Can a financial institution be held responsible for a UDAAP violation by a third-party service provider?

A financial institution can indeed be held responsible for UDAAP (Unfair, Deceptive, or Abusive Acts or Practices) violations committed by a third-party service provider. This accountability stems from the institution's obligation to ensure compliance with consumer protection laws, extending to the actions of its vendors. Third-party service providers act on behalf of the financial institution and their actions can reflect on the institution's practices.

When a financial institution engages a third party, it takes on the responsibility to oversee their compliance with applicable regulations, including UDAAP provisions. If a vendor commits violations, the financial institution may be found liable for those actions, particularly if it did not take suffficient steps to monitor or manage the third-party relationship. As such, although the institution may not directly engage in the unfair, deceptive, or abusive practices, the relationship with the third party makes it necessary for the institution to maintain oversight and ensure compliance.

In contrast, the idea that the financial institution wouldn't be responsible solely because the violation was committed by a third party fails to recognize the extensive regulatory frameworks that govern such relationships. Hence, the statement that it would not be held responsible under these circumstances is not accurate.