DiscoveredLOGIC, LLC

Management Consulting & Training


5 Risk Signs of Unfair, Deceptive, and Abusive Practices (UDAP) in Marketing

Posted on January 5, 2023 at 7:35 AM

The US Consumer Financial Protection Bureau (CFPB) just reached a historically large $3.7 billion settlement agreement with Wells Fargo Bank to pay consumers for harm caused by its ”widespread mismanagement of auto loans, mortgages, and deposit accounts.” According to the CFPB, the company ”repeatedly misapplied loan payments, wrongfully foreclosed on homes and illegally repossessed vehicles, incorrectly assessed fees and interest, charged surprise overdraft fees, along with other illegal activity affecting over 16 million consumer accounts.”


While the amount of this settlement was staggering and this was not the first time Wells Fargo was penalized by the CFPB, Wells Fargo is not alone among large financial institutions in coming to settlement agreements with the CFPB. American Express, JPMorgan Chase, Capital One, HSBC, Discover Financial Services, Ocwen Financial Corporation, Equifax, Synchrony Financial, Bank of America, Citibank, Ally Financial, Experian, and TransUnion have all reached $100 million+ settlement agreements with the CFPB since its founding in 2011.


Sometimes the root causes of the consumer harm found by CFPB investigations are mismanagement. Rules were broken. Cases fell through the cracks. Processes had bugs. The classic passive ”mistakes were made” explanation. Because they can be so massive, management of organizations as massive as these can be massively challenging.

Sometimes, however, the problems are actually built into the system in the way their products and services are designed and marketed. What seemed like a logical design to a bank marketing professional to maximize profits can come across as an unfair, deceptive, or abusive trick or trap to a bank customer - and regulator. These problems can, and should, be systematically rooted out of banking products and practices to minimize risk of harm to consumers - and of resulting regulatory enforcement actions to banks. Here are the five biggest indicators of areas where financial institutions (and other organizations) should examine themselves to minimize the risk of harming their customers.

Red Flag # 1 - Penalty Overuse - Penalties for things like late payment serve a valid purpose to shape customer behavior. The ability to levy penalties also creates an "easy money" temptation for service providers. If you are relying on penalty fees for things like late payments for a substantial part of your profit, you are courting risk because you are creating incentives to impose penalties beyond their valid purpose. If you are charging a penalty fee to terminate an account, for example, that may be a lazy way to fight customer attrition.


Recommended Action - Look at two metrics - the percentage of your profits that come from penalty fees and the the amount of penalty fees your customer service reps are reversing. If those are higher than expected, that can be a sign that you are imposing too many penalty fees.

Red Flag # 2 - Product Perplexity - As technology drives product innovation, it also can drive complexity. Complexity can be a good thing if it moves toward mass-customization, where everyone gets a product tailored for their needs. Product complexity can be a tempting cloak to sneak bad customer deals into a product too, though. If you bury changing terms, teaser rates, hidden fees, and other "gotcha's" into your terms and conditions, you are opening yourself to alienating customers down the road. If you make it hard to figure out that total cost of your service, you are asking for complaints.


Recommended Action - Monitor your customer complaints to see where over-complexity is driving an inordinate share of your customer complaints. Re-engineer those out of your product offerings.


Red Flag # 3 - Channel Inconsistency - Marketing often means offering different products to different customers. But if you are not providing a consistent marketing experience as your marketing plan intends, you are also courting trouble. For example, if your call center reps have a lot of individual discretion in setting prices without adequate policies and procedures, you are opening yourself to risk of unfair or biased treatment of some customers over others. If you have lots of affiliates marketing your product without clear direction and supervision, you are opening yourself to having your product pitched in ways in your name that are "off-script." Multi-channel strategies can be effective, but they take work to ensure they are delivering on the marketing intent as designed.


Recommended Action - Create clear policies and procedures for all your marketing channels - especially third party affiliates. Train everyone involved and hold them accountable by regularly auditing their performance against those standards.


Red Flag # 4 - Vulnerability-Based Targeting - Marketing 101 teaches us why supermarkets put candy and other impulse buys next to the cash register - they are hitting customers when and where they are most vulnerable while waiting to pay. It can be tempting for marketers to focus too much on customer's vulnerabilities instead of on their needs. Left unchecked, clever merchandising tactics can evolve into marketing practices described as "predatory targeting." If your market targeting starts to look like it is based on consume vulnerabilities more than distinct needs - e.g., "going after" the elderly or those with limited English-language proficiency - you are exposing yourself to risks of being seen as a predatory marketer.


Recommended Action - Consider getting an outside, independent audit of your marketing efforts to assess your risk of being seen as targeting vulnerable populations.


Red Flag # 5 - Incomplete Accountability - Sales incentives are core to marketing strategies because they work. Sales agents sell more because they are rewarded for doing so. Risks emerge when the incentives that sales agents see do not include the full cost of their actions. If a sales person isn't held accountable for customer dissatisfaction after the sale, they may have a temptation to go "off script" and say whatever they need to to close the sale. If your sales performance metrics don't include things about the resulting default rates, attrition rates, and customer satisfaction, you are asking for trouble. And this goes not just for your own employees, but for your marketing partners and vendors too.


Recommended Action - Assess your sales performance metrics and incentives to see if they are balanced to include accountability with customer satisfaction post-sale.


While not a complete list of risks, these are the handful of red flags about practices that may drive the bulk of customer alienation today. If you assess and manage your organization’s risks in these areas now, you should avoid a lot of pain in the future.


All images are public domain from or

Copyright 2022 - Victor Prince 


Categories: Financial Services, Organizational Values, Marketing