Equal Credit Opportunity Act and UDAAP Policy & Procedure
EQUAL CREDIT OPPURTUNITY ACT AND UDAAP
Background
The Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691 et seq. prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, because an applicant receives income from a public assistance program, or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act.
The ECOA has two principal theories of liability:
Disparate treatment is a claim of discrimination in which an individual complains to have been treated differently than other people in a similar situation, but who don’t share the individual’s protected class. Disparate treatment is a common element of proving employment discrimination, but it occurs in other areas of life as well, such as loan approval, housing, and educational opportunities. Disparate treatment may range from obvious discrimination to subtle differences in treatment. In order to have a legal claim for disparate treatment, it is not necessary that the discriminatory treatment be intentional, or even that it be motivated by prejudice.
Disparate impact holds that lending practices may be considered discriminatory and illegal if they have a disproportionate “adverse impact” on persons in a protected class. Disparate impact contrasts with disparate treatment, where an individual of a protected class is shown to have been singled out and treated less favorably on the basis of his or her protected class than others similarly situated. Disparate impact is seen as unintentional, whereas disparate treatment is intentional discrimination.
The ECOA applies to all persons who are creditors, as defined in §1002.2(l), other than a person excluded from coverage of this part by section 1029 of the Consumer Financial Protection Act of 2010, title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act. A creditor is defined as “a person who, in the ordinary course of business, regularly participates in a credit decision, including setting the terms of the credit. The term creditor includes a creditor's assignee, transferee, or subrogee who so participates. For purposes of §1002.4(a) and (b), the term creditor also includes a person who, in the ordinary course of business, regularly refers applicants or prospective applicants to creditors, or selects or offers to select creditors to whom requests for credit may be made. A person is not a creditor regarding any violation of the Act or this part committed by another creditor unless the person knew or had reasonable notice of the act, policy, or practice that constituted the violation before becoming involved in the credit transaction. The term does not include a person whose only participation in a credit transaction involves honoring a credit card.”
Kredit does not participate in credit decisions or set the terms of credit. Kredit provides consumers with the ability to connect with creditors to whom requests for credit may be made through the Kredit Marketplace.
Under the Dodd-Frank Wall Street Reform and Consumer Protection 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 (UDAAP). UDAAPs can cause significant financial injury to consumers, erode consumer confidence, and undermine the financial marketplace.
The standard for unfairness in the Dodd-Frank Act is that an act or practice is unfair when*:
It causes or is likely to cause substantial injury to consumers;
The injury is not reasonably avoidable by consumers; and
The injury is not outweighed by countervailing benefits to consumers or to competition.
*In order for an act or practice to be considered “unfair” under UDAAP, all three (3) prongs must be met. A representation, omission, act, or practice is deceptive when:
The representation, omission, act, or practice misleads or is likely to mislead the consumer;
The consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances; and*
The misleading representation, omission, act, or practice is material.
*In order for an act or practice to be considered “deceptive” under UDAAP, all three (3) prongs must be met.
The FTC’s “Four Ps” test can assist in the evaluation of whether a representation, omission, act, or practice is likely to mislead:
Is the statement prominent enough for the consumer to notice?
Is the information presented in an easy-to-understand format that does not contradict other information in the package and at a time when the consumer’s attention is not distracted elsewhere?
Is the placement of the information in a location where consumers can be expected to look or hear?
Finally, is the information in close proximity to the claim it qualifies?
The Dodd-Frank Act makes it unlawful for any covered person or service provider to engage in an abusive act or practice. An abusive act or practice:
Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or
Takes unreasonable advantage of:
A lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;
The inability of the consumer to protect its interests in selecting or using a consumer financial product or service; or*
The reasonable reliance by the consumer on a covered person to act in the interests of the consumer.
*Not all three (3) of these prongs need to be met in order for an act or practice to be considered “abusive” under UDAAP. Although abusive acts also may be unfair or deceptive, the legal standards for abusive, unfair, and deceptive each are separate.
