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UDAAP and New England State Counterparts: A Primer for Marketing Professionals in Banking

Posted By By Matthew P. Coletti, Esq. MBA, Friday, December 20, 2013
Updated: Thursday, January 30, 2014

Is obtaining a competitive advantage or meeting revenue goals an achievement if done at your consumers’ expense through utilizing questionable practices?Most banking institutions are not intentionally unscrupulous, but rather unaware of the extent of their exposure to UDAAP risk through seemingly benign channels. This may be true because business units do not communicate, standards are too subjective, or consumer behavior is too unpredictable. Regardless, Marketing professionals, together with Compliance and Legal professionals, can effectively mitigate risk by monitoring industry trends, setting standards by which to measure internal processes and practices, then building compliance programs to control for conduct and monitor compliance.

To effectively capture UDAAP risk, a marketing compliance program should include controls for preventing, identifying and remedying perceived or actual "abusive” practices as set forth within the Dodd Frank Act (See 12 USC § 5531(d)(1) and (2) and 5536). "Abusive” practices are those which, in sum: (1) materially interfere with a consumer’s ability to understand a product or service’s terms or conditions, or (2) take unreasonable advantage of a lack of understanding of the consumer, an inability of the consumer to protect his or her interests, or a consumer’s reasonable reliance on another acting in their interest. The subjectivity of this standard presents as a challenge, particularly in light of minimal administrative guidance. For this reason, oversight is essential.

"Think in terms of protecting the least sophisticated consumer from the perspective of the most sophisticated plaintiffs’ consumer protection attorney."

In marketing campaigns, emphasis should be placed on clarity, transparency, and consumer interest while eschewing small print and inconspicuous language. Word choice and physical arrangement is critical to achieve accurate representation of product specifications. Avoid overly suggestive or vague trigger words, such as "free,” "no cost” or "rates as low as.” Heightened scrutiny should also extend to: (1) those vulnerable classes of persons, such as the elderly or military borrowers; (2) fee or income generating products or services, particularly overdraft programs and supplemental credit card products; and (3) third party vendor conduct. Before publishing or distributing any campaign materials, have them reviewed by Compliance or Legal professionals against a checklist for UDAAP and other related regulations. Be sure to retain documentation of any reviews conducted. Further, the complexity of this analysis is amplified when marketing materials are introduced into the interactive communication environment of social media.

Moreover, when reviewing items internally under UDAAP analysis,think in terms of protecting the least sophisticated consumer from the perspective of the most sophisticated plaintiffs’ consumer protection attorney. This is especially important where nearly all state UDAAP-type statutes permit a private cause of action as a consumer remedy, unlike the federal UDAAP models. Often, state statutes are more encompassing than UDAAP which compounds the need for hyper-vigilance. Otherwise, remedies under UDAAP are more likely to come in the form of civil money penalties or restitution to consumers. Locally, Maine, Vermont and New Hampshire have relatively stringent monetary penalties under statute whereas Rhode Island is the only state to have none.

Finally, some other sources of authority to build awareness include: Section 5 of the FTC Act; Regulation AA; MAP Rule, state statutes and regulations, such as Conn. Gen. Stat. 42-110a et seq., Mass. Gen. Laws c. 93A and 209 CMR 32.00 et seq., and current case law relating to each. Most recently, the FFIEC issued valuable guidance relating to social media usage. Ultimately, those institutions with a culture of awareness emphasizing positive customer experience will achieve a competitive advantage.

Tags:  compliance  UDAAP 

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