CFPB Consumer Laws and Regulations – Unfair, Deceptive, or Abusive Acts or Practices Enhanced Guidelines March 2022

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Treliant Takeaway:

Treliant knows fairness and consumer protection.  If your financial services company needs assistance with evaluating your practices for UDAAP risks, we can help.

Report highlights: 

The CFPB released enhanced examination guidelines for UDAAP examination procedures on March 16, 2022 that will have a large impact on fair lending compliance testing and monitoring going forward.  The intended result of the updates is to protect families and communities from illegal discrimination of financial institutions’ practices, processes, and safeguards that are meant to prevent discrimination.

The industry should expect enhanced UDAAP examination assessments going forward, and may consider downloading the new examination guidelines to determine if their organization is “Exam Ready.”  Download the updated UDAAP guidelines to learn more about the individual updates  here.

Key highlights of the updated UDAAP examination guidelines include:

Relationship to Other Laws section:

  • An unfair, deceptive, or abusive act or practice may also violate other federal or state laws. For example, pursuant to the TILA, creditors must “clearly and conspicuously” disclose the costs and terms of credit. An act or practice that does not comply with these provisions of TILA may also be unfair, deceptive, or abusive. Similarly, a discriminatory act or practice that is unfair, deceptive, or abusive may also violate other antidiscrimination laws, such as ECOA.”
  • A discriminatory act or practice is not shielded from the possibility of being unfair, deceptive or abusive even when fair lending laws do not apply to the conduct. For example, not allowing African-American consumers to open deposit accounts, or subjecting African-American consumers to different requirements to open deposit accounts, may be an unfair practice even in those instances when ECOA does not apply to this type of transaction.

General Guidance section:

  • Documentation regarding the use of models, algorithms, and decision-making processes used in connection with consumer financial products and services.
  • Information collected, retained or used regarding customer demographics, including the demographics of customers using various products or services, and the breakdown of consumer demographics for various product uses, fees, revenue sources and costs, or the impacts of various products and services on specific demographics.
  • Any demographic research or analysis relating to marketing or advertising of consumer financial products or services.

Management and Policy-Related Examination Procedures

  • The entity has a process to prevent discrimination in relation to all aspects of consumer financial products or services the entity offers or provides, which includes the evaluation of all policies, procedures and processes for discrimination prior to implementation or making changes, and continued monitoring for discrimination after implementation.
  • The entity’s compliance program includes an established process for periodic analysis and monitoring of all decision-making processes used in connection with consumer financial products or services, and a process to take corrective action to address any potential UDAAP concerns related to their use, including discrimination
  • The entity has established policies and procedures to review, test, and monitor any decision-making processes it uses for potential UDAAP concerns, including discrimination.
  • The entity has established policies and procedures to mitigate potential UDAAP concerns arising from the use of its decision-making processes, including discrimination.
  • The entity’s policies, procedures and practices do not target or exclude consumers from products and services, or offer different terms and conditions, in a discriminatory manner.
  • The entity has appropriate training for customer service personnel to prevent discrimination.

Potential Area for Transaction Testing

  • The entity improperly gives inferior terms to one customer demographic as compared to other customer demographics.
  • The entity improperly offers or provides more products or services to one customer demographic as compared to other customer demographics.
  • Customer service representatives improperly treat customers of certain demographics worse or provide extra assistance or exceptions to customers of certain demographics.
  • The entity engages in targeted advertising or marketing in a discriminatory way.
  • The entity uses decision-making processes in its eligibility determinations, underwriting, pricing, servicing or collections that result in discrimination.
  • The entity fails to evaluate and make necessary adjustments and corrections to prevent discrimination.
  • Marketing or advertising do not improperly target or exclude consumers on a discriminatory basis, including through digital advertising.

Availability of Terms or Services as Advertised

  • Identifies the decision-making processes used to determine approval or denial for a product and the terms of the offer, as well as the corresponding inputs used in the decision-making processes for each account in the sample.
  • The entity offers products and services to consumers in a manner that prevents discrimination.

Employees and Third Parties Interacting with Consumers

  • The entity has a process to take prompt corrective action if the decision-making processes it uses produce deficiencies or discriminatory results.

Servicing and Collections

  • The entity ensures that employees and third-party contractors refrain from engaging in servicing or collection practices that lead to differential treatment or disproportionately adverse impacts on a discriminatory basis.