What is 'UDAAP'

UDAAP is an acronym referring to unfair, deceptive or abusive acts or practices by those who offer financial products or services to consumers. UDAAPs are illegal, according to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Consumer Financial Protection Bureau (CFPB) makes rules about UDAAPs and the Federal Trade Commission (FTC) helps enforce them.

BREAKING DOWN 'UDAAP'

After the 2008 financial crisis, regulators created new laws to protect consumers and to increase consumer confidence in financial transactions. Defining and outlawing UDAAPs were among many steps in that process. The government does not determine which financial products and services are best for consumers, but it does require that consumers have access to information that lets them choose the best options for their situations. Consumers should only have to take reasonable measures, not impractical or expensive ones, to determine whether purchasing certain financial products or services is in their best interests.

Dodd-Frank defines an unfair practice as one that harms consumers financially and that consumers cannot reasonably avoid. The harm does not have to involve a large amount of money; the law applies even to a small amount of monetary damage that many consumers experience. Under the law, unfair practices do not have benefits to consumers or to market competition that would make the potential for harm a valid trade-off. The law generally does not cover emotional harm, except possibly in cases of excessive harassment. Financial product and service providers are not allowed to coerce or deceive consumers into making unwanted purchases, nor are they allowed to mislead consumers through specific statements or through a lack of clear and full disclosure.

UDAAP Examples

The following are examples of unfair or deceptive practices:

  • A lender keeping a lien on a house that a consumer has fully paid for.
  • A credit card company issuing convenience checks to consumers, then refusing to honor the checks without notifying those consumers.
  • A bank maintaining a relationship with a customer who has repeatedly committed fraud.
  • A car dealership advertising $0 down payment car leases without clearly disclosing the associated fees.
  • A mortgage lender advertising fixed-rate mortgages but only selling adjustable-rate mortgages.

Regulators routinely evaluate financial products and services for potential sources of consumer harm. In October 2012, the Consumer Financial Protection Bureau ordered three American Express subsidiaries to refund about $85 million to around 250,000 customers. The CFPB determined the subsidiaries had harmed consumers in interactions ranging from advertising credit cards to accepting payments to collecting debts. The bureau found that consumers were deceived about credit card rebates and about the benefits of paying off old debt, and that some applicants were illegally treated differently based on their age, among other charges.

RELATED TERMS
  1. Unfair Trade Practice

    Unfair trade practice refers to the use of various deceptive, ...
  2. Consumer Financial Protection Bureau ...

    The Consumer Financial Protection Bureau is a regulatory agency ...
  3. Regulation N

    Regulation N is a regulation which oversees financial transactions ...
  4. Consumer Credit

    Consumer credit is a debt that someone incurs for the purpose ...
  5. Credit Card Accountability, Responsibility ...

    The Credit Card Accountability, Responsibility, and Disclosure ...
  6. Dodd-Frank Wall Street Reform and ...

    The Dodd-Frank Wall Street Reform and Consumer Protection Act ...
Related Articles
  1. Personal Finance

    How the Consumer Financial Protection Bureau Works

    The CFPB cracks down on unfair or deceptive financial service practices to that can hurt consumers. Read how it works and how it's changing.
  2. Personal Finance

    Time to Accept Credit Card Offers Again?

    How much you could get and whether to respond
  3. Personal Finance

    Spotting Credit-Repair Scams

    Credit repair scams are common in today's debt-reliant world. Don't be a victim!
  4. Personal Finance

    Credit Card Debt: America’s Biggest Struggle?

    Dealing with credit card debt is a huge struggle for many American families. Here are some tips to get you started.
  5. Investing

    Investing in Credit Card Companies

    Find out why investing in credit card companies requires keeping an eye on consumer indexes and the overall health of the economy.
  6. Insights

    Bank Stocks: The Attack on Dodd-Frank

    Bank stocks were given an initial boost after the House passed the new bill to repeal Dodd-Frank.
  7. Insights

    Financial Regulations: Glass-Steagall to Dodd-Frank

    Here are some of the most important financial regulations that have been established.
  8. Personal Finance

    Consumer Financial Protection Bureau in Congressional Crosshairs

    Opponents of the agency contend that the CFPB lacks accountability; it's defenders beg to differ.
  9. Small Business

    Market Segmentation

    Market segmentation is a process marketers us to group similar consumers together. Why do they do this?
  10. Personal Finance

    Consumer protection laws you need to know

    Understand what your rights are as a consumer and how they protect you from scams and fraud. Learn which consumer protection laws you need to know so it can help you in particular situations.
RELATED FAQS
  1. Which economic factors most affect the demand for consumer goods?

    Understand how key economic factors such as inflation, unemployment, interest rates and consumer confidence affect the level ... Read Answer >>
  2. Which consumer goods do Americans buy the most of?

    Learn about the consumer goods sector, which accounts for nearly one-third of consumer spending, as well as which goods account ... Read Answer >>
  3. What are key government regulations that affect investing in the banking sector?

    Discover how the global financial crisis of 2008 changed the face of banking in the United States and around the world by ... Read Answer >>
  4. What are some limitations of the consumer price index (CPI)?

    Despite being followed so relentlessly, the consumer price index has its limitations and is an imperfect a measure of inflation ... Read Answer >>
Trading Center