Topic: Unfair, Deceptive, and Abusive Acts and Practices (UDAAP)
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Some of our business customers refuse to use Positive Pay. We do not charge for this service, and it is effective in preventing some check fraud losses. What are our options for encouraging more business customers to adopt Positive Pay? Also, if we decide to require Positive Pay for business customers, can we make exceptions based on customer relationships?
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We believe that your bank can require or encourage your customers to use your Positive Pay services in your account agreements, and you may choose to implement this change going forward for new customers only or for existing customers as well by amending their account agreements. Under the Illinois Uniform Commercial Code (UCC), your bank…
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Some of our business customers refuse to use Positive Pay. We do not charge for this service, and it is effective in preventing some check fraud losses. What are our options for encouraging more business customers to adopt Positive Pay? Also, if we decide to require Positive Pay for business customers, can we make exceptions based on customer relationships?
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We believe that your bank can require or encourage your customers to use your Positive Pay services in your account agreements, and you may choose to implement this change going forward for new customers only or for existing customers as well by amending their account agreements. Under the Illinois Uniform Commercial Code (UCC), your bank…
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Our bank owns a service provider that charges a fee for processing our customers’ online loan payments. Should we disclose this fee in our HELOC account opening disclosures? What about for other types of loans? We also provide other reasonable means for a borrower to make a payment and not incur a fee.
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We do not believe that Regulation Z requires you to disclose an online payment fee in the account opening disclosures, but we recommend considering disclosing the fee due to the federal banking regulators’ increasing scrutiny of add-on fees like online payment and convenience fees. It may be possible to fully disclose an online payment fee…
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Our bank generally does not require consumers to set up an escrow account for a residential mortgage loan unless required by law. We have agreed to terminate an escrow account at the request of a borrower who voluntarily escrows funds for real estate taxes. Are we required to pay the escrow balance to the borrower after terminating the account? The borrower mentioned that they need the funds for a vacation, and we are concerned they will not be able to pay their property tax bill due next month. If the borrower is delinquent in paying their tax bill, our loan terms give us the right to require that an escrow account be reinstated.
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We recommend reviewing your loan terms and any escrow account agreement the borrower may have signed. If your agreement does not expressly grant your bank the right to retain the escrow account balance after the escrow is terminated, we recommend refunding the balance — as your failure to do so may be deemed an unfair,…
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We are considering changing the name of a deposit account product from “E-Free” to “E-Checking.” The main feature of this account is free e-statements, but we charge a fee for paper statements. Also, if a customer does not log in and access their e-statements for a certain amount of time, we send them a notice stating that we will start sending and charging them a monthly fee for paper statements if they do not log in. The paper statement fee is included in our advertisements and account opening disclosures, but the condition regarding accessing e-statements is not. Do we need to remove “free” from the name of this account, and, if so, are we required to notify our current account holders of this change?
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Yes, we believe you should remove “free” from the name of the deposit account product and cease advertising the account as “free” if you will be charging a monthly fee for paper statements. Additionally, while you are not required to notify customers when you change the name of a deposit account product, we recommend sending…
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Can we develop a money market account product that we do not advertise to the general public? We want to make it an exclusive offering.
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We believe that advertising and offering a money market account only to certain consumers, and not the general public, could present a risk of being considered a discriminatory unfair, deceptive, or abusive act or practice (UDAAP). While the Equal Credit Opportunity Act’s discrimination protections would not apply to money market accounts without credit features, the…
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If we advertise a checking account as “free” and list “free eStatements” as a feature, may we charge a customer if they request paper statements?
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No, we do not believe that you may charge a monthly fee for paper statements while advertising an account as “free.” There may be potential pitfalls even if you intend to charge the fee only occasionally, including risking an unfair, deceptive, or abusive act or practice (UDAAP) finding. Regulation DD prohibits an advertisement from referring…
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Our bank offers balloon mortgages with initial terms of sixty-one months and amortization terms of twenty years. We typically extend them for one, two, or three years. With interest rates increasing, we may have to substantially increase the interest rates on these extensions, which would increase the loan payments. To keep payments down, we want to re-amortize these loans at amortization terms of twenty years. This would not increase the balloon payment. Would this be a an unfair, deceptive, or abusive act or practice? Would we be violating any laws if we substantially increase the interest rate?
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No, we do not believe that extending, increasing the interest rate of, and re-amortizing your balloon loans would be considered an unfair, deceptive, or abusive act or practice, provided that these changes are clearly and conspicuously disclosed and agreed to by your customers. However, such a modification could be considered a “refinancing” under Regulation Z…
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Can you recommend any resources or guidance on using customer data for targeted marketing purposes? We have been using zip codes for targeted marketing promotions. Are there any limitations on data targeting that we should be aware of?
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Yes, when considering targeted marketing campaigns, you should consider whether any fair lending laws or UDAAP concerns will be triggered. We recommend carefully considering whether any targeted marketing campaign may be viewed as discriminatory or having a disparate impact on a protected class and thoroughly documenting your business reasons for engaging in such a campaign.…
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We are planning on running a contest to benefit small businesses. We are providing a t-shirt for contestants. If they take a selfie with the t-shirt and post it on social media with specific hash tags, they can come to our bank during a one-week timeframe and receive a low-dollar gift card for a local business, while supplies last. Everyone can participate in this contest, and we are planning on advertising it with a flyer and on social media. Would this contest fall under any special Illinois rules? Additionally, do we need to disclose anything, such as that no purchase is necessary, that the contest is void where prohibited, any eligibility requirements and restrictions, and the sponsor’s name and address?
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Yes, we believe you should comply with the disclosure requirements in the Illinois Consumer Fraud and Deceptive Business Practices Act for this contest. The Illinois Consumer Fraud and Deceptive Business Practices Act states that advertisements offering free prizes to consumers must clearly and conspicuously disclose all material terms and conditions at the outset of the…