UDAAP - Unfair, Deceptive, or Abusive Acts or Practices:

What exactly qualifies as a UDAAP? And as a debt collection company, how can you ensure your organization doesn't engage in acts or practices that are deceptive, unfair, or abusive?

The CFPB determines that an act or practice is unfair when;

  1. It is likely to cause or does 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 the competition.

You're not alone if you think the above list is a blueprint for broad, near-autocratic rule-making. Unspecific UDAAP reasoning, critics say, gives the CFPB unrestricted authority since determining what is and isn't unreasonable, misleading, or abusive is always a subjective matter.

While the CFPB's published guidance states that "emotional impact and other subjective types of harm would not normally amount to substantial injury," it also acknowledges that "emotional impacts can amount to or contribute to substantial injury in certain circumstances." Furthermore, no direct injury is required; substantial risk of concrete harm suffices.

How Does the CFPB Define "Abusive?"

Michael Semanie, an attorney with Killgore, Pearlman, Stamp, Denius & Squires, P.A., defines the definition of UDAAP for us: "It's a catch-all. If the CFPB doesn't like what you're doing, and it doesn't really fit into 'deceptive,' or 'unfair,' [it's] abusive."

Michael read the applicable statutory language to back up his argument. The term "abusive" is described in the UDAAP provisions of Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act as...

"…an act that materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or takes an unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or the reasonable alliance by the consumer on a covered person to act in the interest of the consumer."

The definition of "abusive" in the Act is longer than the definitions for "deceptive" and "unfair" because lawmakers wanted it to be as broad as possible. The broad definition's purpose serves "to capture something that could otherwise slip between the cracks of the deceptive and unfair." This ensures the CFPB still considers any form of abuse to be wrong.

Examples of UDAAPs

Aside from the statutory language, the CFPB's list of UDAAP examples can help to clarify the agency's rationale in relevant enforcement actions. Among the agency's examples are...

  • Failure to post payments on time or correctly, credit a customer's account with timely payments, and then charging late fees to that consumer.
  • Taking control of land without having the legal authority to do so.
  • Without the consumer's permission, disclosing the debt to the consumer's employer and/or coworkers.
  • Falsely portraying the debt's nature, number, or legal status.

If you have any additional questions about UDAAP or how to avoid the risks of the "catch-all" phrasing, contact us today.