Financial institutions were recently reminded of the importance of ensuring marketing materials, products, and services are not unfair, deceptive, or abusive. This month the CFPB ordered Bank of America to pay $727 Million in consumer relief for illegal credit card practices.
Bank of America was found to have misled consumers about the cost of the first 30 days of coverage for their add-on product, mislead about the enrollment process for the credit protection products, and misrepresented the benefits consumers could receive from the products. This case is just one of many that have resulted from Unfair, Deceptive, or Abusive Acts and Practices (UDAAP) violations in recent years.
In previous years Capital One and Discover were just two financial entities with cases brought against them for UDAAP violations. Capital One was found to have misled about its product benefits and eligibility, deceived about the nature of the product, misinformed about cost, and enrolled without consent. Similarly, Discover misled about the charge for its product, misled about whether they had purchased the products, enrolled without consent, and withheld material information about eligibility.
If your credit union offers add-on products I would highly recommend reviewing the CFPB’s Bulletin from July 2012 – Marketing of Credit Card Add-on Products.
In light of the huge fine being imposed on Bank of America, I thought it would be a good idea to remind credit unions that UDAAP is here to stay. It applies to all products and services, and all aspects of a transaction, including advertising, disclosures, agreements, periodic statements, collections, vendors, etc.
So let me break it down for you:
An act or practice is unfair when:
- It causes or is likely to cause substantial injury to members;
- The injury is not reasonably avoidable by members; and
- The injury is not outweighed by countervailing benefits to consumers or to competition.
Deceptive is when a representation, omission, act, or practice:
- Misleads or is likely to mislead the member;
- The member’s interpretation is reasonable under the circumstances; and
- The misleading representation, omission, act, or practice is material.
An abusive act or practice:
- Materially interferes with the ability of a member to understand a term or condition of a member financial product or service OR
- Takes unreasonable advantage of: (1) A lack of understanding on the part of the member of the material risks, costs, or conditions of the product or service; (2) The inability of the member to protect his/her interests in selecting or using a member financial product or service; or (3) The reasonable reliance by the member on a covered person to act in the interests of the member.
A key take-away from the most recent case is that credit card add-on products increase the level of inherent consumer risk and credit unions must take this into account when considering offering such products. The credit union’s compliance officer should be reviewing policies and procedures to ensure proper controls are in place.
What else might increase inherent UDAAP risk? Vendors! Are your in-house controls also applied to your outside vendors?
So how are you ensuring your marketing pieces, products and services are in compliance?