UDAAP is an acronym referring to unfair, deceptive, or abusive acts or practices by those who offer financial services or products to consumers. Compliance with Unfair, Deceptive or Abusive Acts or Practices has become a big problem for many financial institutions. The UDAAP regulatory system in the form of the Consumer Finance Protection Bureau is a new approach to regulating financial institutions (K. Farell 2013, s.21).
Unfair acts and practices
Unfairness is defined under the Consumer Financial Protection. For a practice to be unfair, it must comply with the following features:
- The act or practice must cause or may cause significant harm to consumers,
- Consumers cannot reasonably avoid injury,
- Damage cannot be offset by equalizing benefits to consumers or competition (A. Levitin 2018, s. 186).
Deceptive acts and practices
To substantiate the statement of "deception", there must be a statement or omission that could mislead the consumer. The consumer must act sensibly and the declaration or omission must be relevant. As with the statement on dishonesty, the fraud statement has been developed in three aspects of the doctrine (K. Farell 2013, s. 22):
- The omission or representation must be misleading or may be misleading (no need to mislead anyone). The statement mentions several examples, all regarding sales and marketing practices,
- The consumer must act sensibly. The key element of this set is the group that the consumer represents - "rationality" is assessed in the context of a specific consumer. For example, if the consumer is elderly, the determination will apply to a "reasonable" elderly person. Potentially fraudulent communication will be seen through the prism of a specific group of consumers, given their knowledge.
- Misleading or omission must be relevant. This must be an important part of the consumer's decision-making process, and if not for the deception, the consumer would have chosen otherwise (K. Farell 2013, s.22-23).
Abusive acts and practices
The ability to ban "abusive" acts and practices is by far the most controversial CFPB's force. This is controversial because the category of abusive is a new addition to the traditional ban on dishonest and misleading acts and practices. Because of this, it may not be clear what types of activities and practices are considered "abusive." There are four types of practices that can be considered offensive (A. Levitin 2018, s. 205):
- Acts or practices that significantly interfere with the consumer's ability to understand the terms of the product or service.
- Acts or practices that take advantage of an advantage that results from the consumer's failure to understand the risk, costs or conditions of the product or service.
- Acts and practices that take advantage of the unjustified benefit of the consumer being unable to protect his interest when choosing or using a product or service.
- Acts and practices that take advantage of the unjustified advantage of the consumer relying on the covered person to act in the interests of the consumer (A. Levitin 2018, s. 205).
- Allen N. (2019) North Carolina Unfair Business Practice, LexisNexis
- Farell K. (2013) Managing UDAAP Compliance Risks in Financial Institutions, "Journal of Taxation and Regulation of Financial Institutions", November/December 2013 Vol 27 / No 2
- Levitin A. (2018) Consumer Finance Law: Markets and Regulation, Wolters Kluwer
- Zisman B. (2019) Banks and Thrifts: Government Enforcement and Receivership, LexisNexis
Author: Agnieszka Damian