BCAC-CFPB-Consumer-Complaint-Management - Bcac

Consumer Complaint Management,
Social Media & UDAAP
BCAC Seminar
March 2012
Objectives and Summary
Current Regulatory Landscape / CFPB
Complaint Management
Role of Social Media
From UDAP to UDAAP ~ Abusive Standard
Enforcement Trends
Key Focus Areas / Triggers
Complaint Management and UDAAP - Tools &
Best Practices
Dotcom Disclosures – Tips for Online Advertising
The Consumer Financial Protection
Bureau (CFPB) Alliance
The CFPB Alliance
Memorandum of Understanding
Creates Framework for Strong Coordination and Cooperation
The FTC and CFPB will meet regularly, consult
with one another, and share complaint
The prudential regulators are turning information
over to the CFPB.
• Regulators - increased focus on
consumer complaints
• Aggressive enforcement of consumer
• Vice-versa: The CFPB turns information
over to the prudential regulators
State Attorneys General have an alliance with
the CFPB.
What it means for community banks
Rulemaking Authority overseeing most
consumer protection regulations
No direct examination authority over community
banks (must have total assets of $10+ billion)
Strong alliance with FTC, prudential regulators
and state AGs
Very proactive with consumer complaints
Consumers have the CFPB’s ear – direct online
link to “share stories of lender abuse”
Trend – regulatory actions applicable to larger
banks trickle down to community banks through
the regular examination process
Key objective is to protect consumer from unfair,
deceptive, or abusive acts and practices –
The CFPB is Open for Business
Submit a Mortgage Complaint
Submit a Credit Card Complaint
Sign up & tell your story
Stay connected through the ABA!
• ABA Dodd-Frank Tracker
• ABA Dodd-Frank Guide for
Community Banks addressing 12
Critical Issues
• Dodd-Frank Master Calendar
Complaint Management
Core Requirements
Written policies and procedures
Complaints must be logged, responded to, and
analyzed for trends or patterns
Designated internal resources
Employee training
Internal and external audits
Implementing changes, when necessary
Changed Landscape: Complaints have shifted
from a customer service function to a
compliance function.
Tip: Regulators are finding UDAAP cases in
Best Practices
Ensure all material complaints, including oral
and written complaints, are being tracked.
Train employees so that they understand when
an “inquiry” crosses the threshold into a
Complaints should be reviewed by a compliance
officer or committee to ensure trends are
identified and changes are made.
Understand the issue from the customer’s pointof-view.
Have designated staff and resources devoted to
complaint management.
Quick turnaround time
The ability to reach a “live” person
Process to receive and respond to complaints
Process to monitor and respond to complaints
from external sources
Process to monitor and escalate complaints
Provide timely responses to regulators
Implement more careful oversight when new
products or services are introduced
Tracking systems and metrics
Reporting to senior management
Analysis of trends and required action
The Importance of Metrics
Metrics tell a story
Show a sudden spike in complaints
Provide feedback on new products and services
Show business unit weaknesses and areas that
need improvement
Show vendor weaknesses
Show themes and patterns
Reveal new sources of information
Social Media
The Role of Social Media
The proliferation of social media has taken complaints in a new
direction at a frenetic pace.
The CFPB actively reaches consumers through social media.
Employees use social media and often identify themselves as
an employee of a financial institution.
Customers use social media to talk about experiences they
have had with a financial institution the bank.
Frank Eliason, founder of Comcast Cares and current VP of
social media at Citi, explains why empathy and speed are
critical when responding to customers on Twitter and other
social media sites.
70% of Companies Ignore Customer Complaints on Twitter.
Focusing on True Risk
Distinguish between run-of-the mill complaints
and true regulatory issues
Categories – customer satisfaction complaints
versus compliance (substantive) complaints
Determine how to assess the difference
Oversight and training
Run of the Mill
• Bank décor detracts
from architectural
• Customer Service rep
was rude and nasty
• I am disabled and
cannot access your
ATM machines
• I had to call customer
service five times to
speak with someone
Social Media – Best Practices
Nurture long-term customer relationships
Embrace the new skills - empathy and
Develop a social media strategy
Social Media has shifted the traditional view of
marketing from a sales driven approach to a
people driven approach
Relationship Marketing focuses on customer
engagement and community building
All marketing should support the building of the
highest value on social networks: Trust
Don’t just talk about Banking!
Show your community engagement
Use good content mix
Monitor social media sites & be responsive!
UDAP has been around since 1914
Traditional elements of UDAP:
• Injury must be substantial
• Injury must be unavoidable
• Representation, omission, or practice likely to
• Considered from perspective of “reasonable
• Representation, omission or practice is material
(material = anything that costs money)
Tip: An act or practice DOES NOT have to
violate any other law in order to be considered
unfair or deceptive.
