3/28/16 - UDAAP Risk Frameworks: Preventing Consumer Harm
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3/28/16 - UDAAP Risk Frameworks: Preventing Consumer Harm

The Consumer Financial Protection Bureau continues to shape its definition of unfair, deceptive, or abusive acts or practices through enforcement actions, guidance bulletins, and supervisory findings. UDAAP’s expanding scope still leaves room for interpretation by individual firms, other stakeholders, and the regulators themselves.

Many firms are therefore developing internal controls and other compliance measures that address their potential risks of causing harm to consumers. Close observers of the CFPB and retail financial services industry can identify the areas on which forward-looking firms have focused when assessing their UDAAP risks. These areas of focus combine to form a framework that firms can use to manage their UDAAP risk and fully meet regulatory expectations.

Using Risk Frameworks

Promontory has identified at least six main areas that an effective UDAAP risk framework should cover:

Area of Focus

Key Considerations Overview

1. Consumer

  • Concentration of customers in one or more vulnerable populations
 

2. Consumer Relationship

  • Consumer’s ability to choose or switch products across providers and/or obtain the expected benefit from the provider
  • Importance of third parties in selling or servicing the product or service
 

3. Usage

  • Frequency with which the consumer is using the product or service in the way it has been marketed
 

4. Business Model

  • Alignment of incentives between the provider and consumer
 

5. Competition

  • Variability of outcomes across providers
 

6. Stakeholders

  • General themes in consumer complaints
  • Scrutiny of competitors for similar offerings
 

Once established, this basic structure serves to organize a series of in-depth diagnostic questions developed for each area and mapped to the specifics of a company’s products, business lines, and risk profile. This process helps customize the risk framework and leads to a roadmap that senior leadership and line-level managers can use to evaluate and address their organization’s UDAAP risks.

Framework-based UDAAP assessments can be organized into comprehensive reporting dashboards that allow internal and external stakeholders to pinpoint the products and services that pose the highest risk of consumer harm. This approach provides organizations with the diagnostic and reporting tools needed to develop compliance controls that anticipate and address evolving UDAAP standards.

How Promontory Can Help

Promontory assists clients with UDAAP-specific training, risk assessments, programs for consumer-complaint management, policies and procedures, and responses to regulatory actions. We have drawn on this extensive client work and industry expertise to develop our proprietary Risk of Consumer Harm Framework. We work with clients to adapt the framework to meet their individual needs, and engage with firm leadership to compile and report results from the framework’s comprehensive set of diagnostic questions. Our team also provides strategic advice and project management to help firms conduct programs for remediating identified risks.

Contact Promontory

For more information about UDAAP compliance and our Risk of Consumer Harm Framework, please contact a senior member of our consumer protection practice:

Linda Gallagher
Managing Director and Global Head of the Consumer Protection Practice
lgallagher@promontory.com
+1 202 370 0411

Mathew Ondus
Director
mondus@promontory.com
+1 202 370 0395

Chris Haspel
Director
chaspel@promontory.com
+1 202 384 1104