1. NCHER Private Education Loan and Consumer Finance Committee
July 20, 2017
Eric Reusch, Senior Director

2. Agenda UDAAP and Fairness Principles CFPB, UDAAP and You
Navigating with Pro-active Compliance
Q & A

3. UDAAP is the Bureau’s Focus
“Our supervision and enforcement teams are not interested simply in assuring that all the right boxes have been checked, but are asking more fundamental questions about whether consumers are being treated in a fair and honest manner.”
Richard Cordray
Director CFPB
September, 2014

4. UDAAP creates danger “between the cracks”

5. Fairness Principles Value Predictability Understanding Appropriateness
These principles should be applied to every product and practice within the institution, including third party vendor activities.

6. The CFPB, UDAAP and Student Lending
Every CFPB enforcement action involving student lending has alleged UDAAP violations
Areas that can present heightened UDAAP risk include:
Debt Collection - Debt collection was also listed on the Fall 2016 Agenda, which stated that debt collection continues to be the single highest source of complaints of any industry
Marketing and Advertising. Allegations of unfair or deceptive marketing practices were recently made in a variety of actions involving overdraft services, payday lending, credit scoring products, auto title lending, and reverse mortgage lending
Sales Practices. Since the CFPB’s September 2016 consent order with Wells Fargo, employee sales practices have been a topic of interest and an area of elevated risk
Information Security. In May 2016, the CFPB entered into a consent order with Dwolla, an online payment platform, for allegedly misrepresenting its consumer data security practices

7. CFPB’s Fair Lending Agenda
In December 2016, the CFPB flagged student loan servicing as one of four fair lending priorities in 2017, stating “We will determine whether some borrowers who are behind on their mortgage or student loan payments may have more difficulty working out a new solution with the servicer because of their race or ethnicity.”
“In the coming year, we will be shifting our focus from [auto lending and credit cards] in order to increase our focus on [redlining, mortgage and student loan servicing, and small business lending], which also present substantial risk of credit discrimination for consumers.” Patrice Ficklin, CFPB Fair Lending Director

8. Recent Student Lending Guidance and Data Requests
Bulletin (“Compliance Bulletin – College Credit Card Agreements”) issued in Dec 2016, providing schools and universities with updated guidance on credit card agreement compliance:
Advised use of school websites to publish college-sponsored credit card agreements to in compliance with the CARD Act and Reg Z
Recommended that agreements no longer in effect be posted if the agreement terms have not yet expired, card issuers are still obligated to make payments to the school, or the cards are still marketed or issued to students under terms of the agreement
In February 2017, the CFPB filed a Notice seeking comment on their initiative to collect student loan data from the largest student loan servicers. Information being sought includes:
More complete understanding of the size of the student loan market (public and private)
Number of borrowers seeking IDR plans and the outcome of those efforts
How borrowers at greatest risk of default are assisted by servicers
Private student loan borrowers and the options made available to them
“The [CFPB] also announced that we were prioritizing our work to stamp out illegal actions in [the student loan servicing] market, and that we would explore other policies to strengthen this market, including potential rulemaking. Now, we are working closely with our state counterparts to determine how we can partner more effectively in bringing further oversight to this industry.”
Dir. Richard Cordray
Press Release, Consumer Fin. Prot. Bureau, “Prepared Remarks on Student Loan Servicing Press Call” (July 20, 2016).

9. How do you navigate? Effective Compliance Management System
Flexible and Resilient Architecture
Understand Your Inherent/Residual Risks AND Controls
Including Active Third Party Risk Management
Complaint Management and Response
Regulatory Control Matrix and Change Processes
Synthesize Data Points
Examination Manual and Modules
Supervisory Highlights
Enforcement Actions
Evolving Rulemaking and RFI’s

10. Four Control Components
Compliance Management System (CMS)
Response to Complaints
Compliance Audit
Compliance Program
Board and Management Oversight
Response to complaints is one of the four control components the CFPB expects for an effective compliance management system. Often the consumer complaint management process is included in the Fair Lending/ Responsible Banking compliance group as the regulators expect uniform and appropriate resolutions to the complaints (ex. Exceptions to established procedures, refunds, concessions) and evaluate the nature of the issues raised to identify possible unintentional UDAAP issues. Additionally, the CFPB and other regulators use the financial institution’s complaint data during the exam cycle to perform risk assessments and guide their reviews. Much like HMDA is a recording regulation aimed at providing accurate borrower demographic data and loan application pricing data to provide the regulators with fair lending data, a bank is expected to have an accurate record of every complaint received, researched, and resolved to provide the regulators with fair/responsible practices data.
An effective compliance management system should ensure that a supervised entity is responsive and responsible in handling consumer complaints and inquiries. Intelligence gathered from consumer contacts should be organized, retained, and used as part of an institution’s compliance management system.
A bank should demonstrate to their regulator that their CMS is dynamic – driven by actual feedback from their consumer. Its important to show that the bank is listening to the feedback received and understanding what the feedback is saying. The CMS is dependent on Complaints to help drive training, policy, and even product development.

11. Consumer Complaint Management- The 6 “R’s”
Risk Rate Complaints
Escalated
Examples: observed risk, egregious allegations, vulnerable consumers
General
Examples: routine, less egregious allegations
Receive
Research
Respond
Resolve
Record
Remediate
The Flow
Not every complaint is created equally. Despite the consumer’s expectation that their complaint is material, it may be less so to the bank.
Within the CMS and Complaint Response – we have the 6 R’s to drive the Complaint program. In general, a bank should risk rate complaints into two categories 1) Escalated complaints and 2) General complaints. We will talk more about the definition of complaints further in the presentation.

12. Example of Complaint Management Process in Practice
Consumer advocacy group receives complaint; Assigns for research and assistance
Initial outreach to customer
Note: 2 out of 5 customers respond to outreach
Research and resolve
Respond to consumer*
* And regulator if applicable
Review by operations team:
How can we improve for other customers?
Trends analysis and monitoring by executive management team and board
Source: Public Company Filing (March 2017)

13. treliant.com