QUESTION
Hi, my friends at LCG! I love your
FAQs and we discuss them all the time. I am on a small compliance team at a regional
mortgage lender. We have come to the conclusion that, although UDAAP has many
prongs, there seems to be no single, coherent regulation devoted to it. So, we have been building our own
policies and procedures for UDAAP.
We think there is one section in the
UDAAP policy that is needed, though – a section devoted to Best Practices.
What we want is a Best Practices section that can be a list of bullet points,
which can be put onto one page and distributed throughout our company. I know
this may be a lot to expect, but I hope you can help.
Can you provide a list of some Best Practices
for UDAAP that would be both a training aid and a one-page hand-out?
Also, we are now reviewing our
policies and procedures, so please send me a link where I can contact you for help
in drafting them. We will contact you soon.
Again, thanks for your dedication to
mortgage compliance!
ANSWER
When I get an inquiry like this one,
I feel very grateful to the mortgage community for recognizing
our commitment to safe and reliable compliance. We get emails from readers from
all over the country and many express their support for what we offer in our
subscriptions. Thank you for subscribing!
Regarding your interest in having us
draft or assist in drafting your policies and procedures, please contact us at compliance@lenderscompliancegroup.com.
Although you are correct in the
challenge of providing a set of bullet points for Unfair, Deceptive, or Abusive Acts or Practices ("UDAAP"), I do think it is certainly
possible to provide a core list of Best Practices to be used in the context of
a training aid or a hand-out. In fact, we do have some guidance from various
agencies, such as the Federal Reserve Board and the FDIC, among others.
In my view, a list of twelve bullet
points on Best Practices for UDAAP can be set forth to address some areas
with the greatest potential for unfair, deceptive, or abusive acts or practices. While the list would not be comprehensive, it certainly would be suggestive of a policy section as well as useful as a training aid and a hand-out to employees of a financial
institution.
Here is a list of possible Best Practices
relating to UDAAP:
- Review all promotional materials, marketing, scripts, and customer agreements and disclosures to ensure that they fairly and adequately describe the terms, benefits, and material limitations of a product or service. Ensure that these materials do not use fine print, separate statements, or inconspicuous disclosures to correct potentially misleading headlines and that there is a reasonable, factual basis for all representations made.
- Draw the attention of customers to key terms, especially limitations and conditions on products and services, that are important to enable a customer to make an informed decision.
- Clearly disclose all material limitations or conditions on the terms or availability of products or services, including the expiration date for terms that apply only during an introductory period and any prerequisites for obtaining particular products or services (i.e., minimum transaction amounts).
- Make clear and timely disclosures about fees, penalties, or other charges.
- Clearly inform customers of contract provisions that permit a change in the terms and conditions of an agreement.
- Be cautious when labeling a product pre-approved or guaranteed.
- Clearly inform consumers when they are approved for products on terms less favorable than those advertised.
- Tailor advertisements, promotional materials, and other marketing pieces to the level of sophistication and experience of the target audience.
- Avoid advertising terms that are not available to most customers and using unrepresentative examples and advertising, marketing, or promotional materials.
- Implement and maintain effective risk and supervisory controls over third-party servicers.
- Assure adequate training for employees and third parties who market or promote products and services.
- Review compensation arrangements for employees as well as third-party vendors and servicers to ensure that they do not create unintended incentives to engage in unfair or deceptive practices.
Indeed, if you want to avoid allegations
of unfair and deceptive practices, it is critical to provide honest
advertising and avoid erroneous statements. Nevertheless, continual vigilance
is needed and constant training should be encouraged – including putting a Best
Practices statement regarding UDAAP right into the employment package
documents.
In fact, to prevent UDAAP violations all affected employees need to
be sensitized to the implications of UDAAP, as it will take a fair degree of
effort and common sense to be certain that no acts or practices on behalf of
the financial institution or its employees can cause a UDAAP controversy.
Jonathan Foxx
Managing Director
Lenders Compliance Group
