By now we all now know that we have to be careful not to engage in Unfair and Deceptive Acts and Practices (UDAP under the FTC Act) or Unfair and Deceptive or Abusive Acts and Practices (UDAAP under the Dodd Frank Act and CFPB Rules).
What is unfair? The FTC Act and the FTC Policy on Unfairness from 1980 says the evaluation of whether an advertisement or practice is unfair depends on three factors:
- Whether the practice injures consumers
- Whether the practices violate established public policy
- Whether the practices is unethical or unscrupulous
What is deceptive? The FTC defines a deceptive act or practice as on one that meets all of the following criteria:
- There must be a representation, omission, or practice that is likely to mislead the consumer
- the act or practice must be considered from the perspective of the reasonable consumer
- The representation, omission, or practice must be a material one
The CFPB July 2013 Bulletin states that an act or practice is deceptive if it:
- Misleads or is likely to mislead consumers
- The consumer’s interpretation is reasonable under the circumstances, and
- The misleading act or practice is material
What is abusive? The CFPB says that an act or practice is abusive if it:
- Materially interferes where the consumer’s lack of understanding of the material risks, costs, or conditions of the product or service
- Takes unreasonable advantage of:
- The consumer’s lack of understanding of the material risks, costs or conditions of the product or service
- The consumer’s inability to protect his or her own interests in selecting or using a consumer financial product to service, or
- The consumer’s reasonable reliance on a covered person to act in the consumer’s best interests
There’s been a lot of enforcement on UDAAP lately in mortgage ads so what do we need to watch out for?
Some tips to be aware of:
- When reviewing your ads, make sure the that the advertisement materials are accurate and easy to read.
- Don’t use terms like “pre-approved” or “guaranteed” if in fact the recipient has not been preapproved or is not guaranteed to receive a loan from you.
- Make sure your train your employees about UDAAP avoidance
- Use scripts or call guides in your sales process to protect against UDAAP processes
- Be careful about using small print or footnote disclosures to clarify what you mean in your advertised offer.
- Avoid anything confusing or unclear in your headlines and your marketing message in your advertisements