Topic: Unfair, Deceptive, and Abusive Acts and Practices (UDAAP)
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We want to offer a credit monitoring service to customers affected by recent data breaches. We would offer the service with a discount and would receive a referral fee from the provider. Can we receive a referral fee, and do we need to disclose the referral fee?
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We believe that you may collect a referral fee for sales of credit monitoring services to your deposit customers, though with some caution, but we do not recommend selling the credit monitoring services to your residential loan customers, due to RESPA’s prohibition on referral fees. For your deposit customers, we are not aware of any…
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For auditing purposes, should we apply Reg AA, UDAP, the CFPB’s UDAAP, or the FTC Credit Practices Rule?
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We believe your audits should cover all of the above: UDAP, UDAAP, and the FTC’s Credit Practices Rule (which was adopted by the banking regulators as Regulation AA). UDAAP The newest standard is the UDAAP standard (with an extra “A” for “abusive,” which was added by the Dodd-Frank Act in 2010). The UDAAP standard is…
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Can we offer a free checking account with the only way to qualify for free checking is if the customer agrees to receive e-statements? If the customer does not agree to receive e-statements, or cannot receive them for any reason, they would not qualify for the free checking account.
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We agree that the bank should consider UDAAP concerns in creating a free checking account on the condition that the customer has agreed to receive e-statements. However, we believe you may be able to offer such an account, provided that the proper disclosures are made. Although we are not aware of any laws or regulations…
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Can we offer a home equity loan as a “fixed rate” line, even though the initial teaser rate on the loan will expire after six months?
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We think it would be prudent to classify the HELOC as a variable-rate plan. Classifying and advertising such a HELOC as a fixed-rate plan might raise UDAAP risks. The CFPB has the power to deem any practice as “unfair, deceptive, or abusive”, even if the practice does not violate any law or regulation. 12 USC…
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We are going to start charging a dishonored item/insufficient funds (NSF) fee for loan payments that are returned unpaid. One concern is that returned checks written on a deposit account at our bank will get hit with a second returned check fee under our deposit account agreements. Do you see a problem with this?
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We agree that you may contract for and charge fees for returned checks for loan payments, even though some customers may be charged fees both on a loan at your bank and on the customer’s deposit account held at your bank. Overall, there are very few limitations on interest rates and fees charged by banks…
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Are there any problems with advertising an account as “better than free”?
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In our view, the proposed advertising slogan would raise significant UDAAP risks. It may not technically violate the Regulation DD requirement prohibiting advertisements that “refer to or describe an account as ‘free’ or ‘no cost’” if certain fees, such as a monthly maintenance fee, are imposed on the account. 12 CFR 1030.8. However, the CFPB has…
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We are considering imposing a fee when mailing paper statements on our senior accounts. Is that a good idea, considering that many seniors don’t have computer access?
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We agree that the bank should consider UDAAP concerns in analyzing the paper statement fee for senior citizen deposit accounts. Although we are not aware of any laws or regulations that would prohibit such a fee, as we discuss below, there is a chance that an examiner could see such a fee as unfair or…
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Do you see any problems with allowing bankers to create exceptions to our credit score requirements to allow certain customers to open deposit accounts, such as those who have participated in our financial literacy programs?
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The program you described, in which bank employees are using individual discretion to create exceptions for certain customers, has some potential for raising concerns about discrimination. Such use of discretion might result in a “disparate impact” on a protected class (even if no one at the bank has any intent to discriminate). Even though fair…
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We have inserted an “attorney service clause” into our commercial loan agreements, which allows us to serve a company’s attorney instead of servicing the company personally. Do you see any problems with inserting a similar provision in our consumer loan agreements?
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We would strongly advise against inserting a clause stating that the bank would serve only the customer’s attorney into consumer loan contracts. While there are no specific legal prohibitions on such a clause, it could raise any number of issues for the bank. For example, it may be viewed as unfairly interposing an intermediary for…
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We are changing our method for the posting order of checks so that they are posted by check number order. Do we need to disclose this change to customers?
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We believe that it would be a best practice to disclose the order of posting all transactions, including checks, to consumer customers (this does not necessarily apply to commercial customers). Regulation DD does not require disclosure of the posting order of checks in advertising your overdraft program or in periodic statements. 12 CFR 1030.11. With…