D. Undefined teaser rates
A, B, and C are correct. D is incorrect because not defining teaser rates that later change is considered deceptive and unfair
Self Check Quiz Which three items are considered when determining whether an advertisement is deceptive? Select the correct answer and click Submit. Answer choices: A. The ad must contain a representation, omission, or practice that is likely to mislead a customer B. The ad must be proven to have misled customers C. The representation or omission must be material D. The audience to whom the ad is targeted sets the standard
A, C, and D are correct. B is incorrect because the legal standard is "likelihood" of misleading, not if the ad has already been proven to mislead customers.
Countervailing Benefits
Acts or practices that are injurious in their net effects may be deemed unfair. To be unfair, the injury to the customer must not be outweighed by any offsetting customer or competitive benefits that are also produced by the act or practice. Offsetting benefits may include lower prices or a wider availability of products and services. A bank's failure to present complex information in an advertisement regarding a new product may lessen a customer's ability to choose, for example, but may also reduce the cost of the product. The reduction in cost to the customer could be considered a "countervailing benefit."
How many complaints need to occur to conclude there is a problem?
Although a large number of complaints could indicate that there is a problem, even a single complaint raises valid concerns relative to UDAAP, and a more thorough review may be warranted.
Explain the second element of deceptive act/practice (The customer's interpretation of the representation, omission, or practice must be reasonable under the circumstances.)
An act or practice is deceptive if it is likely to mislead a "reasonable consumer." The customer's interpretation must be reasonable under the circumstances. However, the "reasonable" standard does not depend upon the reaction of the majority of customers. If a practice misleads a significant minority of customers, it may be deemed deceptive even though the majority of customers have not been misled. When representations or marketing practices are targeted to a specific audience, such as the elderly, the standard is based upon the effects of the act or practice on a reasonable member of that targeted group.
Self Check Quiz Which two collection activities are acceptable? Select the correct answers and click Submit. Answer choices: A. Stating that a communication is from an attorney or government source if it is not B. Threatening that a debt will be furnished to a credit reporting agency when you intend to do so C. Stating that a portion of a debt will be waived or forgiven when you intend to do so D. Threatening any action that there is no authorization to pursue and is not intended
B and C are correct. A and D are incorrect because they are prohibited collection activities.
Self Check Quiz Which three groups of consumers should be carefully assessed when creating marketing and product disclosures for them due to possible special needs? Select the correct answers and click Submit. Answer choices: A. Good credit B. Students C. Elderly D. Limited English proficiency
B, C, and D are correct. A is incorrect because good credit consumers do not have special communication needs that require extra attention.
Self Check Quiz Which mortgage practice has been deemed to be an unfair or deceptive act or practice? Select the correct answer and click Submit. Answer choices: A. Advertising "no closing costs" B. Advertising "you will save money" but not being able to substantiate the claim C. Advertising a "5-year fixed product" when the interest rate will be fixed D. Quoting a rate but explaining that paying points can reduce it
B. Advertising "you will save money" but not being able to substantiate the claim
Objectives
By the end of Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) for Compliance Professionals, you will be able to • Describe the background of UDAAP • Recognize unfair, deceptive, or abusive acts or practices • Identify the elements that may make a practice unfair, deceptive, or abusive • Identify proactive steps that you can take to avoid UDAAP violations • Explain how you can help your bank avoid UDAAP issues
What was one purpose of the 1975 FTC Act Amendment? Select the correct answers and click Submit. Answer choices: A. Prohibit pyramiding late fees B. Regulate unfair and deceptive practices for consumer loans C. Give the Federal Reserve rule-writing authority D. Require co-signer notice
C. Give the Federal Reserve rule-writing authority
Self Check Quiz Which two statements are included in identifying deceptive acts or practices? Select the correct answers and click Submit. Answer choices: A. Intent to deceive. If consumers are deceived and a bank did not intend to deceive them, then the bank is not accountable B. Non-material issues C. Likelihood of deception, which is the legal standard D. Consumers acting reasonably in a circumstance
C. Likelihood of deception, which is the legal standard D. Consumers acting reasonably in a circumstance
Elaborate on the guideline for collections to "not misrepresent the truth".
