Debra

Just Because You Said It Doesn’t Mean It Is So

UDAAP is not a friend to customers or bankers.

I have felt the irritation of UDAAP stuck in my craw since it was amended to add that second “A” in 2010. The change did not seem meaningful or necessary.

Before the passage of UDAAP, we all pretty much new what was covered by UDAP and how to compliance with its restrictions. The standards for each term, “unfair” and “deceptive” were pretty clearly established.

Also, it was considered common practice, if not part of the actual definitions, that a bank had not committed a UDAP violation if there were other regulations that governed the act being reviewed that established consumer protections—like disclosures and such. Because it was so definitive, a cited UDAP violation prior to 2010 was already considered to be a very bad mark on a bank’s reputation and goodwill.

Then comes Dodd-Frank in 2010 and a new term “abusive” is added to the mix, making the acronym UDAAP-pronounced the same, but applied very differently.

Now, we have two terms defined, but one not. And the one that is not defined causes the problems. The first problem that I had right off the bat is that the term abusive is by anyone’s natural instinct much harsher than either unfair or deceptive.

I know you already know this, but let me just vent a bit. Let’s use the following non-bank example:

• If you are preparing dinner for two children, it could be considered unfair if you only allowed the children 10 minutes to eat their dinner before the food was removed so that you could get an early start on the dishes. One, it could cause substantial injury by removing necessary nutrition before it is able to be consumed. Two, it cannot be reasonably avoided because you are their primary or sole provider of nutrition. Three, the benefit of cleaning up earlier does not outweigh the possible injury to the children.

• If you are preparing dinner for two children, it could be considered misleading if you tell the children that because you like to clean up early there may be lollipops provided to children who finish dinner in less 10 minutes and the scenario goes like this: The first child finishes in 8 minutes and is given a lollipop. The second child finishes in 9 minutes, but you explain that there was only one lollipop and that you are so sorry that you can’t give them a sucker, but explain that they did not have to finish their dinner in less than 10 minutes. That could be considered misleading because you left out the material information that there was only one lollipop and a child misinterpretation is reasonable. It does not matter what your intent was or that you truly believed that your second child, who is a slow eater and does not like what you served, would not make the cut off or that you actually believed that Amazon would deliver a box of fresh lollipops that day!

• Finally, abusive. Dodd-Frank provides that abusive applies when the practice 1) materially interferes with the ability of “a” consumer to understand a term or condition “or” 2) takes unreasonable advantage of “a” consumer’s: lack of understanding of the risks, costs or condition; “or” inability to protect its interest; “or” reasonable reliance on a covered person to act in their interest.

I have the word “a” in quotations because it is uncertain whether that means the customer abused or any customer. Meaning, the parents in the example above might be abusing both children in the following example, even if one of the children understands everything that is going on.

What gets us into trouble is not what we don’t know. It’s what we know for sure that just ain’t so. Mark Twain

So, continuing with our story. Two children sit down to dinner. The parent places two lollipops on the table says that a lollipop will be provided to the first child that finishes dinner in less than 10 minutes, but one child is under the age of two and unlikely to understand the directions.