As Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) and fair lending regulatory developments continue to unfold, compliance professionals face the difficult task of ensuring compliance within a complex and ever-changing regulatory landscape.
How can organizations get in front of regulatory scrutiny? The solution might be simpler than you think.
The importance of UDAAP and fair lending compliance
Regulators have been increasing their focus on both UDAAP and fair lending in recent years.
For example, in 2022, the Consumer Financial Protection Bureau (CFPB) updated its UDAAP examination manual to include discrimination under the “unfairness” prong in an attempt to “better protect families and communities from illegal discrimination, including in situations where fair lending laws may not apply.”
Separately, the Federal Trade Commission (FTC) has been focused on dark patterns—tactics that deceive or trick consumers into buying products or services or giving up their privacy—which fall under the broader UDAAP category. The Commission released a report in 2022 that highlights the rise in dark patterns and reiterated the agency’s commitment to taking action against these tactics and organizations that use them.
The CFPB and FTC have also been combating “junk fees,” which can also fall under UDAAP depending on the way they’re marketed and enforced.
These are just some examples of how regulators are focused on both of these issues. But, no matter what products or services you’re offering, it’s critical to ensure that marketing promotions are fair, transparent, and non-deceptive.
Failure to comply with UDAAP or fair lending can lead to significant consequences, such as financial penalties, reputational damage, and loss of consumer trust and loyalty.
A simple 2-step process for compliance
In a webinar, John Henson, General Counsel at ConsumerAffairs, talked about the simple approach to compliance that he coaches his team on.
Compliance is really easy, it’s a two-step process. Tell the customer what you’re going to do, and then you do it. Any gap between those two things is a compliance concern. This is incredibly true in UDAAP, and it’s also very true in fair lending.
– John Henson,
It’s about making sure that you treat people well, John says. Can you explain to the customer what you’re going to do? Then, once you do it, does it match what you said you would do from the customer’s perspective? Does it happen in such a way that the customer understands exactly what happened? Any gap between these two steps, John says, is a compliance concern.
If there is a gap between those two steps, then there’s something off in the customer experience. It’s not enough just to ensure that the initial marketing piece is compliant, but everything else after that has to be, too, including landing pages, emails, and other marketing materials. You should focus on the entire customer experience from beginning to end-the customer experience IS the compliance.
This two-step process will help your team cover ground for UDAAP, fair lending, and so many other consumer protection laws. This will also lead to increased bandwidth to focus on the more technical aspects of compliance, such as APR rates, proper disclosures, etc. This process will also help your organization ensure fairness because consumers will know exactly what they’re signing up for and what they can expect.
To hear more from John, watch the webinar here, or listen to the podcast here.
Gianna Kennedy