3 Tips for Avoiding UDAAP Violations
UDAAPs, also known as "unfair, deceptive, or abusive acts or practices," are a key aspect of consumer compliance and continue to be a regulatory focal point. This post will help you learn how to reduce your UDAAP compliance risk, and avoid potential violations. Learn three tips for reducing your risk, and even get access to valuable UDAAP resources!
As UDAAP continues to claim the spotlight, financial institutions nationwide are looking for ways to reduce their UDAAP compliance risk and avoid violations.
Note: Looking for clear definitions of UDAAPs? We shared clear, regulator-approved definitions for "unfair, deceptive, and abusive acts and practices" in a different blog. Click here to check it out!
In fact, the CFPB levied a $3.2M fine against one online lender for UDAAPs earlier this month. There was another $11M UDAAP settlement last December! Last fall, then-Acting Director of the CFPB Mick Mulvaney indicated that he wanted to more clearly define "abusive."
So how can you understand and manage your UDAAP compliance risk?
In this post, you'll learn how to understand your UDAAP risk and avoid UDAAP violations with three tips.
Based on everything we're seeing, it is clear that UDAAP is still in the spotlight for the regulators. Compliance officers nationwide are working to manage their compliance risk and understand the way that UDAAP is woven into other areas of consumer compliance.
Here are a few tips for avoiding UDAAP violations and understanding the UDAAP risks facing your institution:
1. Pay Attention to Vulnerable Consumers, and Provide More Options to Help Them
Some say that the spirit of UDAAP compliance is all about protecting vulnerable consumers. A so-called "vulnerable consumer" is often described in terms of consumer characteristics or demographics such as age, disability, gender, race/ethnicity, low or limited literacy, receipt of public assistance, and education level. You may notice that this concept is similar to the protected class concept in Fair Lending compliance.
Every financial institution comes into contact with vulnerable consumers and customers; it's probably a good idea to consider providing more options to help them. For example, the product description in your telephone script could be more than one-size-fits-all.
2. Actively Manage and Monitor Consumer Complaints, Particularly Those That Imply UDAAP Risk
The regulators are leaning heavily on consumer complaints to identify potential UDAAP compliance issues; as such, consumer complaints play a key role in the detection of unfair, deceptive and/or abusive practices.
This means that consumer complaints act as an essential source of information for you and your institution, as well as for regulators and examiners in their regulatory enforcement and rule-making.
3. Consider Talking to Consultants, and Internal and External Counsel, Before Making Changes
Regulators will have access to any documentation or written materials about your compliance program. If you identify UDAAP risk exposure, it is a good idea to address it; that said, how you address it really does matter.
Depending on your regulator, geography and other factors, an examiner may view improvement efforts as admission of awareness of UDAAP violations, and critique your institution for not making improvements quickly enough. In addition, you may want some of your work covered by attorney-client privilege, so that community groups and journalists don't have access.
Experienced compliance professionals can help you effectively manage and mitigate your UDAAP risk, without exposing you to even more in the process.
And a final note...
The CFPB's strategic plan for 2018-2022 focuses on UDAAP compliance.
The strategic plan says that objective 2.1 is to "protect consumers from unfair, deceptive, or abusive acts and practices and from discrimination." In this section, they also focus on elder abuse. And just to reiterate, in October, then-Acting Director Mick Mulvaney said that the Bureau is working on a regulation to define "abusive" more clearly. Many experts have said that this effort presents a real challenge for the Bureau.
Since the CFPB is the lead enforcer of UDAAP compliance issues, this is an important signal for the entire financial services industry.
TRUPOINT Viewpoint: UDAAP compliance can be challenging and complex. In this environment, it pays to lean on experienced guidance that is committed to helping you. TRUPOINT is one such partner. We provide CRCM-certified compliance consulting to financial institutions nationwide, and are experienced in UDAAP compliance. You can explore risk assessment options here.
To learn more about UDAAP compliance, and even how TRUPOINT can help you manage your UDAAP risk, get this free UDAAP info kit today!
The OCC released its final Community Reinvestment Act (CRA) rule last week, shortly before Comptroller Joseph Otting stepped down. The agency pushed ahead without the FDIC, which had been part of the original rulemaking proposal, since the FDIC was focused on dealing with the ongoing COVID-19 pandemic.
With the hourly updates for the number of sick, the calls for school and business closures, and prohibiting gatherings of more than 10 people, it’s clear that communities are struggling. There’s talk of stimulus payments and feeding those that are hungry and going without. As financial professionals, we need to ask ourselves: What can we do? How can we help?
But are you making the most of that data from a risk management perspective? Not if that data is only used by the lending, credit, or compliance departments.
While compliance and lending are the most closely linked to Fair Lending risk, the truth is that Fair Lending extends into many operational areas. From marketing to the location of new branches to M&A, Fair Lending risk has a role to play in decision making.
About Kinsey Sullivan
After studying Journalism at the University of North Carolina at Chapel Hill, I switched to the other side of content: Marketing, Advertising and PR. At TRUPOINT, I love turning complex data and ideas into high-impact content and campaigns. In my free time, I make art, read, and listen to a lot of podcasts on long walks with my dog, Charlie "Bird" Barker.