What Marketers Need to Know about UDAAP: Regulatory Scrutiny of Unfair, Deceptive or Abusive Marketing and Advertising Practices Is More Intense Than Ever. This Is the Second in a Two-Part Series Explaining How Marketers Can Keep Their Bank out of Trouble
Pry, Carl G., ABA Bank Marketing
AS WE DISCUSSED IN THE PREVIOUS ARTICLE (October 2013, p. 14), Unfair, Deceptive or Abusive Acts or Practices (UDAAP) today is influencing virtually everything that a bank offers to its customers.
In the earlier article, we explained the meaning of unfair, deceptive and abusive; now, we turn our attention to UDAP/UDAAP enforcement.
The threat of UDAAP enforcement has proven not to be a hollow one. The Consumer Financial Protection Board (CFPB) has publicized a number of UDAAP-related enforcement actions over the last few years. In every one, marketing issues contributed to the problem, and fines and penalties totaling hundreds of millions of dollars were assessed. It's also noteworthy to mention these weren't solely CFPB actions; the prudential regulators also levied their own penalties.
Sales practices were found to be problematic, including the manner in which information was conveyed, regarding products and services consumers were offered and sold. In one case, multiple practices were found lacking, resulting in unavoidable financial injuries. Specific findings that were identified included practices that:
* "Deceived consumers who signed up for the ... program" (in the case of a promised bonus that was not provided).
* Utilized "marketing tactics [that were] used by vendors to pressure or mislead consumers."
* "Misled [consumers] about the benefits of the products."
* "Fail [ed] to properly inform service members about fees associated with the loan."
* "Fail [ed] to properly disclose schedule of payments."
* "Deceived [consumers] about the nature of the products," "about eligibility" and the "cost of the products."
In one, issues were found "at all stages of the game--from the moment a consumer shopped ... to the moment the consumer got a phone call about long-overdue debt" covering a long period of time. As well, violations of other rules such as Truth in Lending Act, Equal Credit Opportunity Act and Fair Credit Reporting Act were also alleged, again demonstrating that issues with existing consumer protection laws and regulations can be seen also as UDAAP.
Notice that one bullet point above mentions vendors. Banks can and will be held responsible for any act or practice that is unfair, deceptive or abusive, regardless of which party makes the statement or produce the documentation. Banks bear the burden of ultimate responsibility for their vendors' acts or practices--from a customers' perspective, it's all about the bank.
CFPB guidance. Accompanying one early enforcement action was a CFPB bulletin that announced:
The CFPB will take all necessary steps to ensure that consumers are protected from deceptive sales and marketing practices, including those resulting from failures to adequately disclose important product terms and conditions, or other violations of Federal consumer financial law.
It also listed four additional factors it will consider when evaluating communication of critical information:
* Is the statement prominent enough for the consumer to notice?
* Is the information presented in an easy-to-understand format that does not contradict other information in the package and at a time when the consumer's attention is not distracted elsewhere?
* Is the information in a location where consumers can be expected to look or hear?
* Is the information in close proximity to the claim it qualifies?
Although the bulletin was issued in tandem with a credit card add-on products enforcement matter, it is clear its recommendations apply to any bank offering any sort of product or service to consumers in connection with a deposit or credit product.
UDAAP expectations. In addition, the bulletin set forth a series of "expectations" that banks should strive to meet, including:
* "Marketing materials, including direct mail promotions, telemarketing scripts, Internet and print ads, radio recordings, and television commercials, I should] reflect the actual terms and conditions of the product and are not deceptive or misleading to consumers. …