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Compliance Overview: Unfair, Deceptive Page | 1 © 2014 insideARM.com and Abusive Acts or Practices
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Compliance Overview: Unfair, Deceptive Page | 2 © 2014 insideARM.com and Abusive Acts or Practices
Legal Disclaimer
This information contained in this report is not intended to be legal advice and may not be used as legal
advice. Legal advice must be tailored to the specific circumstances of each case. Every effort has been
made to assure this information is up-to-date. It is not intended to be a full and exhaustive explanation
of the law in any area, however, nor should it be used to replace the advice of your own legal counsel.
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Compliance Overview: Unfair, Deceptive Page | 3 © 2014 insideARM.com and Abusive Acts or Practices
Table of Contents
What is UDAAP? ............................................................................................................................................ 4
Common Terms and Acronyms ..................................................................................................................... 4
Who is Affected? ........................................................................................................................................... 4
Compliance ................................................................................................................................................... 5
Top 10 Compliance Tips ............................................................................................................................ 6
Vendor Management ................................................................................................................................ 7
Call Monitoring ......................................................................................................................................... 8
Internal Audits........................................................................................................................................... 9
Spotlight on: Banking Compliance ............................................................................................................ 9
Examples ..................................................................................................................................................... 11
Violations .................................................................................................................................................... 12
Timeline: High-Profile UDAAP Violations ................................................................................................ 12
Examinations ............................................................................................................................................... 13
Module 1: Entity Business Model ........................................................................................................... 14
Module 2: Communications in Connection with Debt Collection .......................................................... 15
Sample Checklists .................................................................................................................................... 16
CFPB Rules ................................................................................................................................................... 18
Appendix: Rules and Regulations ................................................................................................................ 20
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Compliance Overview: Unfair, Deceptive Page | 4 © 2014 insideARM.com and Abusive Acts or Practices
What is UDAAP?
UDAAP stands for Unfair, Deceptive and Abusive Acts or Practices taking place in the debt collection
industry, or any other financial institution. It originates from Section 5 of the Federal Trade Commission
Act.
At first, the FTC Act only outlined UDAP: Unfair or Deceptive Acts or Practices. But the Dodd–Frank Wall
Street Reform and Consumer Protection Act – signed into law on July 21, 2010 – added “abusive” to the
alphabet soup. It also gave the newly-formed Consumer Financial Protection Bureau a directive to
supervise financial institutions and prevent UDAAP through rule-making, examination and enforcement.
The FDCPA, enacted in 1977, was a targeted call for the debt collection industry to treat consumers
honestly, fairly and with respect; in many ways, UDAAP is a broader version of the Fair Debt Collection
Practices Act. But being up-to-date on just FDCPA compliance is no longer enough; because of UDAAP,
collectors now have to actively prove that their practices don’t harm consumers.
Common Terms and Acronyms
UDAAP Unfair, Deceptive and Abusive Acts or Practices
Previously “Unfair or Deceptive Acts or Practices” until 2010
CFPB Consumer Financial Protection Bureau
FTC Federal Trade Commission
Dodd-Frank Dodd–Frank Wall Street Reform and Consumer Protection Act
Major financial reform law that created the CFPB and added “abusive” acts and practices to UDAAP
FDCPA Fair Debt Collection Practices Act
ANPR Advance Notice of Proposed Rulemaking
Who is Affected?
Dodd-Frank defines “service provider” as “any person that provides a material service to a covered
person in connection with the offering or provision by such covered person of a consumer financial
product or service.” Debt collectors have to comply with UDAAP because there are subject to the CFPB’s
supervision and enforcement authority.
In July 2013, the CFPB released a bulletin to “clarify” the legal obligations of covered persons and their
service providers under the Dodd-Frank Act with respect to UDAAP violations in the collection of
consumer debts. This effectively imposed the FDCPA on creditors without a formal notice and comment
process. Now, creditors and their service providers must abide by the FDCPA – and by proxy UDAAP
principles and guidance – when engaged in collections.
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Compliance Overview: Unfair, Deceptive Page | 5 © 2014 insideARM.com and Abusive Acts or Practices
Compliance
Any consumer product or service has the potential of being criticized for possible UDAAP violations.
UDAAP is a principle-based tool the CFPB uses on a case-by-case basis; the definitions of unfair,
deceptive and abusive acts and practices focus primarily on what a debt collector can’t do, putting the
onus for compliance on the collection agency itself.
Some acts and practices currently receiving a lot of attention in the debt collection industry are:
Check/debit processing orders
Loan payment processing
Debt settlement services
Industry experts agree that collection agencies must be proactive in their UDAAP compliance, instead of
simply waiting until they get a notice of a CFPB investigation.
An act or practice is unfair when:
• It causes or is likely to cause substantial injury to consumers. Typically, a substantial injury is monetary harm;
• The injury is not reasonably avoidable by consumers; and
• The injury is not outweighed by countervailing benefits to consumers or to competition.
An act or practice is deceptive when:
• It misleads or is likely to mislead the consumer;
• The consumer has a reasonable interpretation of the behavior; and
• The behavior (the misleading representation, omission, act, practice, etc.) is material.
An act or practice is abusive when:
• It materially interferes with the ability of a consumer to understand a term or condition product or service.
• It takes unreasonable advantage of:
• A lack of understanding about the cost, risks, or conditions of the product or service;
• The inability of the consumer to protect themselves when selecting or using a consumer financial product or service; or
• Consumer trust that an entity is acting in their best interest
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