From UDAP to UDAAP (continued)
UDAAP and the new “Abusive” Standard
A - is for abusive (and amorphous)
The financial crisis and mortgage meltdown have called
into question practices in the financial services industry
where legislators have argued that consumers were not
equipped to understand risks or complexities of banking
products. The Dodd-Frank Act established that certain
practices could also be abusive in addition to UDAP.
An abusive act or practice: Materially interferes with the
consumer’s ability to understand a term or condition.
Currently, there is no clear path to address abusive in dayto-day operations. Fundamental questions remain
regarding materiality and reasonableness. Nevertheless,
financial institutions must assess practices against this
new standard.
Duty to Customers under
Dodd-Frank Act
Act in the best interest of your customers
Loans must be understandable and not unfair, deceptive
or abusive
No steering customers toward loans they cannot repay or
toward products with predatory characteristics
May not require mandatory arbitration
May not finance single-premium credit insurance
First time homebuyers must receive counseling
Minimum standards for mortgage products, including
ability to repay
Prohibits prepayment penalties on high-rate loans and
If offering loans with prepayment penalty, must also offer
ones without such a penalty
Disclose total interest, aggregate fees and full amount
paid for settlement
Monthly statement showing principal remaining, interest
rate, next rate adjustment, prepayment fee, description of
late fee, and contact info
Complaint Handling & UDAAP
Every state has a consumer protection law that
prohibits deceptive practices, and many prohibit
unfair or unconscionable practices as well.
These statutes, commonly known as Unfair and
Deceptive Acts and Practices or UDAP statutes,
provide bedrock protections for consumers.
Connecticut has a fairly strong UDAP statute
known as “CUTPA,” which broadly prohibits
unfair and deceptive acts and practices.
Connecticut Unfair Trade Practices Act, Conn.
Gen. Stat. §§ 42-110a through 42-110q.
Provides the state agency substantive rulemaking
Allows public enforcement without requiring a showing of
the defendant’s intent or knowledge.
Available remedies include equitable relief (“what the court
or regulator deems to be fair’); private right of action for
consumers; penalties up to $5k per violation.
Connecticut also authorizes punitive damages in addition
to the possibility of consumers to recap attorneys fees and
Connecticut allows class action suits based on CUTPA
(UDAP) theories.
The statute provides for strong consumer protection
in the arena of credit and financial services. (Normand
Josef Enterprises, Inc. v. Connecticut Nat. Bank, 646 A.2d
1289 Conn. 1994)
Insurance products and practices are also covered under
CUTPA applies to creditors collecting their own debts
(Pabon v. Recko, and Wagner v. Am. Nat’l Educ. Corp.)
CUTPA applies to transactions involving real property.
Enforcement Trends
UDAAP Enforcement and Community
According to the FDIC, UDAAP affects banks of all
sizes, including small community banks. It’s a
common misconception that UDAAP applies only to
large credit bard banks or automated overdraft
Since 2008, 43% of UDAP (UDAAP) violations
cited by the FDIC were for banks with total assets
of $250m or less.
UDAAP violations have resulted in unsatisfactory
CRA ratings, downgraded consumer compliance
ratings, restitution to customers, and the pursuit of
civil money penalties. The penalty and restitution
amounts can be significant.
Source: FDIC Chicago Region Regulatory
Conference Call, June 16, 2011
Hanson v. Litton Loan Servicing LP, et al., Case No. 3:04-cv00568-WWE (D. Conn.)
Litton Loan Servicing LP and Credit-Based Asset
Servicing and Securitization LLC in putative
class action concerning mortgage loan servicing.
Litton is accused of racketeering and violations
negligence, unjust enrichment, conversion, civil
conspiracy, negligent servicing of claims, breach
of good faith and fair dealing, misrepresentation,
larceny, fraud, breach of contract, distress,
reckless and wanton misconduct, etc.
CT UDAAP Cases (continued)
Connecticut AG Jepsen Announced $25 Billion Joint
Federal-MultiState Settlement on Mortgage Foreclosure
Servicing Wrongs – February 2012
Connecticut share estimated at more than $190
million in the landmark $25 billion joint federalmultistate agreement with the nation’s five
largest mortgage servicers over foreclosure
abuses and fraud, and unacceptable mortgage
servicing practices.
The settlement provides more than $190 million
in relief to CT homeowners and the state, and
imposes new consumer protections on future
mortgage loan servicing practices.
“For the first time, state attorneys general will
have authority to monitor how federally regulated
banks comply with the new servicing rules and to
impose heavy penalties on those banks that fall
short,” Jepsen said.
