What marketers need to know about UDAAP: regulatory scrutiny of unfair, deceptive or abusive marketing and advertising practices is more intense than ever. Here are guidelines on how to help keep your bank from getting caught with a Pinocchio nose.

• Author: Pry, Carl G.

BECAUSE OF ITS EXPANSIVE DEFINITION AND REGULATORY MANDATE, UDAAP (Unfair, Deceptive, or Abusive Acts or Practices) is influencing virtually everything a bank offers to its customers--as well as how it offers it.

In this two-part article, we will examine a number of aspects of UDAAP that marketers need to understand, including: the definition of UDAAP; the background on where these rules come from; how UDAAP differs from other laws and regulations that prohibit unfair or deceptive practices; how the regulatory agencies are enforcing UDAAP; what the rules mean by the words "unfair," "deceptive" and "abusive; and what types of marketing and sales practices are problematic under UDAAP.

The concept is not new

UDAAP builds on an existing standard known as UDAP (Unfair or Deceptive Acts or Practices). UDAP has been around a long time (since the early 20th century) and the meanings of the terms "unfair" and "deceptive" are well-established. "Abusive" is new, introduced by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

UDAP is enforced by the prudential bank regulatory agencies--Office of the Comptroller of the Currency (OCC), Federal Reserve and the Federal Deposit Insurance Corp. (FDIC)--while UDAAP is enforced by the Consumer Financial Protection Bureau (CFPB). Coupled with the CFPB's broad mandate for preventing UDAAP and the resulting attention the topic has received, the potential for intense scrutiny is certain.

As we've seen over the last few years, UDAP and UDAAP are being enforced as never before, and anyone having anything to do with marketing, advertising or promoting a bank must understand the dramatic changes UDAAP is having on the industry.

The concept of prohibiting conduct that is unfair or deceptive is not exclusive to this new UDAAP mandate (or to the existing UDAP standard), especially when it comes to advertising. There are other laws and regulations that prohibit unfair or deceptive conduct, including the Truth in Lending Act and Truth in Savings Act.

The difference between UDAAP and these other regulations lies in two specific areas:

The Dodd-Frank Act called specific attention to the term "abusive" and imbued the CFPB with great latitude to prevent UDAAP. As a result, the term has attracted increased attention from all the other regulatory agencies as well.

UDAAP serves as an umbrella concept, meaning even if a particular law or regulation does not specifically label certain conduct as unfair, deceptive or abusive, it can provide the legal and regulatory authority for a regulator to cite a violation.

It, therefore, becomes critical to examine the total picture of the banks marketing activities and consider how they impact customers--rather than look to particular laws and regulations in order to determine what precise provision has been violated.

Just a consumer issue?

UDAAP is the purview of the CFPB, and the bureau is charged with protecting consumers. This means its guidance and enforcement generally covers only activities affecting consumers. The older UDAP standard, however, covers both consumer and commercial activities--it is not exclusive.

The result is that regardless of regulator--since the concepts underlying both UDAP and UDAAP are almost identical--banks should be on the lookout for any acts or practices affecting consumer or commercial customers that might be considered unfair or deceptive (and in the case of CFPB-supervised institutions, abusive).

What is UDAP/UDAAP?

It is necessary to understand how the terms "unfair" "deceptive" and "abusive" are defined to get a better idea what types of conduct regulators might find problematic. And to properly understand those, we must first look to the UDAP standard, since Congress built upon that to come up with UDAAP.

It's also important to note that there is no element of intentionality in either UDAP or UDAAP. A bank need not intentionally treat a customer unfairly or otherwise act purposefully in a deceptive or abusive manner to be at fault.

UDAP comes from...