'Abusive' joins 'unfair' and 'deceptive' as prohibited Acts.

• Author: Pry, Carl G.
• Position: MARKETING COMPLIANCE

WE SHOULD ALL BE FAMILIAR WITH UDAP (Unfair or Deceptive Acts or Practices) through Section 5 of the Federal Trade Commission (FTC) Act, which defines the terms "unfair" and "deceptive." These terms have been litigated enough over the years that we have a pretty good idea what they mean. Basically, don't engage in bait-and-switch tactics, advertise what you actually offer, and so forth.

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But as of July 21 of this year there will be a new sheriff/regulator in town: the Consumer Financial Protection Bureau (or CFPB). The CFPB will have authority over everything related to consumer marketing and advertising (regardless of your regulator). Congress gave an incredible amount of latitude to the new agency, directing it to craft regulations as it sees fit. To this point, there is a section of Dodd-Frank Act titled "Prohibiting Unfair, Deceptive, or Abusive Acts or Practices," which states, "The Bureau may take any action ... to prevent [a bank] from committing or engaging in an unfair, deceptive, or abusive act or practice ... in connection with ... [the] offering of a consumer financial product or service."

'A" is for 'abusive'

The new standard will be "UDAAP" rather than just "UDAP" due to the introduction of "abusive" into the mix. What would make a practice "abusive," as opposed to (or in addition to) being merely unfair or deceptive? Dodd-Frank gives us some assistance, as the term is defined as materially interfering "with the ability of a consumer to understand a term or condition" of a product or service, or taking "unreasonable advantage of a lack of understanding" of the "material risks, costs, or conditions of the product or service."

These phrases open doors to all sorts of interpretations as to what could constitute a bank taking "unreasonable advantage" of consumers. But it is clear that regulatory scrutiny of your marketing...