UDAAP Trends & Requirementsthegarlandgroup.net.s1721.gridserver.com/wp-content/uploads/2012/... · Deluxe Corporation Gaye Connell Moderator Garland Group. 3 UDAAP Trends & Requirements

UDAAP Trends & Requirements

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©2012 Deluxe Enterprise Operations, Inc. All rights reserved. Proprietary and Confidential.

Today’s Panelists

Rebecca Frederick Principal Analyst

Deluxe Corporation

Gaye ConnellModerator

Garland Group

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Important Note

This presentation is provided for informational purposes only with the understanding that Deluxe Corporation is not rendering legal advice and that this presentation is not to be used as a substitute for legal counsel

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Today’s Topics

Learning Objective

Today’s Regulatory Landscape Market Factors & Emerging Issues UDAAP Fundamentals UDAAP Enforcement Actions: Capitol One, Discover and

American Express Best Practices for UDAAP Risk Management Operational Readiness for UDAAP Oversight Tools and Resources

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Increased focus from examiners on UDAAP & consumer complaints

Aggressive enforcement of consumer protection New requirements Fear, uncertainty and doubt

Today’s Regulatory Landscape

What’s the tone?

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Today’s Regulatory Landscape

Write regs identifying unfair, deceptive or abusive acts or practices (UDAAP)

Civil Investigative Demands (CIDs) for UDAAP

Enforcement actions for UDAAP

CFPB’s vested powers include:

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Has your financial institution exited a product line, delivery channel, or geographic market due to compliance risk/cost?

Have compliance burdens caused your financial institution to reduce your consumer financial product or service offerings?

Source: ABA Surveys Of Bank Compliance Officers

78.1%

21.9%

5%

21% 19%

55%

NoYes - Loan & Deposit AccountsYes - Loan Accounts OnlyYes - Deposit Accounts Only

NoYes

2011

2009

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A New Standard for Compliance

Deceptive vs. Abusive Viral Nature of Complaints today Consumer Perception & Understanding Unreasonable Advantage

Polling question: How significant do you think the CFPB impact will be to your financial institution?

a) Significant – The Regulatory transition for GLB and Alphabet Soup Regs hits all financial institutionsb) Major – Examination expectations will increase across the board

c) Moderate – Consumer advocacy will change customer expectations for alld) Minimal – The CFPB will only focus on the largest financial institutions

UDAAP Fundamentals

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UDAAP Fundamentals

Representation, omission, or practice that misleads or is likely to mislead the consumer

Act or practice must be considered from the perspective of the reasonable consumer

Representation, omission, or practice must be material

The Standard for Deceptive Acts:

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UDAAP Fundamentals

It causes or is likely to cause substantial injury to consumers

The injury is not reasonably avoided by consumers The injury is not outweighed by countervailing benefits to

consumers or to competition

The Standard for Unfairness

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UDAAP Fundamentals

Materially interferes with consumer’s ability to understand a term or condition

Takes unreasonable advantage of: A lack of understanding by the consumer of the material risks,

costs, or conditions The consumer’s inability to protect its interests in selecting or

using a financial product or service; or The consumer’s reasonable reliance on a covered person to

act in the consumer’s interests

The Standard for Abusive

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The 4 P’s Test

1. Is the statement prominent enough for the consumer to notice?

2. Is the information presented in an easy-to-understand format that does not contradict other information in the package and at a time when the consumer’s attention is not distracted elsewhere?

3. Is the placement of the information in a location where consumers can be expected to look or hear?

4. Finally is the information in close proximity to the claim it qualifies?

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UDAAP Management

Polling question: How does the compliance function adapt to these changes?a) Compliance team will need more training on UDAAP managementb) UDAAP management function will need to become more strategic and involved throughout

financial institutionc) Compliance team will need to rely on 3rd party resources

d) All of the above

Policies and Procedures Conducting Risk Assessments Management Oversight Testing Employee Training Complaint Analysis and Resolution

CFPB Examination Handbook 2011

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UDAAP Risk Assessment

Scope of UDAAP Risk AssessmentScope of UDAAP Risk Assessment Nature and Structure of Product/Service Targeted Consumers Incentives and Compensation Marketing and Advertising Practices Ongoing customer relationship management Regulatory or Enforcement Actions Board of Directors & Senior Management

Incentives & Compensation Compliance Management Product & System development/modification Training of employees and vendors Complaint Management Data Privacy & Operations Disclosures

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Formalize UDAAP Oversight

UDAAP Risk Assessment Inventory of existing products and services Product features/attributes

Marketing & Advertising practices Fees/Terms/Conditions

Complaint Management Governance & Oversight

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UDAAP Enforcement Actions

Capital One Refund $140 million to 2 million consumers Pay $25 million penalty to CFPB and $35 million penalty

to OCC Discover

Refund $200 million to 3.5 million consumers Pay $7 million penalty to CFPB and $7 million penalty to

FDIC American Express

Refund $85 million to 250,000 consumers Pay $27.5 million penalty, including $14.1 million to

CFPB, $3.9 million to FDIC, $9 million to Federal Reserve, and $500,000 to OCC

UDAAP Enforcement Actions: What is the cost?

