Inside Information: Understanding Consumer Complaint Topics as a Key Defense Against UDAAP
In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) introduced the current version of unfair, deceptive, or abusive acts and practices (UDAAP), making it unlawful for any service provider of consumer financial products or services to engage in any UDAAP. The challenge for businesses operating under the Consumer Financial Protection Bureau’s (CFPB) scrutiny is that the compliance standard for UDAAP is purposely broad and intrinsically flexible.
Without clear guidelines, how does an organization efficiently manage potential UDAAP risks? The answer may be based, in part, on how your organization monitors, records, processes and categorizes consumer complaints. This “inside information” could be a key component of an organization’s overall first line of defense against UDAAP inquiries.
On June 23, 2015, the CFPB released its latest supervision report outlining illegal practices uncovered by the Bureau’s examiners during the first quarter of 2015. Among the findings, Bureau examiners found that consumer complaints were not being adequately monitored. Specifically, the Bureau found that a debt collector was not recording complaint inquiries, stating that a “lack of record-keeping deprives compliance personnel of an important tool for detecting and fixing violations of federal consumer financial laws.”
The CFPB commonly observes the level of risk in the organizational environment or inherent risk of the organization during its normal operation. In fact, the CFPB’s UDAAP manual states, “Consumer complaints play a key role in the detection of unfair, deceptive, or abusive practices. Consumer complaints have been an essential source of information for examinations, enforcement and rule-making for regulators. As a general matter, consumer complaints can indicate weaknesses in elements of the institution’s compliance management system, such as training, internal controls, or monitoring.” As a result, internal tracking information and specifically, tracking of consumer complaints is a good source for evaluating potential UDAAP risk concerns and identifying red flags in an organization’s practices.
UDAAP is based on the perspective of a “reasonable” consumer, therefore if several customers complain and allege misrepresentations or misunderstandings, those complaints may provide a window into the perspective of the reasonable consumer. When customers repeatedly complain about an organization’s product or service, the organization may want to flag those issues for further review.
It appears clear that the CFPB will continue to monitor consumer complaints as a tool to detect violations of federal consumer financial laws, including UDAAP. Given this, a lender or servicer should consider using a process to monitor and track consumer complaints to stay ahead of any potential violations.