OverviewUnfair, deceptive, or abusive acts and practices (UDAAP) can cause significant financial injury to consumers, erode consumer confidence, and undermine the financial marketplace. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), it is unlawful for any provider of consumer financial products or services or a service provider to engage in any unfair, deceptive, or abusive act or practice. [1] The Dodd-Frank Act granted rulemaking authority regarding unfair, deceptive, or abusive practices to the Consumer Financial Protection Bureau (CFPB) [2], Show
The Dodd-Frank Act repealed the NCUA’s Credit Practices Rule (Part 706 of the NCUA Rules and Regulations), which had applied to federal credit unions, and repealed similar rules that previously applied to banks and savings associations. The rules specifically prohibited certain unfair credit practices and unfair or deceptive cosigner practices. However, the NCUA and other federal regulators issued Interagency Guidance stating that the practices previously addressed in those rules could still represent unfair or deceptive acts or practices under those agencies’ statutory authority to prohibit practices that violate any applicable law. (NCUA Letter to Federal Credit Unions 14-FCU-03) In addition, the Federal Trade Commission’s (FTC) Credit Practices Rule remains in effect with respect to state-chartered credit unions. Note regarding citing violations of UDAAP: NCUA staff should use the general citation “Unfair, Deceptive, or Abusive Acts or Practices” when citing UDAAP violations found in Federal credit unions except for violations of regulations CFPB or the NCUA issues under its respective UDAAP authority. The Role of Member Complaints in Identifying Unfair, Deceptive, or Abusive Acts or PracticesMember complaints help detect unfair, deceptive, or abusive acts and practices. They have been an essential source of information for examinations, enforcement, and rulemaking for regulators. Member complaints can indicate weaknesses in elements of the credit union’s compliance management system, such as training, internal controls, or monitoring. While the absence of complaints does not ensure the absence of these practices, complaints may be one indication of UDAAP. For example, complaints alleging that members did not understand the terms of a product or service may be a red flag indicating that examiners should conduct a detailed review, especially when many members make similar complaints about the same product or service. When reviewing complaints against a credit union, examiners should consider complaints lodged against subsidiaries, affiliates, and third parties about the products and services offered through the credit union or in its name. In particular, examiners should determine whether a credit union itself receives, monitors, and responds to complaints filed against itself or subsidiaries, affiliates, and third parties acting on behalf of the credit union. Analyzing ComplaintsAnalysis of member complaints may assist in the identification of potential unfair, deceptive, or abusive acts and practices. Examiners should consider the context and reliability of complaints; every complaint does not indicate violation of law. When members repeatedly complain about a credit union’s product or service, however, examiners should flag the issue for possible further review. Moreover, even a single substantive complaint may raise serious concerns that would warrant further review. Complaints that allege, for example, misleading or false statements, or missing disclosure information, may indicate possible UDAAP needing review. Another area that could indicate potential UDAAP is a high volume of charge-backs or refunds for a product or service. While this information is relevant to the member complaint analysis, it may not appear in the credit union’s complaint records. Relationship to Other LawsA UDAAP may also violate other federal or state laws. For example, pursuant to 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. Conversely, a transaction that is in technical compliance with other federal or state laws may nevertheless violate the prohibition against UDAAP. For example, an advertisement may comply with TILA’s requirements, but contain additional statements that are untrue or misleading, and compliance with TILA’s disclosure requirements does not insulate the rest of the advertisement from the possibility of being deceptive.
DefinitionsUnfair Acts or Practices - The Dodd-Frank Act standard for unfairness is that an act or practice is unfair when:
Deceptive Acts or Practices - A representation, omission, actor practice is deceptive when
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.” [6] The prohibition against abusive acts or practices has only been in effect since 2011. An abusive act or practice:
Note: Although abusive acts also may be unfair or deceptive, examiners should be aware that the legal standards for abusive, unfair, and deceptive are separate. Associated RisksCompliance risk - may increase when the credit union fails to comply with UDAAP. Transaction risk - can occur when the credit union does not have adequate internal controls in place and as a result suffers a loss. Reputation risk - may increase when the credit union incurs fines and penalties or receives decreased member confidence as a result of failure to comply with UDAAP. Strategic risk - can occur when the board of directors does not perform due diligence in reviewing policies and procedures, and existing and prospective products and services for compliance with UDAAP. Examination Objectives
Examination ProceduresBased on the results of the risk assessment of the credit union, examiners should review for potential UDAAP, taking into account a credit union’s marketing programs, product and service mix, member base, and other factors, as appropriate. Even if the risk assessment has not identified potential UDAAP, examiners should be alert throughout an examination for situations that warrant review. Initial Document ReviewIdentify potential areas of UDAAP concerns by, obtaining and reviewing copies of the following, to the extent relevant to the examination:
Management and Policy-Related Examination Procedures
Transaction-Related Examination ProceduresIf the management and policy-related examination procedures reveal procedural weaknesses or other UDAAP risks, conduct transaction testing, as necessary, using the following examination procedures. Use judgment in deciding to what extent to sample individual products, services, or marketing programs. Increase the sample size to achieve confidence that all aspects of the credit union’s products and services are reviewed sufficiently. Consult with the examiner-in-charge or your supervisor to obtain assistance with the sampling process.
UNFAIR, DECEPTIVE, OR ABUSIVE ACTS OR PRACTICES (UDAAP)CHECKLISTIdentifying Practices and Products That May Carry a High UDAAP RiskIdentifying Practices and Products That May Carry a High UDAAP Risk
Transaction-Related Examination ProceduresMarketing and DisclosuresMarketing and Disclosures
Availability of Terms or Services as AdvertisedAvailability of Terms or Services as Advertised
Availability of Actual Credit to the MemberAvailability of Actual Credit to the Member
Employees and Third Parties Interacting with MembersEmployees and Third Parties Interacting with Members
Servicing and CollectionsServicing and Collections
Unfair or Deceptive Credit PracticesUnfair or Deceptive Credit Practices
Note regarding citing violations of UDAAP: NCUA staff should use the general citation “Unfair, Deceptive, or Abusive Acts or Practices” when citing UDAAP violations found in Federal credit unions, except for violations of regulations CFPB or the NCUA issues under its respective UDAAP authority. Footnotes[1] Which term is described as the act of buying of all materials needed by the organization?Which term describes the act of buying of all materials needed by the organization? Purchasing. The process of managing inventories in such a way as to minimize inventory costs, including both holding costs and potential stock-out costs is referred to as: inventory control.
What is the term for the process of obtaining the necessary components or raw materials to produce a good?Manufacturing is the process of turning raw materials or parts into finished goods through the use of tools, human labor, machinery, and chemical processing. Most products were handmade using human labor and basic tools before the Industrial Revolution.
What is the term used to refer to the process of taking resources inputs and successfully transforming them into products outputs?Production, the creation of products and services, is an essential function in every firm. Production turns inputs, such as natural resources, raw materials, human resources, and capital, into outputs, which are products and services.
Which type of control helps the organization transform resources such as raw materials into products or services that are then sold in the market?Key Takeaways
Supply chain management (SCM) is the centralized management of the flow of goods and services and includes all processes that transform raw materials into final products. By managing the supply chain, companies can cut excess costs and deliver products to the consumer faster and more efficiently.
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