QUESTION
I am our company’s Compliance Manager and General Counsel. I am working with my team to identify high risk areas of numerous regulations.
In reviewing the high risks associated with UDAAP, there were many. So, we had to find even higher risks.
I would like to work with a small set of “higher risk” categories in our UDAAP analysis. We will use your higher risk areas to train all affected personnel.
What are higher risk areas of UDAAP?
ANSWER
The legal and regulatory requirements of Unfair, Deceptive, or Abusive Acts and Practices (“UDAAP”) are vast. Indeed, several regulatory frameworks interlock in an overall matrix of UDAAP mandates.
However, providing a small set of higher risk categories is possible. I do not claim that my suggestions are comprehensive. That said, you should be able to pivot from them in the context of UDAAP training.
There are at least three higher risk categories associated with UDAAP. I believe these would be the challenges posed by advertising, products, and third party relationships.
Consider the following suggestions for higher risk areas of UDAAP.
Advertising, Disclosures, and Contract Terms
Representations in advertising and terms of contracts and disclosures should be accurate, clear, and sufficiently informative. This also means that representations that go to the heart of a consumer’s decision to purchase a product or service, such as statements about costs, benefits, restrictions on use or availability, or qualification for a product, are especially material. Omitting important information or failing to properly qualify representations in advertising may represent UDAAP risk.
Higher Risk Products
Some products are generally identified as potentially having higher UDAAP risk, such as subprime loan and credit card products, overdraft protection services, rewards checking, and products marketed to the elderly or financially vulnerable or financially vulnerable unsophisticated.
Third Party Relationships
Use of affiliated or nonaffiliated third parties to provide products or services such as advertising or marketing, issuing credit cards, or offering products such as insurance or mortgage loans, and collection activity may raise potential UDAAP risk. Due diligence by a financial institution in selecting the third party provider and the extent of its monitoring and oversight of the activities of the third party, including disclosures and solicitations produced by the third party, are important factors.
I suggest you discuss specific examples of FTC responses to UDAAP violations in your UDAAP training. Advertisements, particularly for mortgage loans, have attracted a great deal of regulatory scrutiny. The Federal Trade Commission has warned banks, mortgage brokers, lenders, mortgage servicers, and media outlets that carry their advertisements for home mortgages. Some advertising claims currently appearing on websites, newspapers, magazines, direct mail, and unsolicited email and faxes may violate federal law.