by all indicators, we are not far from the day
when banks will need to delicately guide or redirect
consumers to financial products that conform
to their financial habits, rather than allowing
consumers to make those choices on their own.
not in any way be detrimental to the consumer—even if the consumer’s actions are the cause of the detriment. There is growing public sentiment that banks should not
charge for all of their services—at least not all the time.
To the extent that customer complaints emanate from the
product itself—or how it is used by the consumer—it’s
time to step back and evaluate whether the product needs
to change in order to prevent UDAP risks from surfacing,
even when the product or service has traditionally been
within industry standards.
2. evaluate your revenue streams. While safety and
soundness standards require banks to maintain strong earnings, recent enforcement trends suggest that bank products
or services with long and profitable shelf lives can be ripe
for UDAP findings. In today’s UDAP-focused environment,
optional services typically offered for the convenience of
customers may now be viewed through a different lens.
While some level of fee imposition is generally acceptable,
banks now have an affirmative duty to intervene on behalf of
customers who are overusing a particular service, especially
when their financial habits are outside the norm of acceptable
customer behavior. The Dodd-Frank Act codifies this new
public policy proposition—terming it an abusive practice if
financial services providers do not step in and save consumers who do not protect their own interests when selecting or
using products or services.
3. Consider the suitability of your products for your
customers. By all indicators, the concept of product suitability is making its way into bank compliance practices,
with UDAP as the entry point. Without question there is a
growing sense that banks must actively evaluate the propriety
of their products for the specific customer. While it would be
unthinkable for a restaurant owner to size up a patron and
deliver a salad rather than the requested cheeseburger and
fries, the same is not true in the financial services industry.
(Remember that the initial CFPB proposal called for all banks
to offer only plain-vanilla products and straying from that
would have required permission.) By all indicators, we are
not far from the day when banks will need to delicately guide
or redirect consumers to financial products that conform
to their financial habits, rather than allowing consumers
to make those choices on their own. Evaluate your product
lines and consider how they may need to change to accom-
modate this emerging UDAP standard. In the end, UDAP
There is no question that when it comes to UDAP compli-
ance, the tide of regulatory risk is rising. Recent enforcement
actions indicate greater confidence among regulators in
pursuing a UDAP claim by expanding the traditional inter-
pretations of UDAP compliance. Public policy standards are
also shifting, placing less value on consumer responsibility
and greater accountability on the banking industry to moni-
tor and curtail consumer behavior. And, with the passage of
the Dodd-Frank Act, a new era of increased rulemaking will
soon be upon us—potentially giving rise to a new set of rules
that prohibit unfair, deceptive, or abusive acts or practices. ■
About the Authors
thOMAS G. PAREiGAt is a banking attorney with more than
25 years of consumer protection and regulatory compliance
experience. He serves as general counsel of The Bancorp, Inc.,
headquartered in Wilmington, Del., where he oversees the
legal and compliance management function. He previously
served as a partner at the Minneapolis law firm of Lindquist &
Vennum PLLP, where he advised banks on emerging legal and
regulatory risk issues and represented banks in supervisory
proceedings including UDAP-related enforcement actions.
Reach him by e-mail at
tpareigat@thebancorp.com or by
telephone at (612) 371.2030.
MEG SCz YRbA, CRCM, works for PayPal as the director,
regulatory compliance. She is very involved in the industry,
including regular speaking, training, and writing on various
compliance topics, including UDAP. She sits on several ABA
boards and committees, including the ABA Compliance School
Board and the ABA Bank Compliance editorial advisory board,
and is a former member of the CRCM Advisory Board and the
Compliance Executive Committee. She graduated from the
University of Missouri–Columbia with degrees in psychology
and law. Reach her at
mssczyrba@paypal.com or
(408) 967-4567.
