You will also want to include leading practices as part of the
review of the marketing materials. Prominence, presentation,
and placement are important elements of marketing materials:
■ ■ ■ Prominence: All material information should be in a font size
large enough to attract attention.
■ ■ ■ Presentation: The wording and format should be clear and
■ ■ ■ Placement: Material information should not be in the fine print
and should be located where consumers can readily view it.
Understand your target market, and whether it is considered
vulnerable. (See the Product/Service Development section above
for the list of vulnerable customers.) If it is, be sure that the tailored
message would be understandable to that segment of your customer
base. The marketing materials should promote a consumer understanding and full disclosure of the terms of the offer. Remember
to perform ongoing analysis to make sure that there is a complete
understanding of who is using the product or service as well as
the value of the product or service. An area that is sometimes
overlooked is the inclusion of contact information for questions
and complaints on marketing materials. Bank staff should be
trained to answer questions on the product or service—the last
thing you want is for consumers to receive incorrect details on
the fees, benefits, or limitations of a product or service.
Disclosures represent a key component of the account opening process.
There are some common disclosure pitfalls that should be considered.
Assign ownership to disclosures—even after a product or service is
no longer offered, disclosures should be retained and available for
retrieval.. Maintain version control for all disclosures, including current
and previous versions. There should be a documented compliance
and/or legal review and approval of all new and revised disclosures.
Disclosure language should be customer friendly and not
overly complex. You will need to balance regulatory safe harbor
language with readability.
There should be a validation of the disclosures to the system.
Any of the lines of defense could perform this validation, including the line of business, operational support area, compliance
department, and/or audit team.
Compliance must throughly vet the sales phase of the product or
service. Carefully review the Ttaining materials and sales scripts.
Develop a process to ensure that customers receive all required
disclosures. The bank must provide to the customer enough
material information to make an informed choice of products and
services—before opening an account. There may be instances in
which a product or service that is best for the customer is not the
easiest or best for the bank employee. Watch out for this concern
and design internal controls and monitoring programs to prevent
and detect it. Consider implementing a “mystery shopping” program to continually assess the sales practices. (See the article on
Sales Practices in the March–April 2017 ABA Bank Compliance
magazine, page 12, for more details.)
There are two types of servicing issues to note: processing and
customer service. The key to UDAAP-compliant processing is
to develop procedures to process payments timely and in accor-
dance with laws and account disclosures/agreements. Develop
and implement clear processes and procedures for obtaining and
Other processing pitfalls include force-placing flood insurance
under the Flood Disaster Protection Act, such as the determination of how much insurance should be placed, consideration for
subordinate liens, changes in flood maps, and lapses of insurance
policies. There should also be defined procedures for timely lien
releases, mortgage discharges, payoff quotes, and cancelling private
Customer service issues can also cause UDAAP issues. For
example, agents should be providing customers with all of their
options and letting customers make informed choices about how
they would like to proceed. On the phone, hold times above the
industry average or a significant number of dropped calls could
also present issues.
Understand the Fair Debt Collection Practices Act. Even if you
are technically exempt from coverage, it is advisable to consider
the requirements. Be sure not to mislead customers during attempts to collect debt. Collection teams should not make false
promises to entice settlement.
Be sure to include collection call monitoring as part of compliance testing. There is something to be said for listening first-hand
on the calls. All of the best procedures and scripts will not do any
good if they are not followed.
Collection teams should also stay away from referencing credit
scores. Scores are complicated algorithms, and collection staff
should not try to guess what might happen with regard to whether
making a payment will increase a credit score or improve a customer’s eligibility for another product.
A review of the loan data for accuracy should be ongoing. All
data provided to consumer reporting agencies must be accurate.
This is an area that has received a lot of attention, so you should
also give it attention.
Any bank doing debt sales should include a step for identifying loans in collections or past due. This is another area that is
Banks are fully responsible for any third-party service provider
they engage. The basic rule is that if the bank should have a control
as part of its UDAAP program or any compliance program, it
must ensure that the third party has something similar in place.
Compliance should be part of the due diligence and ongoing
review of the third party.
Because the compliance department
cannot be everywhere, it is key to educate
all staff through a corporate-wide
UDAAP awareness or training program.
FIFTY SHADES OF CONFUSION: UDAAP ISSUES IN LENDING