Unfair, Deceptive or Abusive Acts or Practices (UDAAP) is an area of intense focus by regulators at the moment. Since the creation of the Consumer Financial Protection Bureau (CFPB), there has been a great deal of attention given to consumer complaints.
The Extra A in UDAAP
The CFPB made early marks through its creation of the complaints database; the tracking has been a real sore spot between the regulatory authority and the institutions since there is not attention given by the CFPB to do any pre-validation of the complaint’s merit.
Stemming from those complaints are often investigations and resulting enforcement actions when they determine there are issues that cause customer confusion or harm. Situations like these give rise to enforcement actions:
- Misunderstood fees
- Difficult to cancel add-on products
- Misleading terms
- Disregarded complaints
Often, the CFPB will cite abusive practices on the part of the financial institution. “Abuse” was added as a term to the already existing UDAP (Unfair, Deceptive Acts or Practices) as the CFPB was created.
The Issue with the Extra A
However, in the half dozen years of the agency’s existence, the term abusive has never been fully defined. The CFPB is often reported as creating guidance through enforcement action rather than through concrete standards. The concept of “we can’t define it, but we know it when we see it” is little comfort to compliance officers or third party risk managers.
How to Handle the Abusive in UDAAP
So, what does one do? I believe, until and if abusive is defined, each compliance officer and third party risk manager needs to carefully analyze all of the practices and products through the lens of the regulator and the customer, looking for anything that can be perceived as confusing or injurious to the customer.
Here are some items to keep in mind:
- Fees and products need to be clearly described in layman’s terms and cancellation requirements need to be crystal clear.
- There needs to be great attention given to thoroughly investigating, resolving and removing the cause of complaints.
- Monitor the actions of your third parties and set/enforce firm requirements around additional products, imposition of fees, etc.
- Management of complaints must be baked into contract standards.