The threat of unintentionally engaging in an unfair, deceptive, or abusive act or practice (UDAAP) is enough to keep a diligent banker up at night. UDAAP violations are rightfully scary – UDAAP is broad and subjective, lacks in concrete guidance, and presents a serious reputational risk to a bank. Since the passage of the Dodd-Frank Act which granted the Bureau of Consumer Financial Protection (CFPB) new UDAAP authority, UDAAP has become a hot topic and growing concern in the banking industry. Though we would all benefit from further delineation of UDAAP, the regulatory guidance, along with recent enforcement actions and litigation, as described below, provide some direction to bankers seeking to successfully manage UDAAP risk. 

By way of background, the Dodd-Frank Act prohibits banks and others from engaging in unfair, deceptive, or abusive acts or practices. In addition, Section 5 of the FTC Act prohibits banks and other persons from engaging in unfair or deceptive acts or practices. As you can see, the Dodd-Frank Act broadened the scope of the FTC Act by adding the term “abusive.” Banks, whether federally- or state-chartered, are subject to both prohibitions. 

Such prohibitions broadly cover all acts and practices in banking – from advertising to debt collection, consumer to business credit transactions, along with add-on products and third-party vendor relationships, to name a few. Thus, bankers should frequently question whether their actions, or those of a vendor, could amount to a violation of UDAAP. 

So, what does amount to a UDAAP violation and what should bankers consider when examining their bank’s acts and practices? Bankers should consider the following guidance issued by the banking regulatory agencies when evaluating an act or practice in the context of UDAAP:

Is the act or practice UNFAIR? An act or practice is unfair when:

  • It is likely to cause substantial injury to consumers; 

Substantial injury may include a larger harm to one consumer or a small amount of harm to a large number of people. Typically, the injury involves monetary harm, though in certain circumstances, such as debt collection harassment, emotional harm could amount to substantial injury.

  • The injury is not reasonably avoidable by consumers; and 

In other words, the consumer could not avoid the injury by taking actions that are practical and not unreasonably expensive. A consumer cannot reasonably avoid an injury if the act/practice interferes with or hinders their decision-making ability, like if material information about a product is withheld until after the consumer purchases a product, for instance. 

  • The injury is not outweighed by countervailing benefits to consumers or to competition.

Such countervailing benefits may include, for example, lower prices or a wider availability of products/services. This was demonstrated in a 2016 CFPB enforcement action which found a bank’s practice unfair wherein the bank advertised and charged customers for credit-monitoring services that were not provided due to the bank’s failure to receive proper customer authorization. Just two years earlier, the FDIC, along with the CFPB and the OCC, took enforcement action against a bank for similar practices, costing the bank over $50 million in civil money penalties and restitution.  

Is the act or practice DECEPTIVE?  A representation, omission, act or practice is deceptive when:

  • It misleads or is likely to mislead the consumer;

The FTC’s “Four P’s” Test provides guidance to determine if an action or omission is misleading:

  1. Is the statement prominent enough for the consumer to notice it?
  2. Is the information presented in an easy-to-understand format that is not contradicted elsewhere? Is information presented at a time when the customer is not distracted? 
  3. Is the information placed in a location where consumers are expected to look/hear?
  4. Is the information in close proximity to the claim it qualifies?

Furthermore, misleading information may include an express or implied claim or promise (written or oral). Some examples of misleading information include: misleading cost or price claims, offering products or services that are unavailable, or omitting material limitations or conditions from an offer. To illustrate, in June 2014, FDIC took enforcement action against a bank for understating available interest rates on deposit-secured loans.

  • The consumer’s interpretation of or reaction to the representation, omission, act or practice is reasonable under the circumstances; and

Banks should consider whether a reasonable member of the target audience would feel misled (e.g. if marketing is targeted to college students, the communication must be examined from the perspective of a reasonable college student).

  • The misleading representation, omission, act or practice is material.

Among others, the central characteristics of a product/service are presumed material: cost, benefits, and restrictions on use or availability. Outside of defined presumptions, a bank should look to whether the consumer’s choice of, or conduct regarding, a product or service is impacted.   

