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Credit unions Regulation and compliance


HOW ONE CREDIT UNION IS ADJUSTING TO CHANGE AT CFPB

By  Frank Gargano
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November 22, 2021, 2:30 p.m. EST 4 Min Read
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To help navigate the uncertainties surrounding unfair, deceptive, or abusive
acts or practices compliance, Alliant Credit Union is looking to the past for
answers.

The $14.7 billion-asset Chicago-based credit union is mining the Consumer
Financial Protection Bureau’s library of consent orders to build a better
understanding of what actions are considered a violation of UDAAP guidelines. As
the CFPB's leadership changed, so has its stance on what constitutes a policy
violation. Thus, the credit union has determined that it's better to look at the
agency's actions rather than its words.

“Because the CFPB has chosen to do regulation by enforcement with UDAAP, we at
Alliant have gone back and catalogued every single consent order (since the
first one I worked on), reviewed them for any sort of UDAAP call out and then
filed that away as a risk statement to use for the future,” said Todd Anderson,
chief compliance officer at Alliant.



Anderson elaborated that after reviewing and cataloguing the consent orders in a
consistently updated Excel spreadsheet, the “lessons learned” are then
integrated into Alliant’s governance, risk and compliance system to ensure that
it adheres to CFPB standards.



“First and foremost, you’ve got to define what your UDAAP program is at your
institution and outline what specific elements you’re looking to include … but
it’s just as important to embed UDAAP thinking throughout your compliance
program to ensure any new services are framed properly from the start,” Anderson
said.



The regulator’s enforcement of UDAAP can prove to be a costly burden for credit
unions of all sizes. While larger institutions have more resources to dedicate
to UDAAP guidelines, small organizations must follow the same framework using a
fraction of the resources.

Last month, the National Association of Federally-Insured Credit Unions sent a
letter to the Senate Banking Committee in advance of its semi-annual review of
the CFPB to highlight the challenges smaller institutions face. Within the
letter, the NAFCU emphasized the burden placed on credit unions to comply with
UDAAP and called for more clarity.

“Credit unions expend a lot of resources on compliance staff and complaint
systems to monitor issues and ensure that they're following all consumer
protection laws to a ‘T’... but the bureau should be proactively clarifying
their UDAAP authority and expectations instead of waiting to catch someone's bad
behavior through an enforcement action, and only then clarifying the acts and
practices they consider unfair, deceptive or abusive,” said Ann Kossachev, vice
president of regulatory affairs for NAFCU.

Kossachev stressed that credit unions seeking to explore new offerings for their
members might unknowingly violate UDAAP guidelines.

“I don't think that any financial institution is intentionally or purposefully
trying to violate consumer protection laws and to actively harm consumers … but
unclear rules of the road may actually make violations more likely,” Kossachev
said.

In opening an investigation of an institution, the CFPB’s enforcement director
or a deputy will review consumer complaints, supervisory exams and referrals
from other agencies to determine whether a response is warranted. For credit
unions with $10 billion of assets or less, the National Credit Union
Administration will instead step in to oversee enforcement.

Before a formal lawsuit is filed against the offending institution, the CFPB’s
Notice and Opportunity to Respond and Advise process provides the credit union
with a chance to present a rebuttal. However, the decision to use the NORA
process is up to the discretion of the agency and not always a guarantee.

In January of 2020, then-Director of the CFPB Kathy Kraninger outlined the
“abusive” component of the agency’s UDAAP measures and defined which actions are
considered a violation.

Later on, Acting Director Dave Uejio (who filled the role before the appointment
of director Rohit Chopra) stated that Kraninger’s original stance did not
adequately meet the standards imposed by Congress and recanted the agency’s
statement.

To provide examples of practices that go against the CFPB’s restrictions, the
agency publishes documents related to enforcement action cases that are
currently in arbitration or have been settled for institutions to view.

As additional resources for the institutions it oversees, the CFPB issues
occasional policy guidance though bulletins, joint-agency memoranda, and other
notices. For those with unresolved questions, the agency has a designated
support line to answer specific inquiries.

Despite the measures by the CFPB to better inform the public on practices that
would seek to harm the consumers it’s tasked with protecting, credit unions like
Alliant are still pushing for UDAAP clarity to better avoid pitfalls

“Institutions shouldn’t have to go through hundreds of documents to boil down
the simple principles of what the CFPB is looking for … that to me, is something
that should be out there,” Anderson said.

Frank Gargano
Reporter, American Banker
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Credit unions Regulation and compliance
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