Collectors cannot make false statements to debtors. The following misrepresentations are prohibited: • Threaten any action for non-payment that either cannot be taken or is not intended to be taken such as: o Imprisonment o Sale of property or garnishment o Reporting to a consumer reporting agency, including if the debt is disputed • Represent themselves to be an attorney, a consumer reporting agency, or as being connected with any federal or state government or a judicial court • Represent that any communication is legal process when it is not
Elaborate on the guideline for collections to "be clear".
Collectors must disclose their identity as a debt collector in all collection calls. Collectors must comply with the following requirements: • Must use its own business name • All future communications must disclose that it is from a debt collector • Cannot use any false representation to collect a debt or obtain information about a debtor
Define time barred debt
Debt that is typically past the statute of limitations and cannot be collected.
Elaborate on the fourth risk management practice (change management)/What components should it include?
Do not forget to keep up with the consent orders to ensure your program stays current. Check regulator websites and sign up for UDAAP alerts.
Pyramiding
If a customer is late and a late fee is assessed, another late fee may not be charged simply because the customer failed to pay the first late fee on time.
Define likelihood
If the person is likely to be deceived. The intent to deceive does not matter. And no consumer actually has to be misled. Therefore it is important to carefully assess if consumers could accidentally be deceived in some way
Regulatory evolution as of 2000
In 2000, bank regulators began asserting their regulatory authority for a financial institutions' compliance with UDAP. In 2010 the Dodd-Frank Consumer Protection Act (DFA) was enacted adding additional oversight and regulation of certain financial institutions with the inception of the Consumer Financial Protection Bureau (the Bureau). The DFA added another "A" to UDAP making it UDAAP. This new "A" stands for Abusive. Understanding this framework will help you to recognize, prevent, and respond to potential UDAAP risks
Review of Deceptive A/P
In this lesson, you learned about the following three elements used to determine whether a representation, omission, or practice is deceptive: • Representation, omission, or practice that is likely to mislead consumers • Consumers are acting reasonably in the circumstances presented • The representation, omission, or practice is material
Review of Unfair Act or Practice ***
In this lesson, you learned that an unfair act or practice is one that causes or is likely to cause substantial consumer injury. It cannot be reasonably avoided, and is not outweighed by benefits to the consumer. • "Substantial consumer injury" has been interpreted as either large harm to a few customers or a small harm to many customers • An injury that a consumer cannot "reasonably avoid" is one in which the choice was made under coercion or undue influence such as lack of market alternatives or on the servicing side where the customer has no insight • Finally, an unfair practice is not outweighed by "countervailing benefits" such as in one case when the courts determined that it was fairer to require that a small group of consumers bear the burden of the costs associated with collection of their own debt—rather than spread those costs across the entire customer base
Review of History and Purpose of UDAAP
In this lesson, you learned that on July 21, 2010 Congress passed the Wall Street Reform and Consumer Protection Act (also known as the Dodd-Frank Act or DFA). The DFA includes a section on UDAAP that includes the term "abusive," while the original UDAP law does not. Under Title 1026 of the DFA, it is unlawful for anyone who provides a consumer financial product or service "to engage in unfair, deceptive, or abusive acts or practices." The Dodd-Frank Act goes on to give the Bureau power to prevent unfair, deceptive, or abusive acts and practices and to issue rules identifying and preventing UDAAP with respect to consumer financial products or services. UDAAP supplements other regulations that protect consumers from unfair, deceptive, or abusive practices. It is important to remember that UDAAP continues to evolve. Administrations, consent orders, customer complaints, and regulator guidance all continue to shape UDAAP.
A compliance officer performs a regular review of her bank's complaints. One month she notices a significant uptick in customer complaints alleging that they received a letter about a checking account that they did not open. How would you advise her to proceed from a UDAAP perspective?
It is unfair, deceptive, and abusive to allow a pattern of unauthorized account openings. She should alert bank management to her concern and institute monitoring to determine if there is a larger issue.
Define material limitations
Limitations on the product or service that might impact a customer's choice such as limited check writing options or credit protection that will not apply if the consumer is currently unemployed.
Define Abusive A/P
Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service OR Takes unreasonable advantage of a consumer's • Lack of understanding of the material risks, costs, or conditions of the product or service • Inability to protect his/her interests in selecting or using the financial product or service, or • Reasonable reliance that the bank is acting in their best interests
What inclusions should be made to marketing materials for LIMITED TIME PROMOTIONS?
