When a regulator identifies an act or practice it deems adverse to the common good and there is no specific violation of law to cite, the fallback position has traditionally been to declare that act or practice unfair, deceptive, or abusive. Section 5 of the Federal Trade Commission Act empowers the Federal Trade Commission to take action when unfair or deceptive acts or practices are discovered in or affecting commerce. The Dodd-Frank Act added the concept of “abusive” acts or practices, providing the Consumer Financial Protection Bureau (CFPB) with rule-making and enforcement authority to prevent unfair, deceptive, or abusive acts or practices (UDAAPs) in connection with any consumer financial product or service.
Over time, the CFPB has expanded (or clarified) the scope of its reach in alleging UDAAPs, affirming that discrimination, even outside the context of credit, is “unfair,"1 clarifying that an act or practice that violates other federal or state laws may additionally be a UDAAP,2 and issuing a policy statement describing “abusive” acts or practices as those obscuring important features of a product or service, or leveraging circumstances to take unreasonable advantage.3 While many states have their own consumer protection laws prohibiting unfair or deceptive acts or practices, the CFPB has encouraged state attorneys general to protect their citizens and pursue lawbreakers by enforcing the federal Consumer Financial Protection Act, including by leveraging its “abusive” prong that a state’s consumer protection laws might otherwise lack.4
Regulatory focus on UDAAPs is as strong as ever. In 2021, the CFPB brought 18 enforcement actions, 12 of which alleged unfair, deceptive, or abusive acts or practices. In 2022, the number of CFPB enforcement actions increased to 20, with 16 alleging unfair, deceptive, or abusive acts or practices. With increasing regulatory scrutiny, it’s important to take a critical view of the representations made to consumers through your marketing, including your website, advertising, and terms of service, as well as customer service procedures, training, scripts, and job aids.
In preventing, monitoring for, and mitigating UDAAP risk, you should put extra care into the following high-risk areas:
Tip #1: Marketing Claims
Avoid marketing claims or terms that are vague, unclear, or misleading (e.g., guaranteed results, exaggerated benefits, contradictory language, unavailable terms, untrue statements, false impressions), including use of the word “FREE”, which is a beacon for regulatory scrutiny.
Tip #2: Disclosure of Risks
Ensure that any potential risks and material terms associated with using a product or service are clearly disclosed to consumers.
Tip #3: Fees
Consider whether any fees or charges could be viewed by a regulator as “hidden” or “junk fees” (e.g., fees or charges that a regulator could find surprised customers or that were unavoidable, unjustifiable, or not clearly and conspicuously disclosed to consumers).
Tip #4: Contract Terms
Be sure your customer terms do not contain representations or omissions that could mislead consumers about your product or service or the rights your customers are afforded under the law, and ensure that your customers have a reasonable opportunity to review and retain those terms prior to accepting them.
Tip #5: Vulnerable Consumers
Be aware of any marketing, products, or services that target potentially vulnerable consumers (e.g., consumers of a certain age, education, or income level).
Tip #6: Discriminatory Practices
Carefully considering marketing, products, or services that may exclude or offer alternate terms to certain consumers (e.g., based on race, color, religion, national origin, sex, marital status, age, or a proxy for one of those categories).
Tip #7: Reviews and Endorsements
Require any individual who provides an endorsement, testimonial, or review about your product or service to disclose any compensation or other factors that might materially affect the weight or credibility of their opinion and maintain records to show that each endorsement, testimonial, or review is genuine.
Tip #8: Consumer Accounts
Avoid incentivizing employees or third parties to sign up consumers for products or services without the consumer’s knowledge or consent, and avoid taking action that could be viewed as pressuring consumers into purchasing a product or service without a reasonable opportunity to review and understand all material facts and to weigh the costs and benefits.
Tip #9: Changes to the Business
Periodically review your marketing and related materials, including materials used by third parties, to ensure that they remain true and accurate as the business changes.
Tip #10: Consumer Complaints
Consumers can be your canary in the coal mine. If consumers have a problem with something, there’s a chance a regulator might, too. Have a process for intaking and addressing consumer complaints and monitoring for complaint trends to proactively identify and mitigate your UDAAP risk.
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Josh Burlingham is an associate in Goodwin’s Financial Industry group and a member of the firm’s Consumer Financial Services and Fintech practices, counseling both incumbent and emerging banks, non-depository financial institutions, and fintech clients on consumer financial laws, compliance, and transactional matters. For help with your UDAAP and other consumer financial law compliance needs, please contact him at (617) 570-1404 or firstname.lastname@example.org.
Goodwin’s Fintech group strategically leverages its regulatory, transactional, and litigation and enforcement practices to provide full-service support in every vertical of fintech and financial services, including: lending, payments, alternative finance, deposits, brokerage and wealth management, digital currency and blockchain, insurance and insurtech, and transactions, including bank partnerships and deal due diligence.
 CFPB Targets Unfair Discrimination in Consumer Finance. https://www.consumerfinance.gov/about-us/newsroom/cfpb-targets-unfair-discrimination-in-consumer-finance/ (Mar. 16, 2022).
 Unfair, Deceptive, or Abusive Acts or Practices (UDAAPs) examination procedures. https://www.consumerfinance.gov/compliance/supervision-examinations/unfair-deceptive-or-abusive-acts-or-practices-udaaps-examination-procedures/ (Mar. 16, 2022).
 CFPB Issues Guidance to Address Abusive Conduct in Consumer Financial Markets. https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-guidance-to-address-abusive-conduct-in-consumer-financial-markets/ (Apr. 3, 2023).
 CFPB Bolsters Enforcement Efforts by States. https://www.consumerfinance.gov/about-us/newsroom/cfpb-bolsters-enforcement-efforts-by-states/ (May 19, 2022).