cbak.com 12 In Touch In the summer of 2019, we discussed UDAAP and setting up a program in your bank to avoid trouble in this important area. Our title admonished you, “Don’t Let UDAAP Spook You, Take Control.” If you have not yet taken control of UDAAP compliance, you may have been spooked by developments over the past 12 months or so. There have been three big UDAAP enforcement actions involving three financial service providers of all sizes during that time. Background Section 5 of the Federal Trade Commission (FTC) Act has been around for over 70 years and prohibits “unfair or deceptive acts or practices” (UDAP), the predecessor to UDAAP. Banking regulators have had the responsibility to enforce bank and thrift compliance with UDAP rules, while the FTC had the authority to interpret the statute and write any rules. The Federal Reserve Board (FRB) was given interpretive and rulewriting authority when this part of the FTC Act was amended in 1975 but continued largely to defer to the FTC. Title X of the Dodd-Frank Act (DFA) codified UDAP law specifically for financial institutions, eliminated the FRB’s rule-writing authority, added an “abusive” standard and moved rule-writing authority to the CFPB. The acronym became UDAAP – unfair, deceptive, or abusive acts or practices. What are we dealing with? All of these standards or characteristics are quite subjective. The elements of unfairness and deception have been established by statute and interpretation over the years by the FTC in various enforcement actions and interpretive documents. The element of being abusive was established, in general terms, in statute by the DFA. To be unfair, an act or practice must cause or be likely to cause substantial injury to consumers that the consumers cannot reasonably avoid or that is not outweighed by countervailing benefits. Substantial harm usually involves monetary harm, including small monetary harm to each of a large number of consumers. A three-part test is used to determine whether a representation, omission, act, or practice is deceptive. First, the representation, omission, act, or practice must mislead or be likely to mislead the consumer. Second, the consumer’s The UDAAP Hammer Drops BY WILLIAM J. SHOWALTER, CRCM, CRP SENIOR CONSULTANT; YOUNG & ASSOCIATES, INC.; KENT, OHIO
RkJQdWJsaXNoZXIy MTIyNDg2OA==