Pay special attention to limited-time promotions. • Duration must be clear • Validate changes that increase costs or reduce value • Send clear and timely notices of fees and other changes
Elaborate on the guideline for collections for "public communications".
Public communications should not make it obvious that the consumer has fallen behind on payments. The following communications are prohibited: • Using envelopes that suggest the letter is from a debt collector • Using name tags that identify an in-person collector as such • Telling third parties that the consumer owes a debt
Review of preventing UDAAP
Review In this lesson, you learned the following proactive steps and best practices to prevent UDAAP violations: • Review marketing materials, focus on the overall impression the messages deliver, and be sure to follow font and display guidelines established by regulators • Pay special attention to limited-time promotions • Evaluate your promotion from the point of view of members of its target market, especially for special groups of consumers such as the elderly, students, those with poor credit, are in the military, or have limited English proficiency • Carefully select and monitor your bank's third party vendors • Establish a process for receiving, assessing, and addressing customer complaints • Ensure collection practices do not threaten action that will not be taken, nor make false promises or claims about paying debts • Develop and implement a formal UDAAP program for your bank
Review of Abusive A/P
Review In this lesson, you learned what constitutes an abusive act or practice. An abusive act or practice materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service or takes unreasonable advantage of a consumer
What should you consider when reviewing marketing material to prevent UDAAP violations?
Review marketing materials • Is the message complete and accurate? • Could it mislead the average customer? • Are material considerations and limitations clearly included and not omitted? Warning: Non-compliance with a more specific bank marketing requirement like Reg Z or Reg DD can also result in a UDAAP citation.
Example of an unfair act or practice?
Several customers paying a late fee on credit cards or one customer whose lien was not released after they paid off their mortgage
The American Debt Settlement Services is an example of Abusive A/P
The Bureau found a debt settlement services company had misled consumers by charging fees for debt settlement services that their customers did not benefit from. Since the company collected financial information during the enrollment process, it had knowledge that the consumers could not afford the upfront and ongoing fees. Since the company was supposed to be working directly for the consumers, the customers had placed reasonable reliance in the company. The Bureau fined the company and has prohibited it from providing debtrelief services in the future. Banks have only rarely been accused of abusive behavior. When they are, it generally relates to aggressive sales that result in signing up customers for accounts or Reg E opt-in without their consent
Exercise Word selection and clear product descriptions are crucial to creating good communications so that customers can make informed decisions. Word choices such as "as low as" or "up to" can be deceptive if used incorrectly in the context of a given ad or product. This exercise will help you consider the nuances of deception. Based on the previous discussion and the example below, answer the question. Deceptive—"Up to 6% Cash-back reward" Not Deceptive—"6% Reward Points" for purchases made at grocery stores; all other purchases eligible for 1% Reward Points Why is one ad deceptive but the other is not?
The advertised "6%" program does not provide the consumer with 6% reward points option unless they utilize the card at specific merchants. Regulators have defined this as deceptive. Additional clarity is required to explain that consumers will only receive the 6% reward points when spending at certain merchants.
How do you stay proactive during product development to ensure compliance with UDAAP?
The following actions are examples of proactive steps you can take to ensure your new products are UDAAP compliant and to prevent UDAAP relating to fees: • Understand the target market • Ensure the product provides value • Validate the reasonableness of fees • Compare fees to your peers; if substantially higher, document the reason • Determine if fees are in relative proximity to costs and risks taken • Review fees regularly; back-end and penalty fees in particular • Ensure systems and personnel can deliver as promised • Consider the product's complexity Warning: Banks should not wait to review their products and services to detect potential problem areas.
Elaborate on the guideline for collections for "bureau guidance".
