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The CFPB, Consumer Complaint Management, Social Media & UDAAP BCAC Seminar March 2012.

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Presentation on theme: "The CFPB, Consumer Complaint Management, Social Media & UDAAP BCAC Seminar March 2012."— Presentation transcript:

1 The CFPB, Consumer Complaint Management, Social Media & UDAAP BCAC Seminar March 2012

2 Objectives and Summary 2 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

3 The Consumer Financial Protection Bureau ( CFPB) Alliance 3

4 The CFPB Alliance 4 The 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 complaints Aggressive enforcement of consumer protection Vice-versa: The CFPB turns information over to the prudential regulators State Attorneys General have an alliance with the CFPB. Memorandum of Understanding Creates Framework for Strong Coordination and Cooperation

5 The CFPB 5 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 – “UDAAP” What it means for community banks

6 The CFPB is Open for Business 6 Submit a Mortgage Complaint Submit a Credit Card Complaint Sign up & tell your story

7 Stay connected through the ABA! 7 ABA Dodd-Frank Tracker ABA Dodd-Frank Guide for Community Banks addressing 12 Critical Issues Dodd-Frank Master Calendar

8 Complaint Management

9 Core Requirements 9 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 complaints.

10 Best Practices 10 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 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-contact Quick turnaround time The ability to reach a “live” person

11 Life-Cycle 11 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

12 The Importance of Metrics 12 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 Metrics tell a story

13 Social Media

14 The Role of Social Media 14 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. omplaints_on_social_media__1482.aspx 70% of Companies Ignore Customer Complaints on Twitter. monitoring/70-of-companies-ignore-customer-complaints-on- twitter/ Twitter YelpFacebook LinkedInGoogle+Blogs

15 Focusing on True Risk 15 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 integrity Customer Service rep was rude and nasty Substantive I am disabled and cannot access your ATM machines I had to call customer service five times to speak with someone knowledgeable

16 Social Media – Best Practices 16 Nurture long-term customer relationships Embrace the new skills - empathy and compassion 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!

17 UDAP to UDAAP

18 From UDAP to UDAAP 18 Traditional elements of UDAP: Injury must be substantial Injury must be unavoidable Representation, omission, or practice likely to mislead Considered 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. UDAP has been around since 1914

19 From UDAP to UDAAP (continued) 19 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 day- to-day operations. Fundamental questions remain regarding materiality and reasonableness. Nevertheless, financial institutions must assess practices against this new standard. UDAAP and the new “Abusive” Standard

20 Duty to Customers under Dodd-Frank Act 20 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 ARMs 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

21 Complaint Handling & UDAAP 21 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.

22 About CUTPA 22 Provides 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.

23 Enforcement Trends

24 UDAAP Enforcement and Community Banks 24 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

25 CT UDAAP Cases 25 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. Hanson v. Litton Loan Servicing LP, et al., Case No. 3:04-cv WWE (D. Conn.)

26 CT UDAAP Cases (continued) 26 Connecticut 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. Connecticut AG Jepsen Announced $25 Billion Joint Federal-MultiState Settlement on Mortgage Foreclosure Servicing Wrongs – February 2012

27 Key Focus Areas / Triggers

28 UDAAP Triggers in Complaints 28 Accusation of misleading or false statements Missing disclosures or information Undue or excessive fees Inability to reach customer service (or a live person) 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” The following may be a sign of a UDAAP issue in a consumer complaint:

29 Lessons Learned 29 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 HELOCs. UDAP enforcement cases:

30 Lessons Learned, con’t 30 Gutierrez v. Wells Fargo – High-to-Low Sequencing 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 deceptive. 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 worthless.

31 The Key to UDAAP 31 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.

32 CFPB Manual 32 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.”

33 Important Laws and Regulations 33 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. CUTPA Broadly prohibits unfair and deceptive acts and practices.

34 Recent Focus Areas 34 Rewards Checking Credit Card Practices Third Party or Affinity Relationships (i.e. Rent-a- BIN) 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 FDIC UDAP Cases

35 Best Practices, in general 35 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.

36 36 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 TILA/RESPA Debit card practices Third-party vendor practices Consumer complaints Additional UDAAP Trigger Topics

37 Additional UDAAP Trigger Topics, con’t 37 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 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.”

38 The Four Ps of Deception 38 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?

39 Complaint Management and UDAAP - Tools & Best Practices

40 Advertising Best Practices 40 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. DO NOT: Use small font to hide costs, critical terms or conditions Use pop-up windows or hyperlinks to display key information Bury information at the end of a long webpage Use a fast moving “scroll” on websites

41 Disclosures – Best Practices 41 DO: Monitor compliance with applicable laws and regulations Compare disclosures to actual practices and marketing materials Consider additional levels of review for accuracy and readability

42 Servicing and Collections Best Practices 42 Monitor scripts for compliance with applicable laws and regulations and to ensure product or service is accurately described Provide frequent compliance and product/service training Monitor correspondence and listen to customer calls Evaluate debt collection practices Review payment processing practices Review fee practices

43 Managing Service Providers 43 The bank’s responsibility for third-party activity is the same as an activity handled directly by the bank ⊲ 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 Oversight

44 FTC Guidance on Dotcom Disclosures 44 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. Information About Online Advertising

45 Dotcom Disclosures, con’t 45 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; To make a disclosure clear and conspicuous, advertisers should:

46 Dotcom Disclosures, con’t 46 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. To make a disclosure clear and conspicuous, advertisers should:

47 Dotcom Disclosures, con’t 47 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. To make a disclosure clear and conspicuous, advertisers should:

48 In Summary 48 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!

49 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 E. 49

50 Resources 50 CFPB – 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


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