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UDAAP and New England State Counterparts: A Primer for Marketing Professionals in Banking

Is obtaining a competitive advantage or meeting revenue
goals an achievement if done at your consumers’ expense through utilizing
questionable practices?Most banking institutions are not intentionally
unscrupulous, but rather unaware of the extent of their exposure to UDAAP risk
through seemingly benign channels. This may be true because business units do
not communicate, standards are too subjective, or consumer behavior is too
unpredictable. Regardless, Marketing professionals, together with Compliance
and Legal professionals, can effectively mitigate risk by monitoring industry
trends, setting standards by which to measure internal processes and practices,
then building compliance programs to control for conduct and monitor
compliance.

To effectively capture UDAAP risk, a marketing compliance
program should include controls for preventing, identifying and remedying
perceived or actual “abusive” practices as set forth within the Dodd Frank Act (See
12 USC § 5531(d)(1)
and (2) and 5536).
“Abusive” practices are those which, in sum: (1) materially interfere with a
consumer’s ability to understand a product or service’s terms or conditions, or
(2) take unreasonable advantage of a lack of understanding of the consumer, an
inability of the consumer to protect his or her interests, or a consumer’s
reasonable reliance on another acting in their interest. The subjectivity of
this standard presents as a challenge, particularly in light of minimal
administrative guidance. For this
reason, oversight is essential.

“Think in terms of protecting the least sophisticated consumer from the perspective of the most sophisticated plaintiffs’ consumer protection attorney.”

In marketing campaigns, emphasis should be placed on
clarity, transparency, and consumer interest while eschewing small print and
inconspicuous language. Word choice and physical arrangement is critical to
achieve accurate representation of product specifications. Avoid overly
suggestive or vague trigger words, such as “free,” “no cost” or “rates as low
as.” Heightened scrutiny should also extend to: (1) those vulnerable classes of
persons, such as the elderly or military borrowers; (2) fee or income
generating products or services, particularly overdraft programs and supplemental
credit card products; and (3) third party vendor conduct. Before publishing or
distributing any campaign materials, have them reviewed by Compliance or Legal
professionals against a checklist for UDAAP and other related regulations. Be
sure to retain documentation of any reviews conducted. Further, the complexity
of this analysis is amplified when marketing materials are introduced into the
interactive communication environment of social media.

Moreover, when reviewing items internally under UDAAP analysis,think in terms of protecting the least sophisticated consumer from the
perspective of the most sophisticated plaintiffs’ consumer protection attorney.
This is especially important where nearly all state UDAAP-type statutes permit
a private cause of action as a consumer remedy, unlike the federal UDAAP models.
Often, state statutes are more encompassing than UDAAP which compounds the need
for hyper-vigilance. Otherwise, remedies under UDAAP are more likely to come in
the form of civil money penalties or restitution to consumers. Locally, Maine,
Vermont
and New
Hampshire
have relatively stringent monetary penalties under statute
whereas Rhode
Island
is the only state to have none.

Finally, some other sources of authority to build awareness
include: Section
5 of the FTC Act
; Regulation AA;
MAP
Rule
, state statutes and regulations, such as Conn. Gen. Stat. 42-110a et
seq.
, Mass.
Gen. Laws c. 93A
and 209 CMR 32.00 et seq., and current case law relating to each. Most recently,
the FFIEC issued valuable guidance relating to social media usage. Ultimately,
those institutions with a culture of awareness emphasizing positive customer
experience will achieve a competitive advantage.