In today’s regulatory environment, perhaps no term is as inscrutable or controversial as “UDAAP.” That seemingly random collection of letters is really just an acronym that stands for “unfair, deceptive, or abusive acts and practices.”
On a practical level, UDAAP tends to mean “bad stuff.”
For regulators such as the Consumer Financial Protection Bureau, UDAAP is the bad stuff companies do—the bad stuff that hurts consumers. Where UDAAP exists, someone is being taken advantage of.
For critics of the term, including many financial organizations under CFPB authority, UDAAP is the bad stuff of overbroad and undercooked laws and standards. It’s loose, subjective reasoning the CFPB and others can apply to any business suspected of wrongdoing.
Disputes over UDAAP—over what “unfair,” “deceptive,” and “abusive” really mean; over what stuff does and doesn’t count as “bad”—have gone on for years, ever since the acronym appeared in the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010. At the heart of the controversy is that middle “A”: abusive.
When do business acts and practices become abusive? How does abuse differ from unfairness or deception? How is it measured and determined, and who gets to decide?
The CFPB recently set out to clarify these questions during a symposium—the first in a series “exploring consumer protections in today’s dynamic financial services marketplace.” The symposium was split into two panel discussions, one on policy considerations and the other on the abusive standard in practice. The panels comprised a who’s-who of legal scholars, policymakers, consumer finance experts, and former and current regulatory leaders:
- Patricia McCoy, Professor of Law at Boston College Law School)
- Todd Zywicki, Professor of Law at George Mason University, Antonin Scalia Law School)
- Howard Beales of George Washington University; former Director of the Federal Trade Commission’s Bureau of Consumer Protection
- Adam Levitin, Professor of Law at Georgetown Law School)
- William MacLeod, Partner at Kelley Drye; former Director of the FTC Bureau of Consumer Protection and Bureau of Competition
- Eric Mogilnicki, Partner at Covington & Burling; former Chief of Staff for Senator Ted Kennedy
- Lucy Morris, Partner at Hudson Cook; former CFPB Deputy Enforcement Director
- Nicholas Smyth, Assistant Director of the Pennsylvania Office of Attorney General’s Bureau of Consumer Protection; Senior Deputy Attorney General
These panelists had plenty to say and disagree over, as insideARM reports (emphasis added):
“One of the substantial disagreements among panelists was whether consumer harm is required for a practice to be abusive. The panel was split on this issue. McCoy and Levitin indicated that while unfair and deceptive are terms focused on their impact on the consumer; abusive focuses on the actions of a company. McCoy clarified that consumer harm is not a prerequisite if the statutory language does not specify it in the abusive section. Zywicki indicated that it is odd to focus on company conduct where there is no consumer harm.”
The second discussion in particular prompted some serious—and fascinating—arguments and analysis (emphasis added):
“This panel’s primary discussion was about whether there is a need to clarify ‘abusive’ considering what is available right now. Smyth unequivocally stated that there is no need for clarity. Between the statutory language and secondary sources, there is enough to know what does and does not qualify. Smyth cites that courts have never had to look beyond the statutory language when evaluating this issue.
The other panelists disagreed. Morris described that the majority of court decisions on this issue were decided on a motion to dismiss, which is not a definitive decision on the merits that provides clarity on the term’s definition. There are also very few cases that allege abusive acts and practices but don’t allege deceptive and misleading acts and practices, making it difficult to differentiate the terms through court decisions. […]
Morris illustrated UDAAP as a bullseye. The center is ‘deceptive,’ which is the most clearly-defined and easy-to-identify term. The second layer is ‘unfair,’ which overlaps with deceptive but is broader in scope with a clearly-identified limiting test. ‘Abusive’ is the outer layer, which overlaps with the two middle layers. However, unlike ‘unfair,’ ‘abusive’ does not have a clearly defined outer limit and is used as a catch-all. Mogilnicki mentioned that these ‘catch-all’ provisions lead to accusations that the Bureau is engaging in regulation by enforcement.
Read the full article, including perspective from insideARM General Counsel and Regulatory Editor Katie Grzechnik Neill, by clicking here.Have questions about unfair, deceptive, and abusive acts and practices? You certainly wouldn’t be the first. Stay ahead of CFPB compliance with our UDAAP primer.
