Product and Service Due Diligence: Potential UDAAP Traps

For banks and credit unions, developing new products and services is a vital way to stay competitive, meet customer needs, and grow. But innovation comes with risk. Regulators continue to emphasize compliance with the prohibition against Unfair, Deceptive, or Abusive Acts or Practices (UDAAP), and institutions that fail to consider UDAAP risk during product and service due diligence can find themselves facing costly enforcement actions, reputational harm, and lost customer trust. 

At Brady Martz, we help financial institutions anticipate potential pitfalls before they become problems. As you evaluate new offerings or review existing ones, here are common UDAAP traps to keep in mind. 

Understanding UDAAP 

The Consumer Financial Protection Bureau (CFPB) and other regulators continue to make UDAAP compliance a top priority. UDAAP broadly prohibits financial institutions from engaging in practices that: 

• Unfairly cause harm to consumers that they cannot reasonably avoid. 

• Deceptively mislead consumers through inaccurate, incomplete, or unclear information. 

• Abusively take unreasonable advantage of consumers’ lack of understanding, reliance on an institution, or inability to protect their interests. 

Because the definitions are intentionally broad, due diligence is essential for identifying risks in every new or existing product or service. 

Potential UDAAP Traps in 2025 

1. Complex Fee Structures
   Even when fees are disclosed, overly complicated or poorly explained fee schedules can raise concerns. Consumers should be able to clearly understand what they will be charged and when. 
2. Digital-First Products
   As mobile and online banking solutions expand, disclosures must be just as clear and accessible as they would be in-person. Confusing interfaces, hard-to-find terms, or inconsistent language across platforms can create UDAAP exposure. 
3. Targeted Marketing
   Marketing materials that overstate benefits, omit material conditions, or fail to match the actual terms of the product are high-risk. This is especially true in marketing directed at vulnerable populations, such as students, seniors, or low-income households. 
4. Third-Party Partnerships
   Fintech collaborations, loan participations, or other vendor relationships often introduce hidden UDAAP risk. Institutions remain responsible for ensuring their partners follow the same compliance standards, making vendor due diligence critical. 
5. Servicing Practices
   Products may be designed well, but how they are serviced can create UDAAP issues. Delayed postings, inadequate complaint resolution, or inconsistent customer communications can all be flagged as abusive or unfair practices. 

Best Practices for Due Diligence 

• Conduct Thorough Reviews – Evaluate products from the customer’s perspective, ensuring disclosures are clear and that pricing and terms are easy to understand. 

• Test Communications – Review marketing materials, mobile apps, and online platforms for accuracy, clarity, and consistency. 

• Strengthen Vendor Oversight – Establish clear standards and monitoring processes for third-party providers. 

• Engage Compliance Early – Bring compliance professionals into the product development process before launch, not after. 

• Train Staff Continuously – Ensure employees at all levels understand UDAAP risks and are trained to spot potential concerns. 

Why It Matters 

Regulatory expectations around UDAAP remain high in 2025, and enforcement actions show that regulators are willing to act when institutions fall short. Proactively identifying and addressing UDAAP risks through product and service due diligence is not only about compliance—it’s about protecting your institution’s reputation and maintaining customer trust. 

Looking Ahead 

As financial products become more innovative and technology-driven, UDAAP risks will continue to evolve. By embedding due diligence into every stage of product design, rollout, and servicing, banks and credit unions can avoid costly traps while ensuring they deliver value in a fair, transparent, and responsible way. 

At Brady Martz, we guide financial institutions through product and service due diligence with a focus on compliance, risk management, and long-term success. Our professionals help you identify potential UDAAP concerns early, strengthen your oversight processes, and give your institution the confidence to innovate responsibly.