In March ’22, the Consumer Financial Protection Bureau (CFPB) released its updated Unfair, Deceptive, Abusive Acts or Practices (UDAAP) Examination Procedures, which stated, “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.” And that, “An unfair, deceptive, or abusive act or practice may also violate other federal or state laws. For example, pursuant to the 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. Similarly, a discriminatory act or practice that is unfair, deceptive, or abusive may also violate other anti-discrimination laws, such as ECOA.”
As a provider of a consumer financial product and service, Kredit takes every precaution to ensure that its practices do not violate the ECOA or UDAAP principles.
Purpose
This Policy has been created to define the framework and authorization requirements for accepting single and preauthorized EFTs.
Policy
It is the policy of Kredit to treat all similarly situated consumers that utilize the Kredit Platform both equally and fairly, and to ensure its features and terms are presented in a manner that is easily understandable by all consumers.
Scope
This PnP applies to the Kredit Platform.
Roles and Responsibilities
Kredit’s Chief Compliance Officer (CCO) is responsible for monitoring changes to federal, state, and local collection and data privacy laws and rules, and reporting such changes to the Chief Executive Officer, documenting newly adopted policies and procedures or changes to existing policies and procedures, and ensuring all relevant employees in the organization are made aware of such policies and procedures. The CCO is also responsible for reviewing this PnP on an annual basis.
Kredit’s Chief Executive Officer (CEO) is responsible for determining the inherent risk associated with the presented regulatory change, as well as providing the Board of Directors with updates on any material matters of risk related to the compliance program that are received from the CCO on at least an annual basis.
Procedures
Payment Plans and Settlement Offers
All available payment plan terms (i.e., length of payment arrangement and minimum payment amounts) and settlement terms (i.e., settlement % and length of settlement payment arrangement) are pre-determined by each Kredit Network Member and implemented in the Platform according to their instruction. Kredit does not play any role in determining this criteria.
Payment and Communication Methods
The methods of payment (i.e., ACH, debit card, credit card) and communication (i.e., chat) are pre-determined by each Kredit Network Member and made available to the consumer based on the Network Member’s instruction and existing capabilities. Kredit does not determine the type of payment(s) that a Network Member accepts or the ability for a consumer to communicate with a Network Member via chat.
Features and Terms
Kredit’s features (i.e., pop-ups, information windows, etc.) and terms and policies (i.e., Terms of Service, Privacy Policy, Cookies Policy, etc.) are reviewed by compliance and/or legal resources to ensure they 1) meet both the letter and spirit of the laws that regulate Kredit’s activities and 2) are presented in a manner that is easily understandable by all consumers.
Scoring
Kredit does not utilize any scoring models (i.e., a consumer’s propensity to pay) to devise collection strategies. All payment terms, plans, and settlement offers are pre-determined by Kredit’s Network Members.
Monitoring Regulatory Change
Kredit’s CCO subscribes to a variety of online resources that provide information and notifications relative to changes in federal, state and local collection and data privacy laws, procedures and rules. If a change is learned, or there is relevant case law, an enforcement action, or regulatory guidance that is applicable and presents a compliance risk to Kredit, the CCO reviews the change with the CEO during the weekly compliance touch base meeting. These discussions may prompt policy and procedure changes that are necessary for Kredit to remain compliant and reduce risk across the organization.
Communication
This Policy shall be communicated to all affected employees via email and maintained in the Policies folder, sub-folder Regulatory Policies, on Google Drive for reference purposes.
Control
On an annual basis, beginning one year from this PnP’s implementation date, the CCO shall:
Conduct a holistic review of the Kredit website to ensure all links to policies are functioning as designed and the policies have been reviewed on at least an annual basis.
Conduct a holistic review of the Kredit website to ensure pop-ups and information windows are presented in a manner that is easily understandable by consumers.
Violations
Failure to follow the above stated procedures may result in disparate treatment or a disparate impact to consumers.
CHANGE SUMMARY
Purpose: Internal Policy
Category: Regulatory
Policy Name: Equal Credit Opportunity Act and UDAAP Policy & Procedure
Last updated