The following guidance was issued July 10, 2013: • Do not make false promises to entice settlement o For example, stating that a debt will be waived or forgiven with a settlement if that is not the case • Only take possession of property when there is a legal right to it o For example, collect only the amount allowed by law and do not robo-sign affidavits which often results in inaccuracies Inaccurate claims regarding credit reports, credit scores, and creditworthiness are prohibited •Effect on credit report. Since obsolete debt is not on a credit report, paying it will have no impact. Similarly with non-obsolete debt, if the debt collector does not report to credit bureaus, paying a debt will have no impact on a credit report • Effect on credit scores. In light of the numerous influences on an individual credit score, paying a debt may not improve a person's score • Effect on creditworthiness. Potential lenders use a variety of sources and assign weighting to information differently so it would be impossible to predict the effect of paying a debt on a person's creditworthiness
Exercise A bank issued a promotion for a credit card with "no annual fee," but when the consumers came in to apply for the card, they discovered the "no fee" offer required a minimum dollar usage of the card on an annual basis. If customers did not meet the minimum dollar usage, they were charged the annual fee. The bank did not intend for this to be deceptive, because there really was no annual credit card fee.
The intent to deceive is irrelevant. The legal standard is likelihood. When reviewing your bank's marketing promotions, it is important to carefully assess if consumers are likely to interpret a promotional ad as deceptive
What should the formal UDAAP program cover?
The program should cover the following topics: • Governance • Product development • Marketing / advertising / disclosures • Sales • Servicing / collections • Third parties • Complaints • Compliance risk management
What is an unfair act or practice?
There are three prongs to an 'unfair' practice. • Causes or is likely to cause substantial consumer injury • Injury cannot be reasonably avoided • Is not outweighed by benefits to consumers or competition If the person is likely to be injured financially, the intent does not matter. Injury may be a few "large" harms or many small harms. Unfair practices typically occur in the servicing or collections space.
Exercise A collector uses a tool called "Skip Tracy" which allows it to control what a borrower's caller ID shows when the collector calls. Instead of appearing to be a collector, the caller ID shows it is a pizza or floral delivery service, or even one of the borrower's relatives. The collector does not believe this is deceptive. Would you agree? Why or why not?
This is deceptive. Regulators have stated that the caller ID is material to borrowers who are attempting to avoid collectors.
True or False? Dodd-Frank UDAAP is limited to consumer transactions while FTC UDAP applies to both consumer and commercial transactions
True
Elaborate on the second risk management practice (Risk Assessment)/What components should it include?
To start your UDAAP risk assessment, document the bank's inherent risk by using factors such as • Do you have a significant number of vulnerable customers in your target market? • Does your product and services mix include those that are often cited in UDAAP cases? • Are you using any third parties? Also document the bank's controls in place to reduce UDAAP risk, including • Marketing and disclosures • Customer service • Third party management • Complaint response • Customer friendly product features and processes
What are the differences between UDAAP and UDAP?
UDAAP is enforced by Bureau and state Attorneys General. & it's limited to CONSUMER transactions . Prudential regulators continue to enforce UDAP which applies to both consumer and commercial customers. Both stem from the same FTC guidance/principles
What considerations should you have for your TARGET MARKET when preventing UDAAP violations?
Understand your target market. • Base analysis on your intended market • Promote consumer understanding Special disclosures may be needed for the following groups of consumers: • Consumers that are less financially savvy o Students o Elderly o Limited English proficiency o Subprime credit o Military
Piggy Bank collects its own past due loans. Collectors use scripting, which includes explaining that bringing the account current could improve the borrower's credit score and make it easier to obtain credit in the future. Could this practice create a UDAAP issue?
Yes. Collectors cannot use any false representation to collect a debt. Because credit scores are based on complicated algorithms, there is no way to predict how paying this debt could impact a score.
What is the bank's responsibility related to third party vendors?
You are responsible for all brokers / dealers / processors. • Ensure any controls that you would have in place for this process or product at the bank is similarly managed by the third party • Establish contractual protections including audit rights and termination rights for material failures • Conduct onsite reviews for high-risk third parties, particularly those with customer contact
What should the complaints monitoring program accomplish?
Your complaints monitoring program should • Review trends indicating consumers feel misled, deceived, or received a product they did not want • Consider all complaints from all sources • Consider the complaint responses and any remediation that may occur • Share complaint analysis regularly with key stakeholders • Identify an action plan to resolve potential issues
Elaborate on the third risk management practice (Monitoring)/What product life cycles should it include?
