UDAAP
Candlefocus EditorIn the aftermath of the 2008 Financial Crisis, Congress passed laws to protect consumers from unfair and deceptive acts or practices (UDAAP) by financial product and service providers. UDAAP regulations, overseen by the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC), are aimed at preventing financial institutions from coercing or deceiving consumers into making unwanted purchases and from making misleading statements about their products and services. In other words, UDAAP laws strive to protect consumers against predatory activities that banks, lenders, and other financial service providers might otherwise undertake to make money.
UDAAP applies to numerous financial products, including mortgages, student loans, credit cards, auto loans, payday loans, and overdraft fees. Regulations also extend to non-depository services such as debt collection and debt relief services. Furthermore, since UDAAP applies to financial products across the board, it affects not just large banks and financial institutions, but also non-bank players such as credit repair services, payday lenders, and debt collectors.
The CFPB has the principal authority for investigating, detecting, and preventing UDAAP violations, though other agencies subject to UDAAP regulations may investigate and bring enforcement actions if they detect a violation. The CFPB evaluates financial products and services for consumer harm on a regular basis and can take legal action in cases where it discovers unfair, deceptive, or abusive practices. Those found guilty of unfair practices may face civil penalties and potential criminal charges.
To ensure they comply with UDAAP regulations, financial service providers must be fully informed of the laws, policies, and regulations that govern their activities. They must also exercise due diligence to detect and prevent violations and take corrective action if they discover any UDAAP violations. Companies should also have a comprehensive and up-to-date compliance program in place to ensure compliance with UDAAP laws. A comprehensive compliance program should include: training to employees, customer service procedures and protocols, written agreements with third-party service providers, periodic reviews and tests to detect violations, and an effective audit program.
UDAAP regulations are designed to keep both financial institutions and consumers honest by ensuring that transactions are conducted fairly and ethically. While banks, lenders, and other financial services providers must comply with UDAAP regulations in order to guard against consumer harm and legal action, consumers, too, must take responsibility for their financial decisions. By reading the fine print and understanding the agreement before signing any document, consumers can actively protect themselves from UDAAP violations and ensure that the service providers they work with comply with the law.