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    February 11, 2021

    5 Steps to Manage & Reduce UDAAP Violations & Penalties

    UDAAP. Seriously, is there a more confusing acronym in financial regulatory lingo?

    It’s been over a decade since the “Unfair, deceptive or abusive acts and practices” (UDAAP) were first hatched, and finding your organization in violation of any such acts or practices can be staggeringly expensive.

    Recent UDAAP penalties, including a $200,000 fine for deceptive advertising of ‘free checking’ and a CFPB action requiring $2.9 million in a refund to customers, goes to show how crucial it is for you to understand, monitor, and reduce UDAAP risk.

    As the Consumer Financial Protection Bureau (CFPB) continues to use the UDAAP as a tool for safeguarding consumers against harmful practices surrounding financial institutions, the definition of what constitutes UDAAP remains vague, so vague in fact, that the only way you can know for certain whether a process bears a UDAAP risk or not is if you asked a judge.

    Fortunately, as something of a peace offering, the CFPB made public its supervision and exam manual for purpose of helping people as you learn about UDAAP to prep for potential evaluations or examinations.

    But without any clear path to follow, is there more you can do to prevent your company from falling prey to this beast?

    5 Steps to Reduce UDAAP Risk

    Understanding UDAAP

    UDAAP is different from other technical regulations in that it requires a holistic view of the circumstances and must be considered from a reasonable consumer’s perspective.

    Therefore, your organization must have an active risk management program to review, analyze, and mitigate potential UDAAP risks to survive CFPB’s sweeping authority.

    Be consistent

    The easiest way to increase UDAAP risk is to market in a manner that is inconsistent with your full disclosure of practices.

    If you review your contractual terms and existing procedures regularly, it will be easier to identify situations where your marketing approach is inconsistent with your business’s practices and take action to align and correct them.

    Draft a UDAAP policy

    A plan that outlines your organization’s commitment to refrain from acts or practices that could be considered unfair, deceptive or abusive is one of the best ways to make the UDAAP concept more tangible in your organization.

    It doesn’t have to be too detailed either; just a general outline of the steps you can take to review and minimize UDAAP risks.

    Monitor your Partners

    One common theme in UDAAP violations often originates from 3rd party service providers that are not being monitored.

    Your vendor’s management program should include a UDAAP risk assessment plan, in addition to actively monitoring the partnership over time.

    Train Your Staff

    Regular UDAAP training and public recognition and appraisal for employees who raise UDAAP concerns are the best defense your organization can have against UDAAP enforcement actions.

    UDAAP is here to stay, and although its definition is likely to remain vague, following these steps will help your business steer clear of unknowingly committing consumer violations as well as their resulting enforcement actions and penalties.

    Contact us today to find out how we can help monitor your front lines and ultimately help you avoid incurring the wrath of UDAAP.