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Capital One Misled about the benefits of the products Deceived about the nature of the products Misled about eligibility Misinformed about cost of the products Enrolled without their consent

UDAAP Enforcement Actions: What did they do?

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Discover Misled about the fact that there was a charge for the

products Misled about whether they had purchased the products Enrolled without their consent Withheld material information about eligibility

requirements for certain benefits


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American Express Deceived consumers who signed up for the American

Express “Blue Sky” credit card program Charged unlawful late fees Unlawfully discriminated against new account applicants

on the basis of age Failed to report consumer disputes to consumer

reporting agencies Misled consumers about debt collection


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1. Consider the ability of consumer to make payments for

credit products2. Terms should not be altered solely at discretion of

financial institution – need for disclosure3. Discretion over terms & product features should be based

upon policies & procedures4. Scrutinize termination penalties for consumer protection

issues5. Assess the volume of customers who could be at risk for

specific products and services

Financial Products and Services – Nature & Structure

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1. Measure & monitor fee reversal rates2. Product profitability should not be dependent on penalty

fees3. Products & Services should be bundled in a way that

costs are clear, and not obscured to the consumer4. Pricing structures need to make total costs & benefits

understandable5. No barriers to information including costs to access

customer service

Product Terms & Bundling – Nature & Structure

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1. Review & audit materials for targeted consumer groups2. Inspect your offers to ensure that targeted consumers

should be likely to qualify for advertised products or terms

3. Audit your advertising to avoid advertising only the higher cost products and not the full product suite

4. Review your data analytics model to avoid potential discrimination or compliance issues

5. Teaser rates or low fees need to have sufficient information about important conditions including periodic charges or exit fees

Marketing & Advertising

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1. Review your incentive plans for high cost products for fairness

2. Assess employee procedures if they have price discretion

3. Analyze returns, refunds & credits to see if there is a selling issue

4. Implement daily dashboards for credit portfolio analysis to monitor risk

5. Integrate customer harm ($) into your issue & complaint management process

Profitability & Money Factors

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UDAAP Best Practices

1. Embed the UDAAP “4 P’s” into your web privacy policy statement approval process

2. Measure readability scores for key customer documents – Adapt as needed

3. Add UDAAP considerations to your review of credit disputes and chargeback processes

4. Integrate UDAAP into your marketing/advertising checklists

5. Adapt existing training – employee training goes from customer service to compliance!

Embed UDAAP into Standard Practices

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UDAAP Readiness Checklist

1. Develop your Risk Assessment approach based on the nature & structure of financial service or products

2. Assess & revise your policies, standards & procedures for targeting consumers to address consumer protection, discrimination, & populations with unique needs

3. Revise your marketing & advertising audit/compliance processes to address UDAAP risk factors

4. Expand your ongoing customer relationship management oversight for vendors with customer interaction

5. Leverage & monitor regulatory or enforcement action to prioritize issue identification & consumer protection issues

10 steps you can do right now

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UDAAP Readiness Checklist

6. Establish periodic review & independent oversight of incentives & compensation policies & practices

7. Integrate UDAAP into your existing compliance management processes with expanded management & BOD reporting

8. Implement UDAAP compliance checkpoints into your product system development & modification processes

9. Provide or expand training & awareness for employees with mechanisms to self report potential

10 steps you can do right now

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Regulators Web ResourcesCFPB Supervision & Examination Manual:http://www.consumerfinance.gov/guidance/supervision/manual/

and PartIIICFPBsupervisionmanual.pdfCFPB Capitol One Enforcement Action: http://www.consumerfinance.gov/pressreleases/cfpb-capital-

one-probe/CFPB Discover Enforcement Action:http://www.consumerfinance.gov/pressreleases/discover-

consent-order/CFPB American Express Enforcement Action:http://www.consumerfinance.gov/blog/order-american-express-

is-responsible-for-compensating-customers-for-illegal-practices/

Industry Web ResourcesABA Survey of Bank Compliance Officers: http://www.ababj.com/briefing/aba-bank-compliance-officers-

survey-part-1-2719.html

Tools and Resources

http://www.consumerfinance.gov/guidance/supervision/manual/






http://www.ffiec.gov/consumercenter/default.aspx

http://www.ffiec.gov/consumercenter/default.aspx

http://www.consumerfinance.gov/pressreleases/cfpb-capital-one-probe/








http://www.consumerfinance.gov/pressreleases/discover-consent-order/




http://www.consumerfinance.gov/blog/order-american-express-is-responsible-for-compensating-customers-for-illegal-practices/






http://www.ababj.com/briefing/aba-bank-compliance-officers-survey-part-1-2719.html




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Q and A

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We Thank You for joining the web seminar and look forward to working with you on this and other

initiatives.

Contact info:[email protected]

mailto:[email protected]

mailto:[email protected]

Documents

UDAAP Trends & Requirementsthegarlandgroup.net.s1721.gridserver.com/wp-content/uploads/2012/... · Deluxe Corporation Gaye Connell Moderator Garland Group. 3 UDAAP Trends & Requirements