An elusive target that can bite you big time
What’s unfair, deceptive or abusive?
Much is left to the examination team’s judgement. How’s that strike you?
We think it would be smart for a bank to avoid “letting UDAAP happen and hope for the best.” Our recommendation: get ahead of this, get a Review and Risk Assessment done early. Put in place procedures so you can demonstrate a pro-active stance. At a minimum, you’re in a better place to argue for your compliance.
The purpose of the UDAAP examination is to implement and enforce Federal consumer financial laws consistently for the purpose of ensuring that all consumers:
- have access to markets for consumer financial products and services and
- that such markets are fair, transparent, and competitive.
The UDAAP examiner is authorized to exercise its authorities for the purpose of ensuring that:
- Consumers are provided with timely and understandable information to make responsible decisions about transactions involving consumer financial products and services;
- Consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination;
- Outdated, unnecessary, or unduly burdensome regulations concerning consumer financial products and services are regularly identified and addressed in order to reduce unwarranted regulatory burdens;
- Federal consumer financial law is enforced consistently, without regard to status as a depository institution, in order to promote fair competition; and
- Markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.
Unfair, deceptive, or abusive acts and practices (UDAAPs) can cause significant financial injury to consumers, erode consumer confidence, and undermine the financial marketplace.
Under the Dodd-Frank Act, it is unlawful for any provider of consumer financial products or services or a service provider to engage in any unfair, deceptive or abusive act or practice.
The Act also provides CFPB with rule-making authority and, with respect to entities within its jurisdiction, enforcement authority to prevent unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.
In addition, your examiner, in consultation with the Consumer Financial Protection Bureau (CFPB) has supervisory authority for detecting and assessing risks to consumers and to markets for consumer financial products and services.
As examiners review products or services, such as deposit products or lending activities, they generally should identify the risks of harm to consumers that are particular to those activities. Examiners also should review products that combine features and terms in a manner that can increase the difficulty of consumer understanding of the overall costs or risks of the product and the potential harm to the consumer associated with the product.
These examination procedures provide general guidance on:
- The principles of unfairness, deception, and abuse in the context of offering and providing consumer financial products and services;
- Assessing the risk that an institution’s practices may be unfair, deceptive, or abusive;
- Identifying unfair, deceptive or abusive acts or practices(including by providing examples of potentially unfair or deceptive acts and practices); and
- Understanding the interplay between unfair, deceptive, or abusive acts or practices and other consumer protection statutes.
We lost two key compliance people inside of 6 weeks. Unfortunate MAPS was able to pick up the slack and keep our routines going, We also had them in to present (via a webinar) to our Board. That was an eye-opening experience for them. We’re still getting good feedback almost three months later.Community Bank COO