Understanding UDAAP
Understanding UDAAP - answer Unfair, deceptive, or abusive acts and practices
(UDAAPs) can cause significant financial injury to consumers, erode consumer
confidence, and undermine the financial marketplace.
The Dodd-Frank Act - answer Makes it illegal for any provider of consumer financial
products or services or a service provider to engage in any unfair, deceptive or abusive
acts or practices.
Learning Objectives: - answer By the end of this module, you should be able to:
- Define UDAAP
- Explain what an unfair or deceptive act or practice is
- Identify acts and practices that prompt CFPB to take UDAAP enforcement action
- Create and maintain a UDAAP compliance program
What is Unfair and Deceptive or abusive Acts and Practices (UDAAP)? - answerUDAAP
is a financial service industry acronym for Unfair and Deceptive or abusive Acts and
Practices. The Dodd-Frank Act implemented a rule that makes it *illegal for businesses
in the financial sector to engage in acts and practices that are deemed unfair and/or
deceptive.*
In this section, we will introduce you to the UDAAP rule as implemented by Dodd-Frank.
The Consumer Financial Protection Bureau (CFPB) - answerThe Consumer Financial
Protection Bureau was a creation of the *Dodd-Frank Act of 2010*. The CFPB has a
mandate to regulate consumer protection in the financial services industry.
The CFPB has jurisdiction over: - answer- Banks
- Credit unions
- Securities firms
- Payday lenders
- Mortgage servicing companies
- Foreclosure relief services
, - Debt collectors
- Credit card companies
One of the primary ways the CFPB protects consumers is through *the Unfair and/o
Deceptive or Abusive Acts and Practices rule.*
The Unfair and Deceptive Acts and Practices Rule - answerThe Unfair and Deceptive
Acts and Practices Rule exists to protect consumers from actions by financial service
providers deemed to be unfair.
The standard for unfairness in the Rule is that an act or practice is unfair when: -
answer- It causes or is likely to cause substantial injury to consumers
- The injury is not reasonably avoidable by consumers
- The injury is not outweighed by countervailing benefits to consumers or to competition.
- We'll examine these points a little more over the next few pages.
1. Substantial Injury - answerThe act or practice must cause or be likely to cause
substantial injury to consumers.
- Substantial injury usually involves monetary harm.
- Monetary harm includes, for example, costs or fees paid by consumers as a result of
an unfair practice. An act or practice that causes a small amount of harm to a large
number of people may be deemed to cause substantial injury.
1. Substantial Injury - More Information - answerActual injury is not required in every
case. A significant risk of definable harm is also sufficient.
However, trivial or merely speculative harms are typically insufficient for a finding of
substantial injury. Emotional impact and other more subjective types of harm also will
not ordinarily amount to substantial injury. Nevertheless, in certain circumstances, such
as unreasonable debt collection harassment, emotional impacts may amount to or
contribute to substantial injury.
2. Consumers Can't Avoid Injury - answerAn act or practice is not considered unfair if
consumers may reasonably avoid injury. Consumers cannot reasonably avoid injury if
the act or practice interferes with their ability to effectively make decisions or to take
action to avoid injury. Normally the marketplace is self-correcting; it is governed by
consumer choice and the ability of individual consumers to make their own private
decisions without regulatory intervention.
Understanding UDAAP - answer Unfair, deceptive, or abusive acts and practices
(UDAAPs) can cause significant financial injury to consumers, erode consumer
confidence, and undermine the financial marketplace.
The Dodd-Frank Act - answer Makes it illegal for any provider of consumer financial
products or services or a service provider to engage in any unfair, deceptive or abusive
acts or practices.
Learning Objectives: - answer By the end of this module, you should be able to:
- Define UDAAP
- Explain what an unfair or deceptive act or practice is
- Identify acts and practices that prompt CFPB to take UDAAP enforcement action
- Create and maintain a UDAAP compliance program
What is Unfair and Deceptive or abusive Acts and Practices (UDAAP)? - answerUDAAP
is a financial service industry acronym for Unfair and Deceptive or abusive Acts and
Practices. The Dodd-Frank Act implemented a rule that makes it *illegal for businesses
in the financial sector to engage in acts and practices that are deemed unfair and/or
deceptive.*
In this section, we will introduce you to the UDAAP rule as implemented by Dodd-Frank.
The Consumer Financial Protection Bureau (CFPB) - answerThe Consumer Financial
Protection Bureau was a creation of the *Dodd-Frank Act of 2010*. The CFPB has a
mandate to regulate consumer protection in the financial services industry.
The CFPB has jurisdiction over: - answer- Banks
- Credit unions
- Securities firms
- Payday lenders
- Mortgage servicing companies
- Foreclosure relief services
, - Debt collectors
- Credit card companies
One of the primary ways the CFPB protects consumers is through *the Unfair and/o
Deceptive or Abusive Acts and Practices rule.*
The Unfair and Deceptive Acts and Practices Rule - answerThe Unfair and Deceptive
Acts and Practices Rule exists to protect consumers from actions by financial service
providers deemed to be unfair.
The standard for unfairness in the Rule is that an act or practice is unfair when: -
answer- It causes or is likely to cause substantial injury to consumers
- The injury is not reasonably avoidable by consumers
- The injury is not outweighed by countervailing benefits to consumers or to competition.
- We'll examine these points a little more over the next few pages.
1. Substantial Injury - answerThe act or practice must cause or be likely to cause
substantial injury to consumers.
- Substantial injury usually involves monetary harm.
- Monetary harm includes, for example, costs or fees paid by consumers as a result of
an unfair practice. An act or practice that causes a small amount of harm to a large
number of people may be deemed to cause substantial injury.
1. Substantial Injury - More Information - answerActual injury is not required in every
case. A significant risk of definable harm is also sufficient.
However, trivial or merely speculative harms are typically insufficient for a finding of
substantial injury. Emotional impact and other more subjective types of harm also will
not ordinarily amount to substantial injury. Nevertheless, in certain circumstances, such
as unreasonable debt collection harassment, emotional impacts may amount to or
contribute to substantial injury.
2. Consumers Can't Avoid Injury - answerAn act or practice is not considered unfair if
consumers may reasonably avoid injury. Consumers cannot reasonably avoid injury if
the act or practice interferes with their ability to effectively make decisions or to take
action to avoid injury. Normally the marketplace is self-correcting; it is governed by
consumer choice and the ability of individual consumers to make their own private
decisions without regulatory intervention.