Your consumer monitoring program should follow the product life cycle through the following stages: • Marketing • Disclosures • Fees • Compensation • Customer contacts • Collections
Example of bait and switch in mortgage markets
a bait and switch could involve advertising low mortgage rates, knowing that most applicants will not be able to qualify for such rates. When the customer applies or inquires about the low rate, the agent will proceed to offer them only much higher rates
What are ways to ensure that sales environment is in compliance?
banks should ensure that the sales environment at the company d •does not incent or pressure employees to open accounts without customer consent. •monitor complaints and branch sales practices to prevent sales practice violations. • train staff to explain all costs, benefits, and limitations of each pertinent option to customers so that each customer can make an informed decision.
What is a best practice tip for collections regarding credit?
do not discuss credit reports/scores/creditworthiness in any collection scripting to encourage repayment.
Example of an injury that cannot be reasonably avoided
general lack of market alternatives for subprime loans
Define reasonably avoided
in most situations, it is expected that customers will survey the available alternatives, choose those that are most desirable and avoid those that are inadequate or unsatisfactory. However, in servicing and collections customers rarely get to make a choice about who services or collects on their loan and few disclosures are provided. Customers are typically not in a position to avoid a financial servicer's practices.
How is the servicing area (back office) required to stay in compliance?
need to ensure that processing occurs in a timely manner and in accordance with all disclosures, including the following servicing tasks: • Apply payments and deposits within a day of receipt • Send timely change in terms notices • Promptly release all liens • Provide timely payoff quotes when customers request them
In addition to marketing material, what relatable areas are affected and should be considered with marketing materials to avoid engaging in unfair, deceptive, or abusive activity.
review marketing materials and customer agreements and disclosures to ensure they fairly and adequately describe the terms, benefits, and material limitations of the product or service being offered, including any related or optional products or services.
Breakdown of Injury
substantial and unavoidable --large harm to a few customers --small harm to many customers -loss of free exercise of decision making -undue influence --Servicing/Collections --Lack of market alternatives
What are some unfair and deceptive practices that should be avoided in sales practices?
• Allowing sales staff to open unauthorized deposit accounts • Submitting unauthorized credit card applications • Enrolling customers in online banking without their knowledge • Ordering debit cards without customer knowledge
What are some trends that can indicate if consumers feel misled, deceived, or received a product they did not want?
• False statements • Missing information • Undisclosed charges • Excessive fees • Timely posting of payments • Collection efforts
What factors should you take into considerations when selecting a third party vendor?
• Is the third-party legitimate? • Is the product useful and of value? • Would you want your mother to buy it? • Avoid sales incentives that could lead to abusive practices • Watch out for how vendors incentivize staff
What considerations must you have for the third element (The representation, omission, or practice is material) of deceptive a/p.?
• Likely to affect a consumer's choice or conduct -- Express or implied claims -- Omitting information • Statements related to -- Cost -- Benefits -- Limitations
What terms are ambiguous and lead to deception in marketing material?
• Limited time • Pre-approved • Guaranteed • Lifetime rate • Free • Terms "up to" or "as low as"
Wrap up key points to remember
• The definitions of Unfair, Deceptive and Abusive • The fact that you can violate UDAAP independently or with another regulation • The importance of creating a UDAAP program for your financial institution to help identify and mitigate potential UDAAP risks
What acts/examples are considered deceptive for the first element (Representation, omission or practice that is likely to mislead consumers.)
•False statement/misleading claims • Bait and switch • Omitting material information • Legal standard is likelihood • Intent is irrelevant • No customer actually has to be misled • Analysis considered as a whole
What guidelines are necessary for disclosures to avoid UDAAP violations
•You should use customer-friendly language as much as possible. This may mean adding to safe harbor or other required language to be sure it clear • Disclosures should match system functionality. Be sure to dig in to understand exactly what the system capabilities are to avoid inadvertent UDAAP problems. For example, if your system can only calculate interest based on the balance of a single day (for example, it uses the last day of the month) then be sure that your disclosures do not imply interest will be calculated based on average daily balance • All material information should be provided BEFORE the purchase is completed. The idea is to allow customers to make an informed decision and they can only do that with all the right information
What additional considerations should be made when developing disclosures/customer communication/ or explaining product functions.
•do not o not obscure important terms or conditions that could trigger costs or fees that a consumer would not readily expect. •Banks must also take care in back-office operations to ensure that it provides timely and effective customer service and does not put the customer at a financial disadvantage with its actions. Such situations will risk increased supervisory attention
