Presentation on theme: "The CFPB, Consumer Complaint Management, Social Media & UDAAP"— Presentation transcript:
1The CFPB, Consumer Complaint Management, Social Media & UDAAP BCAC SeminarMarch 2012
2Objectives and Summary Current Regulatory Landscape / CFPBComplaint ManagementRole of Social MediaFrom UDAP to UDAAP ~ Abusive StandardEnforcement TrendsKey Focus Areas / TriggersComplaint Management and UDAAP - Tools & Best PracticesDotcom Disclosures – Tips for Online Advertising
3The Consumer Financial Protection Bureau (CFPB) Alliance
4The CFPB AllianceMemorandum of UnderstandingCreates Framework for Strong Coordination and CooperationThe FTC and CFPB will meet regularly, consult with one another, and share complaint information.The prudential regulators are turning information over to the CFPB.Regulators - increased focus on consumer complaintsAggressive enforcement of consumer protectionVice-versa: The CFPB turns information over to the prudential regulatorsState Attorneys General have an alliance with the CFPB.
5The CFPB What it means for community banks Rulemaking Authority overseeing most consumer protection regulationsNo direct examination authority over community banks (must have total assets of $10+ billion)Strong alliance with FTC, prudential regulators and state AGsVery proactive with consumer complaintsConsumers 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 processKey objective is to protect consumer from unfair, deceptive, or abusive acts and practices – “UDAAP”
6The CFPB is Open for Business Submit a Mortgage Complaint Submit a Credit Card Complaint Sign up & tell your story
7Stay connected through the ABA! ABA Dodd-Frank TrackerABA Dodd-Frank Guide for Community Banks addressing 12 Critical IssuesDodd-Frank Master Calendar
9Core Requirements Written policies and procedures Complaints must be logged, responded to, and analyzed for trends or patternsDesignated internal resourcesEmployee trainingInternal and external auditsImplementing changes, when necessaryChanged Landscape: Complaints have shifted from a customer service function to a compliance function.Tip: Regulators are finding UDAAP cases in complaints.
10Best PracticesEnsure 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 complaint.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 point-of-view.Have designated staff and resources devoted to complaint management.Single-point-of-contactQuick turnaround timeThe ability to reach a “live” person
11Life-Cycle Process to receive and respond to complaints Process to monitor and respond to complaints from external sourcesProcess to monitor and escalate complaintsProvide timely responses to regulatorsImplement more careful oversight when new products or services are introducedTracking systems and metricsReporting to senior managementAnalysis of trends and required action
12The Importance of Metrics Metrics tell a storyShow a sudden spike in complaintsProvide feedback on new products and servicesShow business unit weaknesses and areas that need improvementShow vendor weaknessesShow themes and patternsReveal new sources of information
14The 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.Twitter Yelp Facebook LinkedIn Google+ Blogs
15Focusing on True RiskDistinguish between run-of-the mill complaints and true regulatory issuesCategories – customer satisfaction complaints versus compliance (substantive) complaintsDetermine how to assess the differenceOversight and trainingRun of the MillBank décor detracts from architectural integrityCustomer Service rep was rude and nastySubstantiveI am disabled and cannot access your ATM machinesI had to call customer service five times to speak with someone knowledgeable
16Social Media – Best Practices Nurture long-term customer relationshipsEmbrace the new skills - empathy and compassionDevelop a social media strategySocial Media has shifted the traditional view of marketing from a sales driven approach to a people driven approachRelationship Marketing focuses on customer engagement and community buildingAll marketing should support the building of the highest value on social networks: TrustDon’t just talk about Banking!Show your community engagementUse good content mixMonitor social media sites & be responsive!
18From UDAP to UDAAP UDAP has been around since 1914 Traditional elements of UDAP:Injury must be substantialInjury must be unavoidableRepresentation, omission, or practice likely to misleadConsidered from perspective of “reasonable consumer”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.
19From UDAP to UDAAP (continued) UDAAP and the new “Abusive” StandardA - 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 day-to-day operations. Fundamental questions remain regarding materiality and reasonableness. Nevertheless, financial institutions must assess practices against this new standard.
20Duty to Customers under Dodd-Frank Act Act in the best interest of your customersLoans must be understandable and not unfair, deceptive or abusiveNo steering customers toward loans they cannot repay or toward products with predatory characteristicsMay not require mandatory arbitrationMay not finance single-premium credit insuranceFirst time homebuyers must receive counselingMinimum standards for mortgage products, including ability to repayProhibits prepayment penalties on high-rate loans and ARMsIf offering loans with prepayment penalty, must also offer ones without such a penaltyDisclose total interest, aggregate fees and full amount paid for settlementMonthly statement showing principal remaining, interest rate, next rate adjustment, prepayment fee, description of late fee, and contact info
21Complaint 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. §§ a through q.
22About CUTPAProvides the state agency substantive rulemaking authority.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 costs.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.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.
24UDAAP Enforcement and Community Banks 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 programs.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
25CT UDAAP CasesHanson v. Litton Loan Servicing LP, et al., Case No. 3:04-cv 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 of RESPA, FDCPA, TILA, FCRA, CUTPA, 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.
