13 ISSUE 1 | 2022 interpretation of the deception must be reasonable under the circumstances. And, lastly, the misleading representation, omission, act, or practice must be material. “Material” means that it is likely to affect a consumer’s decision regarding a product or service. An abusive act or practice materially interferes with the ability of the consumer to understand a term or condition of a consumer financial product or service. Such an act or practice also includes one that takes unreasonable advantage of: • the consumer’s lack of understanding of material risks, costs, or conditions of a product or service; • the consumer’s inability to protect his interests in selecting or using a financial product or service; • the consumer’s reasonable reliance on the “covered person” (including a banker) to act in the interests of the consumer. Recent UDAAP enforcement actions In about the year 2000, banks first saw significant enforcement of UDAP (now UDAAP) from the banking agencies when the Office of the Comptroller of the Currency (OCC) took the lead. The OCC concluded that it had authority to address a violation of the FTC Act even regarding a challenged practice that was not specifically prohibited by regulation. The three bank-related UDAAP enforcement actions to which we referred above are: • The Consumer Financial Protection Bureau (CFPB) has issued a Consent Order to Discover Bank (Greenwood, DE) and two subsidiaries ordering Discover to pay at least $10 million in consumer redress and a civil money penalty (CMP) of $25 million for violating a 2015 CFPB Order, the Electronic Fund Transfer Act, and the Consumer Financial Protection Act of 2010. The 2015 Order was based on the CFPB’s finding that Discover misstated the minimum amounts due on billing statements as well as tax information consumers needed to get federal income tax benefits. The agency also found that Discover engaged in illegal debt collection practices. The 2015 Order required Discover to refund $16 million to consumers, pay the penalty, and fix its unlawful practices servicing and collection practices. However, recently the CFPB found that Discover violated the 2015 Order’s requirements in several ways – misrepresenting minimum loan payments owed, amount of interest paid, and other material information. Discover also did not provide all consumer redress the 2015 Order required. In addition, the CFPB found that Discover engaged in unfair acts and practices by withdrawing payments from more than 17,000 consumers’ accounts without valid authorization and by canceling or not withdrawing payments for more than 14,000 consumers without notifying them. The agency also found that Discover engaged in deceptive acts and practices in violation of the CFPA by misrepresenting the minimum payment owed to more than 100,000 consumers and the amount of interest paid to more than 8,000 consumers. Some consumers ended up paying more than they owed, others became late or delinquent because they could not pay the overstated amount, while others may have filed inaccurate tax returns. • The Federal Deposit Insurance Corporation (FDIC) issued an order to Umpqua Bank (Roseburg, OR) to pay a CMP of $1,800,000 following the FDIC’s determination that the bank engaged in violations. Those violations were from Section 5 of the Federal Trade Commission Act in the commercial finance and leasing products issued by its wholly-owned subsidiary, Financial Pacific Leasing, Inc. According to the FDIC, these violations included engaging in deceptive and/or unfair practices related to certain collection fees and collection practices involving excessive or sequential calling, disclosure of debt information to nonborrowers, and failure to abide by requests to cease and desist continued collection calls. • The FDIC has issued an order to pay a CMP of $129,800 to Bank of England (England, AR). The bank consented to the order without admitting or denying the violations of law or regulation. The FDIC determined that the bank violated Section 5 of the Federal Trade Commission Act because bank loan officers located in the Bloomfield, MI loan production As we advised in our previous article, banks and thrifts should be proactive in addressing areas prone to UDAAP issues. You can anticipate potential problems by, in part, tracking enforcement actions as indicators of where regulators are looking for issues (and finding them). Continued on page 14
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