UDAAP! Are you Abusing and Neglecting your Deposit Compliance Program?

Compliance expert Shelly Nicholl shares for reviewing and staying on top of your deposit compliance program.

Temenos – Company

As there have been numerous regulatory compliance changes in the lending arena over the last few years, it appears that deposit compliance is being pushed to the wayside by  many Compliance Officers. As a result, regulatory examination criticism is on the rise in this area and, per the statistics posted by the agencies for 2019, this includes some areas that haven’t been on the radar for years; most often resulting in UDAAP violations.

As you monitor and review adherence to regulatory compliance requirements, below are a few hot examination topics to consider.

Consistency in Fee Descriptions

As you’re all aware, Truth in Savings requires proper identification of various fees associated with deposit accounts. These include, but are not limited to, monthly maintenance fees, overdraft fees, transfer fees, and returned item fees.

Disclosures, Fee Schedules, Periodic Statements, Advertisements, and Website(s) that include references to these fees are oftentimes not consistent.


Disclosure – NSF Paid Item Fee
Periodic Statement – Overdraft Fee
Fee Schedule – NSF Fee

Disclosure – Excessive Transaction Fee
Periodic Statement – Excessive Withdraw Penalty
Fee Schedule – Transaction Charge

Inconsistencies in these descriptions often are overlooked as documents are not compared side-by-side during the monitoring process. This practice results in regulatory criticism as a UDAAP violation as it has been determined that this is too confusing to the consumer, which is unfair or deceptive.

Overdraft Protection Programs

Oftentimes, ODPs are set up in the institution’s system parameters to automatically run under certain circumstances and assess overdraft fees for certain transactions. If not periodically reviewed and tested, the institution may find itself under UDAAP criticism.

For example, processing systems may utilize an available balance method to assess overdraft fees. A customer may make a transaction at a merchant, that transaction is pre-approved and a hold is placed on the account as there were sufficient funds at the time. Subsequently, the customer makes an additional transaction that hard posts to the account. Based on the held transaction and the available balance, there are not sufficient funds and an overdraft fee is assessed for the second transaction. Then, once the originally held transaction posts, another overdraft fee is assessed. This practice is a potential UDAAP violation as an unfair practice. Two overdraft fees were charged where there should have only been one.

Third Party Programs

Does your institution offer accounts with “perks” such as road service, insurance discounts, and ID Theft monitoring as a service to your customers? If so, beware of how those perks are managed by third parties.

For example, an ID Theft program may be offered as part of a perk package. This program usually requires each customer to provide verification of certain information as part of the process so that the account holder is fully enrolled in the program and will receive total benefits offered.

Beware! Even though your customer may receive some of the benefits when agreeing to these account perks and they choose not to complete the verification process to obtain the additional benefits, charging them a service charge for this program is considered a UDAAP violation until verification is completed by the consumer. Yep, it’s true. The regulatory stance here is that the consumer is being charged for a service they did not receive, therefore, it is unfair or deceptive.

Generally, these types of accounts have a higher monthly maintenance fee connected with them due to the extras provided. Therefore, restitution is being required for all those who do not complete the verification process.

So, make sure you have a clear understanding on how these programs provide services and how your staff will monitor and manage enrollments and refunds when applicable.

Lesson Learned

While the deposit area usually rates lower on the compliance risk assessment, it is critical that practices and procedures be reviewed periodically not only from the regulatory compliance perspective but also from a UDAAP perspective. Make sure your products, services, practices, and system programs are clear and fair.

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Temenos – Company