To demonstrate, CFPB took enforcement action against Santander Bank who, through its vendor, misled consumers into opting into overdraft services by misrepresenting the fees associated with opting in and the consequences of not opting-into the service, among others.

Additionally, the banking regulatory agencies settled an enforcement action in 2014 where the bank’s efforts to market free checking accounts misled consumers, as the marketing did not properly disclose the minimum account activity required nor did it disclose the fact that the account would convert to a monthly-fee checking account after 90 days of inactivity. 

Is the act or practice ABUSIVE? An abusive act or practice:

  • Materially interferes with the consumer’s ability to understand a term or condition of a product or service; or
  • Unreasonably takes advantage of:
    • a consumer’s lack of understanding of the material risks, costs, or conditions of the product or service;
    • a consumer’s inability to protect his/her own interests in selecting or using a product or service; or
    • a consumer’s reliance on the Bank (or a representative of the Bank) to act in the consumer’s interest.

A recent example of an abusive practice is the deceptive marketing of reverse mortgages to elderly populations.

Additional examples of recent UDAAP enforcement actions and litigation trends include:  

  • Refusing to release a lien after a consumer has paid in full;
  • Failing to establish policies and procedures to prevent against fraudulent payment processing; 
  • Misrepresenting loan terms; and
  • Misrepresenting the assessment of overdraft fees (assessed based on the available balance but contracts and marketing materials state such fees are assessed based on the actual balance).

Bankers should heed the regulatory guidance and glean lessons from recent mistakes of other financial institutions. Notably, UDAAP violations can be, and often are, assessed in conjunction with violations of other state and federal laws. For example, if a TRID disclosure significantly misrepresents closing costs, a UDAAP violation could be brought in addition to a Truth-in-Lending/Regulation Z violation. Additionally, as examples described above demonstrate, a bank is responsible for the actions of its vendors.

In order to combat UDAAP, bankers should take both a proactive and reactive approach. First, banks should integrate UDAAP reviews proactively into areas such as new product development, creation and revision of fee schedules, marketing plans, and reviews of third-party vendor materials. In addition, UDAAP training should be provided to employees, as appropriate. Reactively, banks should ensure UDAAP is a part of regularly-scheduled audits (internal and external), and, importantly, a robust complaint management procedure should be in place. Such procedures should specify how the bank receives, monitors, and responds to customer complaints. Notably, regulators will often review consumer complaints in an effort to identify areas of the bank at risk for UDAAP violations. 

In summary, UDAAP should be appropriately integrated into the organization. Penalties are high, litigation is costly, but the reputational hit is the highest price a bank can pay.

WBA wishes to thank Atty. Lauren C. Capitini, Boardman & Clark, LLP for providing this article. Boardman & Clark is a WBA Gold Associate Member.

By, Ally Bates

Q: Are Jury Waiver Clauses Contractually Enforceable in Wisconsin?

A: Yes. On April 13, 2017 the Wisconsin Supreme Court ruled that the jury waiver provision in the case of Parsons v. Associated Banc-Corp., 2017 WI 37 was enforceable.

The provision in question appeared within loan documentation, including the promissory note. Language within indicated that both parties waived any right to have a jury participate in resolving any dispute. The issue arose after the borrower filed suit against Associated and demanded a jury trial. The circuit court granted Associated’s motion to strike the jury demand based upon the waiver, but the court of appeals reversed that decision. The Wisconsin Supreme Court reversed the court of appeals’ position that a contractual waiver of the right to a jury trial was unenforceable.

In Its decision, the Supreme Court indicated that the ability to waive the right to a civil jury trial is already settled law. Under Article I, section 5 of the Wisconsin Constitution a person may waive his or her right to a civil jury trial in all cases in the manner prescribed by law. The Court found that this applies to contracts.

For Wisconsin banks that utilize jury waivers, WBA recommends reviewing them considering the Court’s decision. While the decision was favorable to the jury waiver provision at hand in this case, financial institutions will want to remain mindful of what made it so.

