UDAAP Flashcards
Which of the following is the BEST source for determining whether a particular bank practice may be deceptive?
A. A review of product disclosures
B. Research into whether other institutions have been cited for UDAAP violations for similar practices
C. Customer complaints
D. Research into the CFPB’s UDAAP regulation
C. Customer complaints
As UDAAP principles are based on harm done to consumers rather the bank’s intent, complaints are the best source for determining whether a practice might be considered deceptive. Disclosures indicate the bank’s intent rather than consumers’ perception. Research into whether other institutions have had similar issues may be useful but not as much as complaints. Finally, there is no UDAAP regulation; only statutes.
Which of the following is MOST likely to determine whether a particular communication from the bank to prospective customers is likely to be considered unfair?
A. The communication interferes with the prospective customer’s ability to make an informed decision as to whether or not the product meets his or her needs
B. It can be demonstrated that the prospective customer may suffer at least $1 in monetary harm
C. The bank intended for the communication to be fair but some customers did not agree
D. The communication contains complex banking terminology
A. The communication interferes with the prospective customer’s ability to make an informed decision as to whether or not the product meets his or her needs
Interfering with a prospective consumer’s ability to make an informed decision is one of the core aspects of the unfair component of UDAAP. There is no threshold for monetary harm to be demonstrated, $1 or otherwise. The bank’s intent of the practice is not relevant for consideration on whether a practice is considered unfair. Complex banking terminology may be more likely to be considered deceptive rather than unfair, but by itself, complex terminology may not interfere with decision-making.
The compliance officer is asked to serve on a committee to evaluate whether certain product advertisements may be considered unfair, deceptive, or abusive. Which of the following is MOST likely to be considered as a UDAAP violation?
A. The advertisement contains excessive verbiage in order to attempt to comprehensively explain the aspects of the product being advertised
B. The advertisement is written only in English, even though there may be readers who have a limited ability to understand English
C. The advertisement uses overly complicated terminology in order to confuse the reader when discussing limitations and fees
D. The advertisement is placed only in electronic media
C. The advertisement uses overly complicated terminology in order to confuse the reader when discussing limitations and fees
Use of complicated terminology in order to confuse readers is likely to be considered a deceptive practice, especially when dealing with negative aspects of a product such as limitations and fees. Excessive language may also be deceptive, but when the goal is to explain product aspects rather than confuse, the risk of UDAAP is lessened. Disclosing in English only may handicap those who have a limited ability to understand English, but by itself, this has a small UDAAP risk. There is no UDAAP risk simply by placing ads in electronic media only.
ABC Bank was informed by its examiners that a bank practice was potentially unfair because it met ALL BUT which of the following standards of unfairness under UDAAP in the Dodd-Frank Act?
A. The practice is likely to cause substantial injury to consumers
B. The practice is prohibited by regulation
C. The injury to the consumer is not reasonably avoidable by the consumer
D. The injury is not outweighed by a counterveiling benefit to the consumer
B. The practice is prohibited by regulation
There is no UDAAP regulation (from the CFPB or otherwise). Each of the other three responses are accurate statements of the three factors that make up a claim of an unfair practice under the relevant Dodd-Frank Act statute.
The marketing officer requests your review of a savings account proposal. Savings accounts currently pay 1.5% interest, compounded daily. She proposes that the compounding basis be changed to quarterly. This will result in significant savings to the bank, with little customer attrition. In reviewing the current savings brochure provided to customers, you note the brochure states that the rate will compound daily. It also states that the bank reserves the right to require a 30-day notice prior to a withdrawal from a savings account. The bank has never exercised this right and there are currently no plans to do so. The brochure further states that the bank reserves the right to amend deposit contract terms by providing 21-day advance notice to the depositor. State laws are silent with respect to changes on deposit accounts. How should you advise the marketing officer?
A. The bank cannot make this change, as it would be contrary to the deposit agreement
B. A notice must be provided to affected depositors in advance of the change
C. This change can be made immediately, because the compounding basis is not a contractual right, and can be changed at any time
D. This change can be made, but not until after 60 days, in accordance with Regulation E
B. A notice must be provided to affected depositors in advance of the change
