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    5 Best Practices for Adhering to UDAAP Regulations

    Are you 100% sure that your employees have the necessary compliance and regulatory training in order to mitigate the risk of fines and to protect your financial institution and its borrowers?

    Congress has several laws in place to oversee financial institutions—protecting them against illegal activities such as money laundering and protecting consumers from unfair financial practices.

    There are various regulatory bodies that oversee these laws and work to ensure there are no violations. However, if a regulatory body determines a financial institution and/or its employee(s) has violated these laws, whether knowingly or unknowingly, they can potentially be fined for each violation. These violations come with hefty price tags—sometimes in the millions of dollars.

    As part of our ongoing compliance blog series, we’ll outline one of the most important sets of compliance regulations financial institutions must adhere to—Unfair, Deceptive, or Abusive Acts (UDAAP)—and give you tips for ensuring all your employees have proper training on and clearly understand the regulatory policies that are designed to protect your institution and its borrowers.

    Unfair, Deceptive, or Abusive Acts or Practices (UDAAP)

    Unfair, deceptive, or abusive acts and practices (UDAAP) represent major compliance concerns for lenders because abusive lending practices can cause significant financial damage to borrowers, erode consumer confidence, and trust, and undermine the credibility of our financial system.

    According to the National Credit Union Association (NCUA), unfair, deceptive, and abusive practices are defined as follows:

    Unfair Acts or Practices: The Dodd-Frank Act standard for unfairness is that an act or practice is unfair when:

    1. It causes or is likely to cause substantial injury to consumers;
    2. The injury is not reasonably avoidable by consumers; and
    3. The injury is not outweighed by countervailing benefits to consumers or to competition.

    Deceptive Acts or Practices: A representation, omission, act, or practice is deceptive when:

    1. The representation, omission, act, or practice misleads or is likely to mislead the consumer;
    2. The consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances; and
    3. The misleading representation, omission, act, or practice is material.

    Abusive Acts or Practices: The Dodd-Frank Act makes it unlawful for any covered person or service provider to engage in an “abusive act or practice,” defined as a practice which:

    1. Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service, or
    2. Takes unreasonable advantage of:
    • The consumer’s lack of understanding of the material risks, costs, or conditions of the product or service,
    • The consumer’s inability to protect his or her interests in selecting or using a consumer financial product or service, or
    • The consumer’s reasonable reliance on a covered person to act in the interests of the consumer.

    5 Best Practices for Adhering to UDAAP Regulations

    Here are five tips for maintaining UDAAP compliance from the American Bankers Association:

    1. Educate: It’s critical your employees understand the type of actions that are considered legally “unfair,” “deceptive” and/or “abusive” in order to help avoid them.
    2. Review: Be sure to review regulatory guidelines regularly, as they are often updated and amended.
    3. Track: Follow complaints about your company and others that have been submitted to the CFPB Consumer Complaint Database. You can access it online here.
    4. Act: If complaints are made directly to your company, make sure you act quickly to resolve them so consumers aren’t compelled to take their case to higher authorities.
    5. Protect: Help insulate your brand from complaints before they occur by proactively monitoring your institution’s practices and operations to ensure they adhere to regulations.


    When keeping borrowers safe and protected is your number one goal, it’s scary to think the products you offer and market to them could potentially be harmful, and in turn, could cost you serious fines and penalties.

    That’s why education is so important when it comes to regulatory policies that aim to protect your institution and its borrowers. That’s also why swbcU has added 200 eLearning courses to provide your employees the education they need to protect your member and your institution.

    Click here for the corporate training solution your business needs.

    Related Categories

    Regulations & Compliance

    Mandy Smith

    Mandy Smith is Vice President of Training and Employee Development and is responsible for providing SWBC employees with learning and development opportunities which enable them to be more effi cient, eff ective, and engaged. In 2016, she was named a Learning! Champion High Performer by Enterprise Learning! Mandy is a member of the American Society of Training and Development (ASTD) and is active in the local chapter. She currently sits on the Chief Learning Officers Business Intelligence Board.

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