The most powerful enforcement tool available to US consumer regulators is the prohibition of Unfair, Deceptive, or Abusive Acts or Practices (UDAAP). This standard was expanded by Dodd-Frank to include the term “Abusive,” adding to the traditional “UDAP” standard used by the Federal Trade Commission (FTC).
Deconstructing the Legal UDAAP Benchmarks
To issue a UDAAP enforcement action, regulators must prove an act or practice meets specific legal criteria:
  1. Unfairness Standard: An act or practice is unfair if it causes or is likely to cause substantial injury to consumers, the injury is not reasonably avoidable by consumers, and the injury is not outweighed by countervailing benefits to consumers or competition.
  2. Deceptiveness Standard: An act or practice is deceptive if there is a representation, omission, or practice that misleads or is likely to mislead the consumer, the consumer’s interpretation of the representation is reasonable under the circumstances, and the misleading representation is material to the consumer’s decision-making process.
  3. Abusiveness Standard: An act or practice is abusive if it materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service, or takes unreasonable advantage of a consumer’s lack of understanding, inability to protect their own interests, or reasonable reliance on a financial entity to act in their best interest.

 
PreviousNext