What is a Complaint

Steve Cornell, Senior Manager
The material appearing in this presentation is for informational purposes
only and is not legal or accounting advice. Communication of this
information is not intended to create, and receipt does not constitute, a
legal relationship, including, but not limited to, an accountant-client
relationship. Although these materials may have been prepared by
professionals, they should not be used as a substitute for professional
services. If legal, accounting, or other professional advice is required, the
services of a professional should be sought.
Key topics for today’s meeting
Key Regulatory Compliance hot
topics affecting Credit Union’s today
Key focus issues to expect in a
Consumer Financial Protection
Bureau (CFPB) exam
Key Regulatory Compliance Issues
Fair Lending
• Fair Lending Program Focus Areas
– Timely and accurate notification of results of credit
decisions (decline notices)
– Decision models (underwriting software) which
appears to include unfair criteria (for example:
arbitrary minimum loan limits, criteria related to age)
– Higher pricing for approved loans made to protected
classes (minorities, women), particularly 1-4 family
secured loans
– Practices which appear to discourage application (often
verbal, policy)
Fair Lending
• The act and regulation may prohibit a creditor
practice that is discriminatory in effect because it
has a disproportionately negative impact on a
prohibited basis, even though the creditor has no
intent to discriminate and the practice appears
neutral on its face, unless the creditor practice
meets a legitimate business need that cannot
reasonably be achieved as well by means that are
less disparate in their impact.
Sun Trust Bank – Fair
Lending Enforcement Action
Sun Trust – Fair Lending
• Alleged more than 20,000 African-American and
Hispanic borrowers were charged more than
similarly-situated and qualified non-Hispanic white
borrowers, between 2005 and 2009 [Disparate
• The suit alleged that minority borrowers in 75
geographic markets from Virginia Beach, VA to San
Francisco, CA, paid more in loan fees, or were charged
higher interest rates based solely on race or national
Sun Trust – Fair Lending
• SunTrust set prices based on objective creditrelated criteria but allowed its own loan officers
as well as its national network of brokers to adjust
those prices without regard to borrower risk,
often resulting in black and Latino customers
paying more than white borrowers.
Sun Trust – Fair Lending
• SunTrust "incentivized discrimination" by
sharing the inflated charges with those loan
officers and brokers, Perez [Thomas E. Perez,
assistant attorney general for the Civil Rights
Division] said.
• “Those minority borrowers had no idea white
customers with similar credit would pay less ...
Sun Trust – Fair Lending
“That is discrimination with a
smile.“ [Thomas E. Perez]
Unfair, Deceptive and Abusive Acts and Practices
• Unfair, Deceptive and Abusive Acts and
Practices (UDAAP)
– Deceptive advertising (“free”, “no-cost”, hidden costs)
– Abusive collection practices (coercion, practices
contrary to FDCPA rules)
– Inaccurate customer disclosures (fees, costs, product
– Lack of required verbal disclosures (costs, including
APR, APY, specific product features)
– Charging customers when not authorized (overdraft
programs, regular account fees)
Unfair, Deceptive and Abusive Acts and Practices
• Overdraft Protection Programs
– Inadequate disclosure of fees and costs to consumers
(“Free Checking”)
– Lack of “opt-in” for overdraft protection programs for
everyday ACH and Point of Sale Transactions (“A-9”
– Posting patterns which encourage overdrafts (largest to
smallest items posting)
WoodForest Bank Overdraft Protection
WoodForest Bank - UDAAP
Unfair Practice - Fees
• Until approximately December 31, 2009, customers
were automatically enrolled in PrivilegePay thirty
(30) days after account opening.
• Customers enrolled in PrivilegePay were charged a
per transaction fee each time a transaction causes a
customer’s account to become overdrawn.
• Prior to September 2009, the Bank had no daily,
monthly, or other limit on the amount of overdraft
fees a customer could incur.
WoodForest Bank - Overdraft
Unfair Practice - Fees
• The Bank imposed limits on the amount by which
an account may be overdrawn at any time
although some customers are allowed to exceed
the overdraft limit for their accounts.
• The Bank also did not monitor customer accounts
for excessive usage of PrivilegePay.
• Prior to approximately May 15, 2010, accounts
that were not brought to a positive balance within
seven days were charged a “continuous overdraft
WoodForest Bank - Overdraft
Assertion – Unfair Practice:
• This practice was considered unfair because, once
continuous overdraft fees began, many Bank
customers were unable to avoid the assessment of
continuous overdraft fees.
