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The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), enacted in 2010, established the Consumer Finance Protection Bureau (“CFPB”) to regulate sellers and providers of consumer financial products and services and their service providers.

The CFPB is authorized to take any action within its wide array of enforcement powers to prevent companies under its regulatory authority from engaging in “unfair, deceptive or abusive acts or practices”. The CFPB has actively pursued unfair, deceptive, or abusive acts or practices (“UDAAP”) cases against both large and small consumer financial services companies.

Settlements in many of these cases have included large monetary judgements against the

The Federal Trade Commission (“FTC”) has provided standards for determining when an act or practice is “unfair or deceptive.” These standards are generally followed not only by the FTC, but also the federal bank regulatory agencies, the CFPB and nearly all the states (which have their own “mini-FTC Acts” that mirror the federal statute). In contrast, the standards for what constitutes an “abusive” practice are much less clear.

Scope and Regulatory Authority

The CFPB has jurisdiction over most providers of consumer financial products and services. This jurisdiction is either exclusive or shared with another regulatory agency, depending on the type and size of the regulated entity. With respect to auto finance companies and lenders (collectively, “finance companies”), entities that are depository institutions (e.g.,
banks or credit unions) or affiliates of depository institutions are regulated by at least two agencies – the CFPB and the institution’s federal prudential regulator (the Federal Reserve Board (FRB), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration).


Non-bank automotive finance companies generally are subject to the authority of the CFPB and the FTC. In addition,
individual state attorneys general and state regulators may have regulatory and/or enforcement authority. As a result, finance companies can be investigated and potentially prosecuted by multiple agencies.


The Dodd-Frank Act states that it is unlawful for a consumer financial services provider “to engage in any unfair, deceptive or abusive acts or practice” and empowers the CFPB to take any action to prevent a company subject to its jurisdiction from “committing or engaging in an unfair, deceptive or abusive act or practice,” and empowers the CFPB to take any action to prevent a company subject to its jurisdiction from “committing or engaging in an unfair,
deceptive or abusive act or practice.”

There is no private right of action for UDAAP violations so only the government, not a private citizen, may bring an action alleging a UDAAP violation.

1. What is meant by “deceptive”?

In 1983, the FTC published comprehensive guidance on the meaning of the term “deceptive” in its Policy Statement on Deception (“Deception Statement”). The CFPB has stated that it will look to the Deception Statement for guidance in when enforcing UDAAP.

The Deception Statement defined “deceptive” as a “representation, omission, or practice that is likely to mislead consumers acting reasonably under the circumstances”.


In determining whether a communication is deceptive, the first question is how reasonable consumers would interpret it. The communication is appraised as a whole to determine the “net impression” it creates. Communications that are subject to multiple interpretations are deceptive if one reasonable interpretation is false or misleading, regardless
whether the person communicating the message intended to deceive.


Deception is considered from the standpoint of a “reasonable” consumer but reasonable does not mean sophisticated or highly educated. Reasonable consumers include ordinary members of the public who may not read or listen to the communication carefully.


A communication can be considered deceptive even if accurate information is included somewhere in the communication. The communication must be sufficiently clear and prominent to effectively convey the truthful information to reasonable consumers. Similarly, if a communication is deceptive, it cannot be “cured” by providing the truth to the consumer in a later communication.

2. What is meant by “unfair”?

The Dodd-Frank Act defines an unfair practice as “one that causes, or is likely to cause, substantial injury to consumers that is not reasonably avoidable by consumers and is not outweighed by countervailing benefits to consumers or competition”.

The key element of unfairness is consumer injury. The injury usually consists of monetary harm, such as costs or fees paid by a consumer as a result of an unfair practice. An act or practice that causes a small amount of harm t o a large number of people, or severe harm to a small number of people, may be considered to have caused “substantial” injury. As with deception, a practice can be unfair if it is likely to cause substantial injury, but it must be more
than trivial or speculative harm.


An act or practice is not unfair if consumers can reasonably avoid the injury, but they cannot reasonably avoid it if the act or practice interferes with their ability to make decisions or take protective action.

The following practices have been challenged as unfair by the FTC in recent years: 

• failing to take reasonable steps to protect a consumer’s personal information
• coercive debt collection tactics
• unilaterally modifying contracts with consumers
• collecting loan payments that the consumer did not owe because the lender was not
licensed or the loan was otherwise invalid

3. What is meant by “abusive”?

The Dodd-Frank Act makes it unlawful for a consumer financial services company to engage in “abusive” acts or practices. The Act defines this as an act or practice that:


  1. Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service, or

  2. Takes unreasonable advantage of:

  •  A lack of understanding on the consumer’s part of the material risks, costs, or conditions of a product or service;

  • The inability of the consumer to protect his or her interests in selecting or using the consumer financial product or

           service; or

  •  The reasonable reliance by the consumer on a covered person to act in the consumer’s best interest.

4. Liability for Practices of Third Parties

A company can be prosecuted not only for their own actions, but, in some cases, for the actions of other companies working on their behalf. The CFPB has been particularly aggressive about holding companies liable for UDAAP violations committed by their vendors or service providers, regardless whether they were considered the company’s “agents” or “independent contractors”.


According to the CFPB, businesses should do the following when they use third parties to perform work on their behalf:

  •  Perform initial due diligence before hiring the third party;

  •  Review the third party’s compliance policies and procedures;

  •  Include compliance-related requirements in the contract;

  •  Provide necessary training;

  •  Ensure that compensation policies do not incentivize the third party to violate the law;

  •  Implement supervision and monitoring controls to prevent and/or detect compliance violations, including periodic audits; and

  • Take remedial and disciplinary action when necessary.

UDAAP - Definitions
JPA - Third Party
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