What is UDAAP and why are examiners focusing on this issue?

by. Jane Pannier

UDAAP stands for Unfair, Deceptive, or Abusive Acts or Practices.  The Dodd-Frank Act added the term “abusive” to the existing Unfair, Deceptive Acts or Practices Act in response to issues arising from the mortgage crisis and from certain credit card practices.  The Dodd-Frank also gave authority to the CFPB to take enforcement actions, in addition to the authority already provided to the FTC and the federal banking and credit union regulators, and the CFPB has been very active with a number of well-publicized cases against some very large financial players, such as Capital One Bank, Discover, and American Express.

By way of background, an act or practice is “unfair” if it:

•       Causes or is likely to cause substantial injury to consumers;

•       Cannot be reasonably avoided by consumers; and

•       Is not outweighed by countervailing benefits to consumers or to competition.

An act or practice is deceptive where:

•       A representation, omission or practice  misleads or is likely to mislead the consumer;

•       A consumer’s interpretation of the representation, omission, or practice is considered reasonable under the circumstances and; and

•       The misleading representation, omission, or practice is material.