Key Focus Areas / Triggers
UDAAP Triggers in Complaints
The following may be a sign of a UDAAP issue in a
consumer complaint:
Accusation of misleading or false statements
Missing disclosures or information
Undue or excessive fees
Inability to reach customer service (or a live
Undisclosed or unauthorized charges
Products geared toward the “vulnerable” –
students, elders, servicemembers, those in
financial distress, those with limited English skills
or education, etc.
A statement to the effect of “I didn’t understand”
Lessons Learned
UDAP enforcement cases:
Woodforest Bank – Overdraft Protection
Overdraft and recurring fees were assessed against
customers enrolled in the “Privilege Pay” program. Marketing
materials emphasized “free” or “low cost” features while
omitting information about costly features. The product was
geared toward those with previous difficulty in managing their
bank accounts.
Massachusetts v. Fremont – Mortgage Foreclosures
Unfair for a lender to make high cost loans, then reap financial
rewards from high point, fees and interest by foreclosure when
lender should have foreseen that borrowers unable to meet
scheduled payments.
Levin v. CitiBank, N.A. – HELOC Reduction
Citi reduced borrowers’ HELOCs based upon belief that
collateral significantly declined since the opening the
Lessons Learned, con’t
Gutierrez v. Wells Fargo – High-to-Low
High-to-low sequencing practice whereby the bank
processed debit card, checking and ACH transactions from
highest-to-lowest dollar amount was deemed unfair and
Ohio v. Mortgage Servicers – UDAP Potpourri
Ohio AG (Richard Cordray) charged mortgage servicers
with UDAP violations ranging from alleged improper
handling of consumer complaints or requests for
assistance and long customer service call wait times.
Salazar v. Capital One – Payment Protection
Product was “so restricted, and processing claims under
coverage so difficult” that the program was essentially
The Key to UDAAP
Key question to ask:
Is it fair to the consumer?
Because compliance has traditionally been
focused on meeting technical requirements, the
new fairness challenge will require banks to
rethink the old way of doings things when
bringing products and services to the
CFPB Manual
Contains three sections covering UDAAP
Explanation of the Bureau’s interpretation of
“unfair,” “deceptive” and “abusive.”
UDAAP examination procedures
Risk Assessment template
The Bureau is consistent with the FTC in
defining “unfair” and “deceptive.”
Important Laws and Regulations
Section 5 of the Federal Trade Commission Act
Prohibits “unfair or deceptive trade practices in or
affecting commerce”
The Dodd-Frank Act
Unfair is defined similarly to the FTC Act
Deceptive is defined by the CFPB similar to FTC Act
Defines abusive as material interference with the
consumer’s ability to understand…or takes
unreasonable advantage…
Regulation AA
Prohibits unfair credit contract provisions, unfair or
deceptive cosigner practices, and unfair late charges,
among other things.
Broadly prohibits unfair and deceptive acts and
Recent Focus Areas
Rewards Checking
Credit Card Practices
Third Party or Affinity Relationships (i.e. Rent-aBIN)
Insurance Related Practices
Negative Amortization ARM Loans
ARM Loan Pricing
Error Resolution Process
Overdraft Programs and Services
Source: FDIC Chicago Region Regulatory
Conference Call, July 16, 2011
Best Practices, in general
Because of the role of subprime lending in the
mortgage crisis, combined with the emphasis on
how certain borrowers were “steered” into loan
products, financial institutions offering more than
one type of mortgage product should consider
having borrowers sign a statement that he/she
chose the loan product booked after considering
all options available.
As part of foreclosure practices, banks should
retain a copy of the DOD website screenshot to
prove that the bank confirmed that the borrower
is not on active military duty.
Additional UDAAP Trigger Topics
Overdraft protection programs
Account disclosures
Advertising and marketing
Fees of any kind
Borrower ends-up with a portfolio loan instead of
a cheaper, non-portfolio secondary market loan.
Foreclosure practices that involve robo-signing or
failure to confirm active military duty status.
Credit products and pricing
Mortgage loan originator compensation
Debit card practices
Third-party vendor practices
Consumer complaints
Additional UDAAP Trigger Topics, con’t
Advertising ODP on “free” deposit accounts
Rewards Program: Stating customers must
“make” transactions within certain timeframe
when what bank really means is that
transactions must “post” within a certain
Reward Program: Stating “month” if bank really
means “qualification cycle.”
Rewards Program: Stating customer must
“receive” electronic statements if bank really
means “view” electronic statements.
Rewards Program: Stating “ATM transactions” if
bank really means “debit card purchases.”
The Four Ps of Deception
PROMINENCE: Is it big enough for consumers
to notice and read?
PRESENTATION: Is wording and format easy
for consumers to understand?
PLACEMENT: Is it where consumers will look?
PROXIMITY: Is it near the claim that it qualifies?
Complaint Management and UDAAP Tools & Best Practices
Advertising Best Practices
All forms or advertising should be reviewed
including materials from third parties
Target audience should be considered
Material should be complete, accurate, and help
the consumer make an informed decision.
