Academic journal article ABA Banking Journal

Fair Warning-It Won't Work

Academic journal article ABA Banking Journal

Fair Warning-It Won't Work

Article excerpt

A year ago, consultant Jo Ann Barefoot did the industry a service in her cover story on the emergence of "UDAP"--unfair and deceptive acts and practices--as a broadly applied standard by which banks would be measured. Since then, UDAP has been incorporated into the bank regulatory regime in a big way. The Dodd-Frank Act expanded it by adding the word "abusive" (making it UDAAP) and created a new agency to enforce it: the Consumer Financial Protection Bureau.

CFPB will be UDAAP Central. In this month's cover story (p. 32), Barefoot and her coauthor, attorney Lyn Farrell, return to the subject and offer seven steps to help banks transition from a traditional compliance mindset and framework to the far more subjective "fairness" regime.

Senior management in particular should read the article because the changes described will demand much more attention--and direction-from the top. It's not that CEOs are unaware of the importance of Compliance. It's that the traditional, rules-based compliance model will not withstand the rigors of UDAAP. The old model was designed to satisfy technical rules, as the article says, not to produce "fairness."

The absurdity of all this is that agencies and Congress cannot produce "fairness." What they can produce--and do in abundance--are laws, regulations, and "guidance." Each of which spawns countless interpretations and updates.

A community banker told us recently how one year he began to keep a pile in the corner of his office of the advisories and notifications issued to him by his two primary regulators. …

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