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Best Practices

UDAAP Best Practices for Vendor Risk Management

Jul 25, 2018 by Branan Cooper

Ever since the creation of the Consumer Financial Protection Bureau (CFPB), Unfair Deceptive or Abusive Acts or Practices (UDAAP) has become a very hot issue in regulatory enforcement. Many have complained that the addition of that troublesome extra A, which stands for abusive, has not been fully defined and is only framed in definition through enforcement actions, rather than regulatory guidance. At this time, reviewing and understanding the enforcement actions and why it occurred is the best way to understand expectations.

The Impact of the Extra A in UDAAP

UDAP, minus the extra A, has been around for a while as Section 5 of the FTC Act and has certainly been used as a topic of prior enforcement actions. Since the creation of the CFPB and the introduction of the abusive standard, it's been given a whole new life and much more attention. UDAAP has certainly been the primary focus of the CFPB, with many actions traced back to the data in the Consumer Complaints reporting tool.

With that in mind, knowing that the CFPB is mining its own database for issues that may give rise to enforcement actions, managing your consumer complaints and those of your third parties should be a top priority. Not only is it an expectation but it will protect your reputation risk as well.

We often say that ongoing monitoring is the forgotten pillar of vendor risk management. That fact alone should cause you to pause and rethink how you're looking at third party risk. Overlooking complaints and other issues that are front burner issues for the CFPB can be a recipe for disaster. 

5 UDAAP Best Practices

  1. Make sure that you have well-documented procedures for complaint management.

  2. Implement requirements on reporting issues to your organization and proactive ways of watching for indications of problems - whether through reporting, Google news alerts or other monitoring techniques.

  3. Look at enforcement actions as a lens through which to view your own practices as this can be helpful as well – a terrific website to research these is Payment Law Advisor.

  4. Keep your board and senior management team informed of any concerns.

  5. Set clear ground rules with the lines of business and third parties on the use of additional products or services.

UDAAP issues are a real area of concern, highlighted by multi-million dollar enforcement actions, particularly with items that give rise to consumer complaints, such as fee-laden products, items with questionable benefits and terms that are difficult to understand or cancel.

Staying in compliance, even if the standards are murky, should be a real area of focus for your vendor risk management program. To learn how to write a vendor risk management program, download our infographic.

how to write a third party policy

Branan Cooper

Written by Branan Cooper

Branan Cooper is the Chief Risk Officer at Venminder. Branan has nearly 30 years of experience in the financial services industry with a focus on the management of operational and regulatory processes and controls—most notably in the area of third party risk and operational compliance. Branan leads the Venminder delivery team as the third party risk management subject matter expert in residence. Branan also serves as an industry thought leader. He's a member of InfraGard and the Professional Risk Management Industry Association (PRMIA). And, he was selected in 2018 as an advisor to the Center for Financial Professionals (CEFPro) and board member for the Global Sourcing Resource Network (GSRN).

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