Read the Court's decision here

By, Scott Birrenkott

Three Wisconsin institutions prove you don't need to be big to benefit from technology

The banking industry is undergoing a period of massive change in many areas (technology, compliance, competition, etc.), but one of the most significant has been in progress for over a decade. Over the past ten to fifteen years, banks have been gradually replacing in-person, customer-facing operations with technology—account opening and loan applications, for example. The concept of using technology to augment human relationships is relatively new to banking, but Wisconsin Banker interviewed three Wisconsin banks who have done so successfully, each in a unique way. 

Customer Convenience – Digital Channels
Waterloo-based Farmers & Merchants State Bank has offered online mortgage applications since May 2008 and added a mobile banking app five years ago, and they've seen results. "In the last five years we've gone from $95 million to $153 million in loans serviced for the secondary market, largely due to the online applications," said Executive Vice President & CFO William Hogan, CPA. After an initial lag in adoption rates, Chief Marketing Officer and Bank Manager Kim Abraham says marketing helped the online applications grow in popularity, but customers are also becoming more accustomed to doing things online. "Their comfort level with technology changed," she explained. Hogan notes that the product also markets itself through referrals, since customers who love the convenience of being able to start their application anytime often recommend it to others. 

Internally, the bank decided to implement the online mortgage application product (which includes HELOCs) as a tactic to build their secondary market servicing portfolio. However, it also enhanced the perception of the bank and their products and services in the community. "We recognized that this was a way for us to not only be seen as a small town community bank with big banks products and competitive rates, but also as viable option and player in the surrounding communities and Madison market," said Abraham. 

The bank's mobile app has also been impactful, partly due to steady increase in users of the mobile deposit feature. "We were one of the early adopters of mobile deposit capture," Hogan said (the bank launched the product in June 2013). "There's been a steady adoption of that." One of the reasons usage of the bank's app continues to grow is the periodic additions of new features, such as mobile bill pay. "We're constantly looking at the mobile app and adding to it," Hogan explained. He knew the bank needed to invest in mobile the day he walked around the office and saw everyone with a smartphone. "It's just the way to go," he said. The bank's goal with each of these tools was to make connecting with customers easier. "Customer convenience is one of the primary drivers behind our technology," said Abraham. 

Speedy Service – Compliance Concierge
Mayville Savings Bank was one of the first institutions to use FIPCO's Compliance Concierge loan origination and deposit account opening software suite when it launched in 2012, but they've been using software for lending for many years. "We are trying to follow technology as fast as it's moving," said Loan Processor LaRue Wills, who also sits on the FIPCO Users Committee. "Our small little community bank wants to be able to offer what larger regionals are offering their customers." Being fast adopters of software has increased speed-of-service for the bank's customers and internal efficiencies, as well as allowing the bank to offer mortgage products it previously could not. 

One of Wills' favorite features of Compliance Concierge is an upgrade the bank purchased: a credit reporting interface with Factual Data. "It makes it so nice to be able to take an application, do a credit report and have all the information fill in automatically," she said. The software also allows bank staff to offer faster service. "The time-saving for customers is excellent," Wills said. "Customers can walk into the bank and get taken care of in an hour." Leveraging the software to its full capacity has also helped the bank operate more efficiently, according to Wills. "If a customer wants to get a loan and switch their deposit account to us, it's much easier now for all of that to go into one system," she explained. "Banks that only have the deposit side or only the loan side don't know what they're missing."

The bank's decision to invest in technology like online banking and Compliance Concierge has also enabled it to offer fixed-rate mortgage loans, a product they previously were not able to offer their customers. "We are a small community bank with only one branch, we're as small as they come," said Wills. "Now we're able to offer our customers fixed-rate loans and that's due to the convenience of having Compliance Concierge be able to upload the required information for selling them on the secondary market directly to the bank we use. Before, we couldn't help a customer who would only do a fixed-rate loan. Now we can serve them."

