Ensure that controls and monitoring are in place around the
activities performed by the third party. Establish contractual
protections including ability to perform audits and termination
rights for failures. A formal process should be in place to obtain
and monitor complaints received by or regarding the third party.
Conduct periodic onsite reviews for high-risk third parties.
Complaints
A comprehensive complaint program should be in place to track,
monitor, and resolve all complaints, including those involving
third parties. Develop a robust corporate complaint policy that
includes the definition of a complaint.
Complaint training should include UDAAP. Review and
track complaints from all sources. Also, review areas in which
no complaints were received, since this could be an indicator
that complaints are not being appropriately identified. Look for
trends that could lead to UDAAP concerns, such as consumer
confusion or expressions of being misled. Have a process in place
for determining the root cause. Understanding the root cause and
taking action can help prevent similar complaints. Make sure all
UDAAP complaints are escalated.
Product-Specific UDAAP Challenges
Somehigher-risk lending products and services that deserve additional attention include:
■ ■ ■ Mortgage: Listen to what the customer wants/needs. Offer
all options to the customer, not just the easiest to process.
Monitor for steering toward certain products. Understand the
sales incentives for mortgages. Have products for all consumers not just for the affluent. Perform mystery shopping using
defined scripts.
■ ■ ■ Auto Loans: Develop monitoring programs for both direct and
indirect channels. Develop robust quality control/assurance
processes to identify any regulatory or procedural violations.
Payment programs should not be misleading or unfair to the
consumer. Pay attention to balloon payments and loans with
excessive length of repayment terms. Monitor all add-on products including those sold by the automobile dealer. Develop
an ongoing monitoring program for indirect auto dealer and
portfolio loans to address any disparities in pricing.
■ ■ ■ Credit Cards: The fees and interest rates/annual percentage
rates should be clearly disclosed. The fees associated with
the card should be understandable. The credit card servicing system should be tested to make sure that the fees, rates,
and features disclosed coincide with how the system handles
them. Promotional rates and corresponding balances are other
areas that could trigger UDAAP risk—controls should be in
place and tested, validating that the promotional offers are
calculated as disclosed.
■ ■ ■ Rewards: Disclose all terms before the consumer applies for the
product or service. Terms should not be too complex to understand what is needed to obtain the rewards. Disclosures must
coincide with practices. Only market what is possible to obtain.
■ ■ ■ Add-on Products or Services: Receive consent from custom-
ers before enrollment in any product or service. Be cautious of
products or services that require a two-step enrollment process.
Customers should not be charged for any product or service until
full enrollment is completed. Disclosures should be clear and
include all terms. Any limitations should be clearly disclosed.
Ongoing monitoring will help identify any concerns with enroll-
ment, activation, and the customer’s ability to obtain benefit.
■ ■ ■ Student Loans: Make sure that billing statements provide clear
information to the customer. For example, they should explain
how customers can avoid late fees. Be cautious about automati-
cally defaulting loans such as when one of the borrowers goes
into bankruptcy. Student loans typically have a co-borrower. that
can be considered. And of course, always notify the borrower
if the loan has defaulted. You will also want to clearly disclose
how cosigners can be released. One bank delayed eligibility
if the student requested forbearance but did not disclose how
that would impact cosigners.
The Final Analysis
To recap some of the most important points on UDAAP issues
in lending:
■ ■ ■ Know and understand the lending products and services offered.
■ ■ ■ Have checkpoints through-out the entire lifecycle with particular
attention given to the interplay with other compliance programs.
■ ■ ■ Develop and implement a UDAAP awareness and training
program.
■ ■ ■ Monitor and test all aspects of products and services offered.
■ ■ ■ Do not forget about the UDAAP risk assessment—this is essential in managing UDAAP risk. It will help guide you in
areas within your bank that pose higher risk.
There really are fifty shades of confusion when it comes to
UDAAP issues in lending. The reasons include the complexity
of lending products and services, the many different laws and
regulations that apply, the various stages of the product and service
lifecycle, and the interplay with other existing compliance requirements such as complaints and third-party oversight. However,
following a methodical approach to addressing the challenges
and requirements within each stage of the product and service
lifecycle will help you rein in the confusion. ■
ABOUT THE AUTHOR
TINA M. SHAVER, CRCM, CAMS, is a Senior Director with Treliant
Risk Advisors in Washington, D.C., where she advises clients on
compliance, fair lending, and risk management issues. She is
a compliance executive with 30 years of banking experience,
including more than 20 years in a compliance role and most
recently a Chief Compliance Officer at a mid-size bank. Tina can be
reached at tshaver@treliant.com.
It is important to understand every aspect of the
product or service being developed. And, it is
imperative that compliance professionals be invited
to the brainstorming session. In order to evaluate a
product, Compliance must know the ins and outs.
