UDAAP and Your Third-Party Risk Management Program

Podcast Transcript

Welcome to today’s Third Party Thursday! My name is Branan Cooper and I’m the Chief Risk Officer here at Venminder.

Today, let’s go through UDAAP and what it means for your third-party risk management program.

Over the past few years, the CFPB has engaged in numerous investigations related to UDAAP or Unfair, Deceptive or Abusive Acts or Practices. Much of their work has been derived from their consumer complaints database. So, I’d certainly suggest that in your review of a third-party or your own institution or company, place emphasis on 2 things - looking at what consumers are complaining about and take the time to understand your complaint management processes.

It’s been reported widely in banking publications and even through Congress, that the CFPB continues to set regulatory guidance through enforcement action rather than by issuing prescriptive written guidance. In particular, the lack of clear definition of that troublesome extra A for Abusive is proving quite challenging for compliance and risk professionals.

This notion of “we can’t fully define it but we know it when we see it” is disturbing because, as compliance and risk professionals, we are quite accustomed to following the letter of the regulations, and not having that to go by leaves much to interpretation and, even if we can get our head around what it might mean, it’s tough to clearly articulate to our senior management teams and the board.

Thus, you need to look closely at the enforcement actions that are issued and work closely with your compliance, audit and legal teams to look for any elements of things that might be present in your own organization.

From a contract perspective, you should make sure that the third-party understands and agrees to provide you with copies of marketing materials, scripts, complaint tracking and anything else that can help to prevent an unfortunate surprise.

The CFPB has, in particular, been highly critical of items that are….

1. Confusing to customers
2. Are heavily fee laden
3. Tough to cancel or
4. Add-on products which are not clearly defined in terms of both consumer benefit or have murky terms.

So, be aware of those items.

I always suggest that besides just looking at complaints, it’s appropriate to do some proactive monitoring in the form of mystery shopping, call center listening, transaction testing etc. I describe it as having a clear line of sight all the way through the transaction to the customer and back.

While the third party may get criticized, it’s ultimately your responsibility to ensure compliance… and again, now that we have seen the CFPB begin to exert its regulatory authority over service providers, it’s a good idea to make sure that your practices around potential customer confusion and harm are robust and thorough.

Again, I’m Branan and thank you for tuning in! Don’t forget to subscribe to the Third Party Thursday series.