26CT UDAAP Cases (continued) Connecticut AG Jepsen Announced $25 Billion Joint Federal-MultiState Settlement on Mortgage Foreclosure Servicing Wrongs – February 2012Connecticut share estimated at more than $190 million in the landmark $25 billion joint federal-multistate 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.
28UDAAP Triggers in Complaints The following may be a sign of a UDAAP issue in a consumer complaint:Accusation of misleading or false statementsMissing disclosures or informationUndue or excessive feesInability to reach customer service (or a live person)Undisclosed or unauthorized chargesProducts 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”
29Lessons Learned UDAP enforcement cases: Woodforest Bank – Overdraft ProtectionOverdraft 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 ForeclosuresUnfair 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 ReductionCiti reduced borrowers’ HELOCs based upon belief that collateral significantly declined since the opening the HELOCs.
30Lessons Learned, con’tGutierrez v. Wells Fargo – High-to-Low SequencingHigh-to-low sequencing practice whereby the bank processed debit card, checking and ACH transactions from highest-to-lowest dollar amount was deemed unfair and deceptive.Ohio v. Mortgage Servicers – UDAP PotpourriOhio 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 ProtectionProduct was “so restricted, and processing claims under coverage so difficult” that the program was essentially worthless.
31The 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 marketplace.
32CFPB Manual Contains three sections covering UDAAP Explanation of the Bureau’s interpretation of “unfair,” “deceptive” and “abusive.”UDAAP examination proceduresRisk Assessment templateThe Bureau is consistent with the FTC in defining “unfair” and “deceptive.”
33Important Laws and Regulations Section 5 of the Federal Trade Commission ActProhibits “unfair or deceptive trade practices in or affecting commerce”The Dodd-Frank ActUnfair is defined similarly to the FTC ActDeceptive is defined by the CFPB similar to FTC ActDefines abusive as material interference with the consumer’s ability to understand…or takes unreasonable advantage…Regulation AAProhibits unfair credit contract provisions, unfair or deceptive cosigner practices, and unfair late charges, among other things.CUTPA Broadly prohibits unfair and deceptive acts and practices.
34Recent Focus Areas Rewards Checking Credit Card Practices FDIC UDAP CasesRewards CheckingCredit Card PracticesThird Party or Affinity Relationships (i.e. Rent-a-BIN)Insurance Related PracticesNegative Amortization ARM LoansARM Loan PricingError Resolution ProcessOverdraft Programs and ServicesSource: FDIC Chicago Region Regulatory Conference Call, July 16, 2011
35Best 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.
36Additional UDAAP Trigger Topics Overdraft protection programsAccount disclosuresAdvertising and marketingFees of any kindBorrower 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 pricingMortgage loan originator compensationTILA/RESPADebit card practicesThird-party vendor practicesConsumer complaints
37Additional UDAAP Trigger Topics, con’t Advertising ODP on “free” deposit accountsRewards Program: Stating customers must “make” transactions within certain timeframe when what bank really means is that transactions must “post” within a certain timeframe.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.”
38The 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?
39Complaint Management and UDAAP - Tools & Best Practices
40Advertising Best Practices All forms or advertising should be reviewed including materials from third partiesTarget audience should be consideredMaterial should be complete, accurate, and help the consumer make an informed decision.DO NOT:Use small font to hide costs, critical terms or conditionsUse pop-up windows or hyperlinks to display key informationBury information at the end of a long webpageUse a fast moving “scroll” on websites
41Disclosures – Best Practices DO:Monitor compliance with applicable laws and regulationsCompare disclosures to actual practices and marketing materialsConsider additional levels of review for accuracy and readability
42Servicing and Collections Best Practices Monitor scripts for compliance with applicable laws and regulations and to ensure product or service is accurately describedProvide frequent compliance and product/service trainingMonitor correspondence and listen to customer callsEvaluate debt collection practicesReview payment processing practicesReview fee practices
43Managing Service Providers The bank’s responsibility for third-party activity is the same as an activity handled directly by the bank⊲ payment processors⊲ collection vendors⊲ loan servicersBest practice: Third-party activities should be integrated into the institution’s Compliance Management SystemEffective third-party management includes:Risk Assessment Contract Structuring and ReviewDue DiligenceOversight
44FTC Guidance on Dotcom Disclosures Information About Online AdvertisingThe Federal Trade Commission (FTC) published guidance in 2000; re-circulated in 2012The 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.
45Dotcom 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;
46Dotcom 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 accordingly.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.
47Dotcom 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.
48In SummaryNow’s the time to enhance your Consumer Complaint Management Policy & Practices – Keep a log and use metricsCompliance Review of all Marketing CollateralCompliance Review of New Products & ServicesEnsure ongoing compliance through regular Monitoring, Auditing &Training – including social media sitesUDAAP Readiness is Key!
49Visit us at ICSriskadvisors 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, CRCMDirector, New England RegionPE.
50ResourcesCFPB – 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 , June 6, 2008 FDIC, Overdraft Payment Programs and Consumer Protection , Final Supervisory Guidance, FIL , 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