Full-Service Machines – QwikBank ATMs
Two years ago, Superior Savings Bank decided to consolidate some of its branch locations to improve efficiencies—branch transactions had been steadily declining due to the popularity of the bank's electronic services. "Management and the board felt the need to replace two of the bank's high-cost branch offices with a solution that would provide customers with similar convenience," President Dawn Staples explained. Four months after closing a branch in the Walmart Supercenter on the west side of Superior, the bank installed its first QwikBank ATM just across the parking lot. Shortly after that, a second QwikBank ATM was installed on the east side of Superior. "The main goal was to mirror the services provided when the bank had three staffed locations in Superior," Staples said. "In addition to making cost-free ATM access available to its debit card customers, the bank wished to provide the ability for them to deposit cash and checks at locations in addition to the main office in the downtown."

The QwikBank ATMs have several features, including typical ATM functions like cash withdrawal and checking balances, but one of the most popular is a transaction previously only available in the teller line. "Our favorite feature of these full-service ATMs is the customers' ability to deposit cash and checks into their accounts with immediate availability," said Staples. "This essentially enables the bank's customers to cash a check at the ATM." To promote this new way for customers to interact with the bank, the main office tellers have undertaken a continuous customer education process, which Staples says has been successful. "The reaction of the bank's customers has been very positive," she said. "The key is getting the word out about the QwikBank locations and capabilities." 

Ultimately, the QwikBank ATMs are just one more tool in the bank's technology repertoire. "For a small bank, Superior Savings Bank has capably matched its larger competitors in providing electronic banking solutions," said Staples. "In addition to the full-service ATMs, we offer internet banking, bill pay, mobile banking and remote deposit capture." That comprehensive approach to technology has helped the bank set itself apart in the communities it serves. 

FIPCO is a wholly owned WBA subsidiary.


By, Amber Seitz

When it comes to delivery channels, the quantity over quality strategy is ineffective, Gallup research shows. In studies and surveys conducted from 2013-2016, Gallup has found that some banks have focused on aggressively expanding the number of channels they offer their customers without first researching how to choose the channels that best fit their customers and their overall strategic goals. Channel satisfaction is the key to increasing engagement and deepening the bank's relationship with its customers, and the key to channel satisfaction is identifying how and where your customers want to interact with you. 

The list of channel options for product delivery and marketing seems endless—but rather than having 500 channels and nothing good on, a strategic channel approach can effectively engage your audience. When the focus shifts from individual channels to the overall customer experience, it can be easier to identify where to focus. In general, channels can be classified as either traditional or digital and used for product delivery or marketing. Wisconsin Banker interviewed four experts to highlight current popular channels for banks to consider. 

"Branches are not dead, they're just changing from transaction centers to sales centers," said Mark Arnold, president of On the Mark Strategies. The bank branch is still a key channel because customers still want to know their banker and value the experience they have with the bank—regardless of whether that experience is online or in person, according to Sara Baker, vice president, Ladysmith Federal Savings & Loan. "Customers still demand that high-touch personal service from their community bank," said Baker. "Balancing the digital versus human touch relationships with our customers is key to the future of community banking."

Interactive Teller Machines
"Interactive teller—or video teller—machines are something every bank should study," said Jay Coakley, president of Coakley Strategic Solutions, LLC. "You can reduce delivery cost and provide great customer service, especially in a small community, by utilizing employees in one location to service customers in another location. It's great technology." These machines can help banks maintain strong service relationships even in locations where a full-scale branch is inefficient or prohibitively expensive to operate. 

Core Processors
Banks should consider the delivery channels offered through their core vendor, according to Jim Pannos, president and principal of the Pannos Marketing Agency. "Many of our clients are getting involved with their core processors to get their most recent release because there are so many more capabilities within the newer core processing platforms," he explained. 

"Don't forget the power of email," said Arnold. "Email is still a great channel to use to deliver products and services. Think about how scalable they are and how they look on mobile." For example, with the growing number of emails viewed on mobile phones, the format needs to be designed to allow readers to scroll through content easily.

Content marketing
In all digital marketing, but email especially, good content is a critical component. "Consumers today really want content and not sales pitches," said Arnold. "It's what you're saying as opposed to how you're saying it." Banks can position themselves as expert advisors by offering useful information to their customers through blogs, their website and emailed newsletters. However, Arnold cautions against too much verbosity: "People are consuming more information than they ever have before, but in smaller bites. Information you send out needs to be digestible," he said. 

