1. Letter to Readers
Welcome to the latest edition 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 October 2022 through March 2023.
During this period, we saw 13 UDAAP/UDAP enforcement complaints and consent orders from the Consumer Financial Protection Bureau ("CFPB" or "Bureau"), the Federal Trade Commission ("FTC" or "Commission"), and the Federal Deposit Insurance Corporation ("FDIC"),1 the imposition of severe penalties for UDAP/ UDAAPs, numerous UDAAP supervisory findings from the CFPB, and a focus from both the CFPB and FTC on fees charged to consumers.
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.2 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.3
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 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.4 The Dodd-Frank Act also prohibits any person knowingly or recklessly providing substantial assistance to a covered person in the commission of a UDAAP.5 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.6 The Dodd-Frank Act provides the CFPB various remedies for violations of federal consumer financial laws, including: (1) rescission or reformation of contract; (2) refunds of money or return of real property; (3) restitution; (4) disgorgement or compensation for unjust enrichment; (5) payment of damages or other monetary relief; (6) public notification regarding the violation, including the costs of notification; (7) limits on activities or functions of the person; and (8) civil money penalties.7
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.8 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.9
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.10
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.11 While the CFPB has abusiveness authority, the FTC does not.
3. Focus on Fees
Back in January 2022, the CFPB began an initiative to reduce so-called "junk fees" charged to consumers in connection with consumer financial services.12 Since then the Bureau has continued to focus on fees. Last fall the Bureau released guidance on deposit account fees, and this year the Bureau released a Notice of Proposed Rulemaking ("NPRM") on credit card late fees and an edition of Supervisory Highlights focused entirely on fees. For its part, the FTC released an Advanced Notice of Proposed Rulemaking ("ANPR") targeting fees.
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Footnotes
1. This review generally covers those actions first filed during this period. Actions that were initiated prior to October 1, 2022 and resolved during this period are counted in the enforcement trend statistics (e.g., total civil money penalties), but they are not discussed in the narrative.
2. 15 U.S.C. § 45(a)(1). Many states have adopted similar laws.
3. Id. § 53(b). Historically, injunctive relief under Section 13(b) of the FTC Act included potential orders for restitution or disgorgement. However, a recent US Supreme Court decision eliminated the FTC's ability to seek equitable monetary relief under Section 13(b). AMG Capital Mgmt v. FTC, 141 S. Ct. 1341 (2021).
4. 12 U.S.C. §§ 5531(a), 5536(a)(1)(B).
5. Id. § 5536(a)(3). Please see our previous discussion of the CFPB's use of “substantial assistance” as an enforcement tool. See “Substantial Assistance: the CFPB's Newest Tool” (July 19, 2016), available at: https://www.mayerbrown.com/-/ media/files/perspectives-events/publications/2016/07/ substantial-assistance-the-cfpbs-newest-tool/files/get-the-full-report/fileattachment/160718-update-cfs.pd.
7. 15 U.S.C. § 5565(a)(2).
8. 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).
9. 15 U.S.C. § 45(n); 12 U.S.C. § 5531(c)(1).
10. FTC Policy Statement on Deception (Oct. 14, 1983), appended to Cliffdale Assocs., Inc., 103 F.T.C. 110, 174 (1984); CFPB, Examination Manual v.3, UDAAP-5 (March 2022) (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.
11. 12 U.S.C. § 5531(d). You can read our prior analyses of the CFPB's abusiveness authority in our November 2, 2021 and May 2, 2023 Legal Updates.
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