• Use small font to hide costs, critical terms or
• Use pop-up windows or hyperlinks to display key
• Bury information at the end of a long webpage
• Use a fast moving “scroll” on websites
Disclosures – Best Practices
• Monitor compliance with applicable laws and
• Compare disclosures to actual practices and
marketing materials
• Consider additional levels of review for accuracy
and readability
Servicing and Collections Best
Monitor scripts for compliance with applicable
laws and regulations and to ensure product or
service is accurately described
Provide frequent compliance and product/service
Monitor correspondence and listen to customer
Evaluate debt collection practices
Review payment processing practices
Review fee practices
Managing Service Providers
The bank’s responsibility for third-party activity is
the same as an activity handled directly by the
⊲ payment processors
⊲ collection vendors
⊲ loan servicers
Best practice: Third-party activities should be
integrated into the institution’s Compliance
Management System
Effective third-party management includes:
Risk Assessment
Contract Structuring and Review
Due Diligence
FTC Guidance on Dotcom Disclosures
Information About Online Advertising
The Federal Trade Commission (FTC) published
guidance in 2000; re-circulated in 2012
The FTC is the primary enforcement authority
that polices consumer protection laws to ensure
that online ads are truthful and that consumers
get what they pay for.
The FTC Act’s prohibition on unfair or deceptive
acts or practices encompasses Internet
advertising, marketing and sales.
In evaluating whether disclosures are likely to be
clear and conspicuous in online ads, advertisers
should consider the placement of the
disclosure in an ad and its proximity to the
relevant claim.
Dotcom Disclosures, con’t
To make a disclosure clear and conspicuous,
advertisers should:
Place disclosures near, and when possible, on
the same screen as the triggering claim.
Use text or visual cues to encourage consumers
to scroll down a Web page when it is necessary
to view a disclosure.
When using hyperlinks to lead to disclosures,
make the link obvious;
Label the hyperlink appropriately to convey the
importance, nature and relevance of the
information it leads to;
Use hyperlink styles consistently so that
consumers know when a link is available;
Place the hyperlink near relevant information
and make it noticeable;
Dotcom Disclosures, con’t
To make a disclosure clear and conspicuous,
advertisers should:
Take consumers directly to the disclosure on the
click-through page;
Assess the effectiveness of the hyperlink by
monitoring click-through rates and make changes
Recognize and respond to technological limitations
or unique characteristics of making disclosures,
such as frames or pop-ups.
Display disclosures prior to purchase, but recognize
that placement limited only to the order page may
not always work.
Creatively incorporate disclosures in banner ads or
disclose them clearly and conspicuously on the
page the banner ad links to.
Prominently display disclosures so they are
noticeable to consumers, and evaluate the size,
color and graphic treatment of the disclosure in
relation to other parts of the Web page.
Dotcom Disclosures, con’t
To make a disclosure clear and conspicuous,
advertisers should:
Review the entire ad to ensure that other
elements, text, graphics, hyperlinks sound do not
distract consumers’ attention from the disclosure.
Repeat disclosures, as needed, on lengthy Web
sites and in connection with repeated claims.
Use audio disclosures when making audio
claims, and present them in a volume and
cadence so that consumers can hear and
understand them.
Display visual disclosures for a duration
sufficient for consumers to notice, read and
understand them.
Use clear language and syntax so that
consumers understand the disclosures.
In Summary
Now’s the time to enhance your Consumer
Complaint Management Policy & Practices –
Keep a log and use metrics
Compliance Review of all Marketing Collateral
Compliance Review of New Products & Services
Ensure ongoing compliance through regular
Monitoring, Auditing &Training – including social
media sites
UDAAP Readiness is Key!
Visit us at ICSriskadvisors.com to view all of
our research and development center online
resources. Subscribe to our blog, download our
white papers, attend our webinars, and deliver
the confidence of more to your organization.
Pamela C. Buckley, CRCM
Director, New England Region
P. 781.330.9341
E. [email protected]
CFPB – www.consumerfinance.gov
FDIC, Supervisory Insights, Winter 2008, Vol 5., Issue 2, From the Examiner’s Desk:
Unfair and Deceptive Acts and Practices: Recent FDIC Experience
FTC Policy Statement on Deceptive Acts and Practices
FDIC, Third Party Risk: Guidance for Managing Third Party Risk, FIL 44-2008, June 6,
FDIC, Overdraft Payment Programs and Consumer Protection , Final Supervisory
Guidance, FIL 81-2010, November 24, 2010
The UDAP-Ification of Consumer Financial Services Law, January 2011, The Banking
Law Journal
Dot.Com Disclosures, a FTC Staff Summary of Information About Online Advertising
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