Do you know your UDAAP compliance risk? For all types of financial service providers, UDAAP risk management remains a focal point. In this blog, you will learn about a recent UDAAP settlement, and how to prepare for compliance success in 2019.
As the year is coming to a close, it's time to begin preparing for compliance success in 2019! One of the top areas of focus for regulators appears to be UDAAP compliance risk.
It has been a headline-maker all year, thanks in large part to the BCFP (formerly CFPB), the $1B Wells Fargo settlement earlier this year, and a recent $11.8M settlement showcased just how important risk management is for financial service providers.
(Remember, you have an opportunity to take a compliance survey and win $150 giftcard before the holidays. If UDAAP is a big priority for you, you can let us know in that compliance pulse survey! We will be publishing the results in a report next week.)
Here's what the $11.8M UDAAP settlement can tell the rest of the industry about UDAAP compliance risk management.
Even though the settlement focuses on direct auto lending compliance, there are important lessons here for financial institutions nationwide. We'll spend a little time explaining the settlement next.
If you're wondering what UDAAP is, you should read this blog that defines UDAAP and gives a few tips for avoiding UDAAP risk.
Fast Facts about the $11.8M UDAAP Settlement Between CFPB and Santander Consumer USA
The settlement, which was finalized between the BCFP and Santander Consumer USA, alleges that the company violated the Consumer Financial Protection Act (CFPA) and engaged in unfair, deceptive, or abusive acts or practices. Here are some fast facts:
- According to the Bureau, Santander did not "properly describ[e] the benefits and limitations of its S-GUARD GAP product."
- The main issue appears to be that Santander marketed this product as if it would offer complete coverage in the event of a total loss of a vehicle, when in fact, it was subject to a limit of 125% of the value of the vehicle at the time of purchase.
- The Bureau also said that Santander "failed to properly disclose the impact on consumers of obtaining a loan extension."
- More specifically, the financial institution allegedly did not "clearly and prominently disclos[e] that the additional interest accrued during the extension period would be paid before any payments to principal when the consumer resumed making payments."
- Santander agreed to pay approximately $9.3M in restitution to certain consumers that purchased the GAP add-on product, plus a $2.5M civil money penalty.
- In addition, Santander agreed to clarify the terms of the loan extensions and add-on product.
You can read the full consent order here.
Some industry experts have commented that the issues that led to this settlement are relatively common in the industry. This leads us to the next section: what you can learn from this settlement.
What This UDAAP Settlement Means for You
Here is what this UDAAP settlement might mean for you, whether you're an auto lender or another financial institution:
- If you're an auto lender, now is a good time to focus on UDAAP and Fair Lending compliance. There have been at least three auto lending-related settlements, fines, or consent orders that have a UDAAP angle:
- This settlement with Santander.
- Earlier this year, the Bureau and the OCC released a Consent Order with Wells Fargo for auto lending-related issues. As part of it, Wells Fargo agreed to pay a $1B civil money penalty to the Bureau.
- They also fined another auto lender, Security National Automotive Acceptance Company (SNAAC), last year for violating a previous consent order. That consent order said that SNAAC engaged in UDAAPs in their debt collection practices. According to the Bureau, SNAAC failed to provide appropriate restitution to customers.
- For other financial institutions, UDAAP issues can and do lead to significant fines and penalties. That $1B Wells Fargo settlement was for mortgage lending and auto lending practices, both of which had a UDAAP angle.
- You can read more about the UDAAP issues related to their "Interest-Rate Lock" program for mortgage lending on page 8 of the consent order.
- The CFPB's strategic plan for 2018-2022 focuses on UDAAP compliance.
- The strategic plan says that objective 2.1 is to "protect consumers from unfair, deceptive, or abusive acts and practices and from discrimination."
- They also focus on elder abuse in this
- In October, Acting Director Mick Mulvaney said that the Bureau is working on a regulation to define "abusive" more clearly. Many experts have said that this effort presents a real challenge for the Bureau.
- The CFPB also provided some guidelines for "clearly and prominently," language which may have some room for subjective interpretation. According to the Santander settlement, when it comes to disclosures, "clearly and prominently" means that:
- In text-based communications, the disclosure needs to be of a size and color and in a location that an ordinary consumer can read and comprehend it.
- In audio-based communications, the disclosure needs to be at a volume and speed that an ordinary consumer could hear and comprehend.
- In interactive communications, the disclosure needs to be unavoidable and presented clearly for an ordinary consumer.
- Disclosures must always be presented to consumers before they incur any financial obligation, "in an understandable language and syntax, and with nothing contrary to, inconsistent with, or in mitigation of the disclosures used in any communication with the consumer."
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TRUPOINT Viewpoint: All financial institutions would do well to consider their UDAAP compliance risk and program going into 2019, as it's shaping up to be a priority for regulators - particularly the BCFP - next year.
If you're looking for help with your UDAAP compliance program, please know that TRUPOINT can help! We offer UDAAP risk reviews and assessments, training, and program and policy reviews.
If you're not ready for any UDAAP compliance consulting help, you may enjoy this quick guide to UDAAP compliance! It's a great resource for those who are trying to learn more about UDAAP, or looking for a quick reference guide.