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UDAAP - Unfair, Deceptive, and Abusive Acts or Practices
Friday, October 28, 2016 6:40 AM

Section 1031 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) essentially maintains the FTC Act's definitions of "unfair" and "deceptive," while also adding a third element, "abusive" (making the acronym UDAAP), and a sixth financial regulatory body, the Consumer Financial Protection Bureau (CFPB), to enforce UDAAP for institutions with over $10 billion in assets. (Prudential regulators have UDAAP supervision and enforcement authority for depository institutions of $10 billion or less.) The FTC Act empowers the CFPB to serve as a new rule-maker and enforcer of UDAAP. The CFPB has unlimited authority to write rules on unfair, abusive or deceptive practices relating to consumer financial products.

The Bureau may take enforcement action to prevent:

  • A covered person or service provider from committing or engaging in an unfair, deceptive, or abusive act or practice under Federal law
  • In connection with any transaction with a consumer for a consumer financial product or service, or
  • The offering of a consumer financial product or service.

What is Abusive?
The Dodd-Frank Act also prohibits conduct that constitutes an abusive act or practice. An act or practice is abusive when it:

  • Materially interferes with the ability of a consumer to understand a term or condition of the product or service; or
  • Takes unreasonable advantage of:
    • A lack of understanding on the part of the consumer about the risks, costs, or conditions of the product or service,
    • The inability of the consumer to protect the interests of the consumer in selecting or using the product or service; or
    • The reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

Review the information today to help your credit union remain in compliance.

Complying with ever-increasing regulations is a top concern for credit unions. Cornerstone Credit Union League has developed a comprehensive suite of dues-supported services to help credit unions navigate the regulatory landscape. Learn more here.