Credit Unions Should Prepare Now for More UDAAP Enforcement Actions
April 29, 2014
April 29, 2014
Story courtesy of CSCU
Even for the most seasoned professionals, predicting regulatory trends are not only difficult but, from time to time, downright impossible. However, with the many enforcement actions that occurred in 2013 and in the wake of recent settlement agreements involving both restitution and civil money penalties for unfair and deceptive marketing practices, we are all well advised to pay close attention to complying with the Unfair, Deceptive or Abusive Acts or Practices (UDAAP) rules.
In the most recent enforcement action, the findings of unfairness and deception were based on marketing practices to card members. The outbound telemarketers were scripted in ways that deceived a reasonable consumer from properly understanding the terms and costs of the product offered.
As interpreted under Title X of the Dodd-Frank Act:
- An unfair act or practice is one that causes or is likely to cause substantial injury that cannot be reasonably avoided by consumers (12 U.S.C. § 5531(c)). The substantial injury must not be outweighed by countervailing benefits to consumers or to competition.
- While Dodd-Frank does not specifically define deceptive, CFPB guidance mirrors the Federal Trade Commission’s interpretation of the term. A deceptive act or practice is one that involves a material representation, omission, act or practice that misleads or is likely to mislead the consumer, which the consumer can reasonably interpret as being deceptive.
- While Title X itself provides little guidance on what constitutes an abusive act or practice, the statute does articulate one limitation on the authority of the CFPB to define the term by rulemaking (12 U.S.C. § 5531(d)). According to Dodd-Frank, the CFPB has no authority to declare an act or practice abusive in connection with the provision of a consumer financial product or service unless the act or practice:
- materially interferes with a consumer’s ability to understand the product or service, or
- takes unreasonable advantage of the consumer’s lack of understanding, inability to protect the consumer’s interests or reasonable reliance on a covered person to act in the interests of the consumer.
It’s also important to understand that even if nothing stated was deceptive, an institution may be liable if something important was not stated. That’s right: An omission is just as deceptive as a misrepresentation. In short, if you are silent, that could potentially be construed as being deceptive.
Overall, the best way to prepare is to review the FTC guidelines, your prudential regulator’s procedures and the CFPB’s procedures.
In addition, here are some best practices to keep in mind:
- If applicable, review your telemarketing scripts against the actual product.
- Assess any complaints from consumers about that particular product.
- When making changes, such as adding a fee or changing the terms of a service or product, the proposed changes should be compared to promises made and the customer expectations when the account or relationship was opened.
- Review marketing information to ensure it is clear and cannot be misunderstood.
- Review sales scripts for inconsistencies.
- Re-evaluate marketing strategies and review recent changes to products to ensure the script is consistent with the new product.
So what is the big take away lesson? All financial institutions should check their current practices and make the necessary adjustments to potentially avoid UDAAP violations.
Created by and for credit unions, CSCU is the industry’s advocate, partner and leader in providing holistic payment solutions that maximize value for both credit unions and their members. For more information about any of CSCU’s products and services, go to www.cscu.net/.
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