UDAAP

UDAAP is an acronym referring to unfair, deceptive, or abusive acts or practices by those who offer financial products or services to consumers. UDAAPs are illegal, according to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The Consumer Financial Protection Bureau (CFPB) makes rules about UDAAPs and the Federal Trade Commission (FTC) helps enforce them.

After the 2008 financial crisis, regulators created new laws to protect consumers and to increase consumer confidence in financial transactions. Defining and outlawing UDAAPs were among many steps in that process.

The government does not determine which financial products and services are best for consumers, but it does require that consumers have access to information that lets them choose the best options for their situations. Consumers should only have to take reasonable measures—not impractical or expensive ones—to determine whether purchasing certain financial products or services is in their best interests.

Dodd-Frank defines an unfair practice as one that harms consumers financially and that consumers cannot reasonably avoid. The harm does not have to involve a large amount of money.

Under the law, unfair practices do not have benefits to consumers or to market competition that would make the potential for harm a valid trade-off. The law generally does not cover emotional harm, except possibly in cases of excessive harassment. Financial product and service providers are not allowed to coerce or deceive consumers into making unwanted purchases, nor are they allowed to mislead consumers through specific statements or through a lack of clear and full disclosure.

The following are examples of unfair or deceptive practices:

• A lender keeping a lien on a house that a consumer has fully paid for
• A credit card company issuing convenience checks to consumers, then refusing to honor the checks without notifying those consumers
• A bank maintaining a relationship with a customer who has repeatedly committed fraud
• A car dealership advertising $0 down payment car leases without clearly disclosing the associated fees
• A mortgage lender advertising fixed-rate mortgages but only selling adjustable-rate mortgages

Regulators routinely evaluate financial products and services for potential sources of consumer harm.

In October 2012, the CFPB ordered three American Express subsidiaries to refund about $85 million to around 250,000 customers. The CFPB determined the subsidiaries had harmed consumers in interactions ranging from advertising credit cards to accepting payments to collecting debts. The bureau found that consumers were deceived about credit card rebates and about the benefits of paying off old debt, and that some applicants were illegally treated differently based on their age, among other charges.