Technology that allows customers to access answers when the bank's doors aren't open will become increasingly important, according to Pannos. "Your bank doesn't have to be open 24 hours, but people are focused on accessing at their leisure versus when the bank is open," he said. The convenience of online banking appeals to many customers who previously performed transactions in the branch. "Consumers are not increasing the number of transactions each month," Coakley said of the growth in online and mobile transactions. "They're just interacting with the bank in a way that's more convenient for them."

"Mobile has the strongest trend line," said Coakley. "From the studies we've done, mobile banking's trend line is going up at a steep increase while online, in-branch and phone systems are declining." However, it is important that the bank dedicate enough resources to their mobile app to make it both functional and intuitive or many customers will not adopt it as a preferred channel. "Customers expect a bank's mobile app to be vibrant, easy-to-use, and fast," Pannos explained. 

P2P Payments
Person-to-person payment applications like Vimeo are becoming the preferred tool for younger consumers, which makes these types of delivery channels a potential market for banks that choose to target younger customers. "Usage of [these apps] isn't going to shrink," said Pannos. "Banks should be aware of that as they're looking at their technology and how they're going to serve the millennial generation and Gen Z. They're looking to those types of platforms as currency."

Remote Deposit Capture
This service allows customers to deposit checks via their mobile phones by simply snapping a picture of it, and while it's becoming very popular, banks should be cautious. "It's a great service, but it can be costly, especially for smaller banks," said Pannos. Due to the diminishing number of checks being written across the industry, he advises banks to assess the overall market demand and competition for the product, as well as examine their own customer base demographics to ensure the product will assist in the bank's overall customer satisfaction and retention. 

Before Diving In…

So which channel(s) should your bank invest in? There are four main areas to consider when investigating a channel strategy upgrade: your customer base, cost, marketing and training. "It's important for banks to understand their market and their customer base," said Baker, pointing out that customer demands for a bank in metropolitan Milwaukee will be very different from those at a bank in rural northern Wisconsin. "Just because the bank down the street offers a certain product doesn't mean your bank needs to offer that same product. Ask your customers what they want before diving in." Coakley recommends defining not only what the bank's current customers want for delivery channels, but also the preferences of the bank's targeted future customers. "It's about what your current customers want and what your future customers want, and those can be two vastly different answers," he said.

While upgrading or purchasing new delivery channels can be costly, banks need to consider their options from all angles. For example, purchasing new video tellers may reduce branch overhead expenses enough to offset the initial cost. "Investing in new technology and solutions can overall reduce the cost of operations, so this is important to look at too," said Baker. Intentionally migrating your customers to digital channels can also lead to staffing changes. "Long-term reduction in FTEs pays for the new technology," Coakley explained.

Additionally, the bank must plan to market any new channels in order to optimize usage rates. "You may have great products and technology, but if you don't communicate that to your customers and your community, they won't adopt it," said Coakley. A review of the bank's current marketing channel strategies is also essential. "The very first thing every bank needs to do is conduct a marketing audit," said Arnold. "You need to look at each of your channels and how successful they are, then come back with strategic and tactical recommendations for changes." Finally, as with any major operational or product changes, the bank must offer training to its staff. "Banks need to invest in their staff, training them on ways to provide quality customer experiences at all touchpoints," Baker advised. 

Whether your bank has three delivery channels or 30, it's important that your customer experience is consistent across them. "Rather than thinking about just one channel, think about the experience," Arnold advised. So, when a customer visits a branch they experience the same level of service and style of messaging as when they visit your mobile app or website. "That's the challenge that banks face today," said Pannos. "You have to be old-fashioned in some aspects and cutting-edge in others." Because consumer preferences are so capricious, it's essential for banks to constantly reevaluate their channel strategy and adapt to what they learn. "Customers will continue to crave whatever technology is available which offers them convenience and a personal experience," said Baker. "As the technology evolves, banks too need to evolve."

By, Amber Seitz