United States: Consumer Financial Services UDAAP Round-Up: 2020 Year In Review

Letter to Readers

Welcome to the inaugural addition of the UDAAP Round-up. This newsletter is designed to provide you with a periodic resource to stay abreast of federal activities regarding the prohibition on unfair, deceptive, or abusive acts or practices ("UDAAPs") in the consumer financial services space. In this edition, we cover notable policy, enforcement, and supervisory developments from 2020.

In 2020, we saw more than 50 UDAAP/UDAP enforcement complaints and consent orders from the Consumer Financial Protection Bureau ("CFPB" or the "Bureau") and the Federal Trade Commission ("FTC"), a new Policy Statement on Abusiveness from the CFPB, and a new UDAAP/UDAP handbook from the Office of the Comptroller of the Currency ("OCC"). In the coming year, we expect to see an uptick in activity, as the pandemic continues to wreak havoc on the economic security of Americans and a new administration and Democratic-controlled Congress take the reins in Washington. We look forward to analyzing those developments in future issues of the UDAAP Round-Up.

2. Background on UDAAP/UDAP Authority and Elements

For those who are new to the UDAAP space, welcome. Below, we provide a high-level overview of the CFPB's and FTC's authority and basic definitions, which provide context for the information that follows.

Section 5 of the FTC Act prohibits unfair and deceptive acts and practices ("UDAPs") in or affecting commerce.¹ The FTC has enforcement authority with respect to nonbank financial services companies under the FTC Act. Penalties for violation of the FTC Act include cease-and-desist orders (the violation of which is subject to civil penalties) and injunctive relief (which historically has included include orders for restitution or disgorgement).²

Title X of the Dodd-Frank Act provides the CFPB's UDAAP supervisory and enforcement authority, and prohibits any covered person or service provider from committing or engaging in an unfair, deceptive, or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.³ A "covered person" is defined as "any person that engages in offering or providing a consumer financial product or service" or service provider affiliate thereof.⁴ The Dodd-Frank Act provides the CFPB various remedies for violations of federal consumer financial laws, including: (i) rescission or reformation of contract; (ii) refunds of money or return of real property; (iii) restitution; (iv) disgorgement or compensation for unjust enrichment; (v) payment of damages or other monetary relief; (vi) public notification regarding the violation, including the costs of notification; and (vii) limits on activities or functions of the person.⁵ The Dodd-Frank Act also provides for civil money penalties.⁶

An act or practice is unfair if (1) it causes or is likely to cause substantial injury to consumers; (2) the injury is not reasonably avoidable by consumers; and (3) the injury is not outweighed by countervailing benefits to consumers or to competition.⁷ In determining whether an act or practice is unfair, the FTC and the CFPB may consider established public policies as evidence to be considered with all other evidence, but such public policy considerations may not serve as a primary basis for such determination.⁸

A representation, omission, or practice is deceptive if (1) it is likely to mislead the consumer; (2) the consumer's interpretation of the representation is reasonable under the circumstances; and (3) the misleading representation is material.⁹

An act or practice is abusive if it (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) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (b) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (c) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.¹⁰

Footnotes

1 15 U.S.C. § 45(a)(1).

2 15 U.S.C. § 53(b). The Supreme Court heard argument on January 13, 2020, regarding whether the injunctive relief authorized by Section 53(b) authorizes the FTC to demand monetary relief such as restitution. AMG Capital Mgmt v. FTC, No. 19-508.

3 12 U.S.C. §§ 5531(a), 5536(a)(1)(B).

4 12 U.S.C. § 5481(6).

5 15 U.S.C. § 5565(a)(2).

6 15 U.S.C. § 5565(c); 12 C.F.R. § 1083.1.

7 15 U.S.C. § 45(n); 12 U.S.C. § 5531(c)(1). The statutory language is modeled on the FTC's December 17, 1980, Policy Statement on Unfairness, appended to Int'l Harvester Co., 104 F.T.C. 949, 1070 (1984).

8 15 U.S.C. § 45(n); 12 U.S.C. § 5531(c)(1).

9 FTC Policy Statement on Deception (Oct. 14, 1983), appended to Cliffdale Assocs., Inc., 103 F.T.C. 110, 174 (1984); CFPB, Examination Manual v.2, UDAAP-5 (Oct. 2012) (citing FTC Policy Statement on Deception). The CFPB has indicated that it will look to authorities under the FTC Act for guidance in defining the scope of deception under Title X of the Dodd-Frank Act. See id. at 5 n.10.

10 12 U.S.C. § 5531(d).12 U.S.C. § 5481(6).12 U.S.C. § 5481(6).

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