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What is UDAAP? Avoiding Unfair, Deceptive, Abusive Acts or Practices by Complying with Federal Law

The Dodd-Frank Act makes it illegal for any company which provides any financial products or services to consumers to engage in any acts or practices which are considered to be unfair, deceptive or abusive (“UDAAP”).

The Dodd-Frank Act is enforced not only by the Consumer Financial Protection Bureau (CFPB), but also, in some cases, the Federal Trade Commission (FTC), and in cases involving significant deception amounting to fraud, the FBI/U.S. DOJ. Dodd-Frank/UDAAP violations can lead to large fines and civil lawsuits by violators, as well as significant, lasting damage to a company‘s reputation. Most importantly, any significant violations (warranting federal criminal attention) could carry criminal penalties for a company including prison time for offending individuals if conduct consists of fraud.

Why does this matter to your company? It matters because the Dodd-Frank Act tells us what companies cannot do in the marketplace and in fact establishes standards they must meet.

Practices which are considered to be “unfair” by causing or exposing consumers to substantial injury can trigger enforcement. So, if a practice causes or is likely to cause “substantial“ injury to consumers, and which is “not reasonably avoidable“, (i.e., not providing the consumer with adequate information to avoid harm, meaning material information being withheld), the company providing such services is at significant risk of investigation, enforcement and sanctioning.

Beware, because conduct that is considered deceptive or rise to UDAAP, can be broad and can include any material statements which are false and which can mislead consumers; or any representation, practice or even an omission of important information, which is considered likely to mislead consumers.

Additionally, companies which engage in “bait-and-switch“ tactics—that is, providing services to consumers different from than advertised and paid for – run the risk of violating the Dodd-Frank Act, as do companies which may be seen as attempting to hide critical information in fine print.

We’ll talk a little more about how to avoid inadvertently or unintentionally violating the Dodd-Frank Act, and importantly, how to avoid misleading and harming consumers, in our next blog.