Unfair, Deceptive Or Abusive Acts And Practices (UDAAP)

UDAAP is the short form that refers to unfair, deceptive or even abusive acts or may be practices. These are performed by individuals who offer financial products as well as services to the consumers. According to the Dodd-Frank Wall Street Reform and Consumer Protection Act of the year 2010, they are not legal. The Consumer Financial Protection Bureau prepares rules about UDAAP and it is enforced by the help of Federal Trade Commission.

Unfair Acts Or Practices

An act or practice will be considered unfair when:

  • It will cause or will likely cause considerable injury to the consumers;
  • The injury can never be reasonably avoided by consumers; and
  • The injury is never outbalanced by overriding benefits to any consumer or competition.

Deceptive Acts Or Practices

An act or practice will be considered deceptive when:

  • The act or practice misleads the consumer or is likely to do so;
  • The interpretation of the act or practice by the consumer is found to be reasonable under the situation; and,
  • The misleading act or practice is material.

Abusive Acts Or Practices 

An act or practice will be considered abusive when:

  • Significantly interferes with a consumer’s ability to understand any term or consumer financial product or service’s condition or
  • Take unreasonable benefit of:
  • An absence of proper understanding as a consumer about material risks, costs or product or service’s conditions;
  • Consumer’s inability to protect its interest in making a selection or using a consumer financial product or service; or
  • Reasonable dependence by consumer on a covered person to behave in the consumer’s interest.

Examples Of UDAAP

Mentioned below are some of the examples of unfair or deceptive practices:

  • A lender who keeps a lien on that house for which a consumers has paid fully.
  • A company of credit card that issues checks of convenience to the consumers and then refusing to acknowledge the checks without informing the consumers.
  • A bank keeping relationship with one such customer who has always committed fraud.
  • An advertisement of car dealership showing down payment of $0 car leases without properly disclosing any related fees.
  • An advertisement by a mortgage lender exhibiting fixed mortgage rate but selling adjustable mortgage rates only.

What Are The Benefits Of UDAAP?

It features the following benefits:

  • Gives supports to powerful operational preparedness
  • Makes way for establishment of staff training needs
  • Gives explanation of roles as well as responsibilities
  • Aids in meeting regulatory along with internal compliance needs
  • Enables policy revisions to suit your business model
  • Delivered with the help of email within a single business day

How Can UDAAP Violations Be Avoided?

UDAAP is still there in the limelight for many regulators. Compliance officers are working in order to manage the risk associated with compliance and understand how UDAAP is placed into various areas of consumer compliance. So here are some tips for avoiding UDAAP violations.

  • Be Attentive About The Vulnerable Consumers And Offer More Options To Aid Them: Consider a telephone script. On it the product script needs to be more than one-size-fits-all.
  • Consumer Complaints Have A Main Role In The Detection of Unfair, Deceptive or Abusive Act or Practices: The consumer complaints are essential information source for anyone such as regulators as well as examiners n their rule making along with their regulatory enforcement.
  • Consider Conversing With Consultants As Well As Internal And External Counsel Before You Make Any Changes: Regulators will get access to documentation or written materials regarding your compliance program. On the basis of your regulator, geography as well as other factors, an examiner might go through the efforts of improvements as admission of awareness of violations of UDAAP. They will also evaluate your institution for not making any improvement fast. Apart from this, you may also want some of your work covered by attorney-client privilege. Thus the community groups along with journalists will not have any access.

Challenges and unknown surrounding the trend of rising consumer protection that is rapidly growing will take up a higher percentage of your resources in the coming years. But with the help of attentive reviews and energetic steps, you will be able to minimize the risk associated with potential violations.