WoodForest Bank - UDAAP
Deceptive Practice - Marketing
• The Bank marketed or promoted its deposit
account products through a brochure that
– Free or low cost features of certain accounts while
omitting information about costly features of the
account, such as overdraft protection;
– Certain accounts represented as “well-suited for
customers who had previous difficulty in managing
their Bank accounts” while omitting information
about the costs of overdraft protection
WoodForest Bank - UDAAP
Assertion – Deceptive Practice
• The brochure was deceptive because it omitted
information about high-cost features of accounts
at the Bank, such as PrivilegePay.
WoodForest Bank - UDAAP
Deceptive Practice – Written Disclosures
• Bank provided a written disclosure at account
opening that described the features of
PrivilegePay, but did not mention that
consumers could be automatically reinstated into
PrivilegePay after their use of the program was
suspended or terminated.
WoodForest Bank - UDAAP
Assertion – Deceptive Practice
• The omission of this information was deceptive
because it led customers to believe that they
would not be automatically reinstated into
WoodForest Bank - UDAAP
• Restitution of fees charged in specific
circumstances estimated at $32,000,000 for a
period of 5 years (2005 through 2010)
• Civil money penalty in the amount of
Third Party Vendor Management - Compliance
• Third Party Vendor Management
– Assessment of risk related to third party relationships
– Focus on product branding, ownership of third party
processes impacting consumers
– Monitoring of controls at third party, including call and
correspondence monitoring
Complaint Management
• Consideration of Complaints in Exams(CFPB
Examination Manual - UDAAP 9)
– Consumer complaints play a key role in
detection of UDAAP
– Absence of complaints does not ensure an
absence of UDAAP
– Specific focus is placed on how institutions
receive, monitor, and respond to complaints
Complaint Management
• What is a Complaint (UDAAP Perspective)?
– Assertion features of products or services are not
delivered as advertised
– Assertion the consumer did not understand product or
service would be delivered in the manner received
– Assertion information regarding the product was not
delivered when the product or service was accepted
– Dissatisfaction with product or service in general
Complaint Management
• Expectation Regarding Management of UDAAP
and Complaints
– Institutions must have clear policies and procedures for
collection and response to consumer complaints
– Employees must be trained to observe institutional
policies and procedures
– Response to complaints should be timely and fair (may
include restitution, or making consumer whole)
– Management should monitor trending of complaints for
identifiable issues related to products and services
provided to consumers
Complaint Management
• Expectation Regarding Management of UDAAP
and Complaints
– Trends regarding complaints should be reported
periodically to Executive Management and Board of
Directors for appropriate action
– Complaints should be monitored by 1) product or
service; 2) regulation, with focus on those which may
require financial restitution and are subject to
additional fines or Civil Monetary Penalties; 3)
regulations which may expose the institution to
reputational damage
Complaint Management
• How Examiners Test Complaint Management
– Identify all sources of complaints:
CFPB Databases
Internet Sources (www.ripoffreport; www.complaints.com;
Better Business Bureau
Other Regulatory Agencies (NCUA, State, FTC, SEC)
Institutional records (written complaint records)
– The following also may be considered for red flags for
potential consumer damage:
• Return rates (ACH)
• Charge back rates (card services)
Complaint Management
• How Examiners Test Complaint Management
– Evaluate for Trends (concentration on specific products
and services)
– Review Institutional response to trends
– Option to conduct further detailed testing an analysis if
evidence of consumer complaints regarding compliance
areas considered higher risk or suspicion of UDAAP is
Upcoming Compliance Implementations
and Emerging Compliance Issues
Truth in Lending – Ability to Repay
• Effective January 2014
• Applies to all closed end loans secured by 1-4
family dwellings (including attached land)
• Excludes open end credit, 12 month or less term
• Eight factors must be considered in underwriting
(Income; employment; projected monthly
payment; simultaneous loan payments; monthly
payment of taxes and insurance; other debts;
monthly debt-to-income ratios; credit history).
Truth in Lending – Ability to Repay
• Information relied upon must be verified
• Standards must be developed for institution and
evenly applied
• Must be reasonable and in good faith (equitable
and effective)
• Records must be retained for 36 months following
Truth in Lending – Qualifying Mortgage
• Applies specific standards for “safe harbor”
• Otherwise, may be challenged in court by debtor
in default as “unfair”
• Freddie Mac and Fannie Mae will make separate
determinations regarding if they will purchase
loans that do not meet the Qualifying Mortgage
(QM) Standards
Fair Lending – Indirect Auto Lending
• Indirect Auto Lending Programs - CFPB
Bulletin 2013-2 (March 2013)
– Dealer Mark-Up (differential between dealer finance
rate and lender “buy” rate)
– Dealer Reserves/Participation Compensation
(differential between lender “buy” rate and note rate
executed by the dealer)
– Use of either may result in potential disparate
treatment or disparate impact may result
Steve Cornell, Senior Manager
Moss Adams LLP
[email protected]

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