UDAAP stands for Unfair, Deceptive, or Abusive Acts or Practices. It is defined by the Dodd-Frank Financial Reform Act of 2010, and was part of regulatory changes that occurred as a response to the 2008 financial crisis. The act aims to ensure that companies do not cause significant injuries to consumers, erode consumers’ confidence, or undermine the financial marketplace. It also gives the Consumer Financial Protection Bureau (“CFPB”) its rule-making authority, which is enforced by the Federal Trade Commission (“FTC”).
UDAAP compliance means that you must walk your talk. For example, you can’t use complicated wording that a consumer may misunderstand in packaging and collateral. You also can not make pricing confusing, potentially misleading the consumer to obtain products that may or may not be priced as described. As providers of financial products and services, fintech companies must look out for their customers’ best interests. This means they can not force or mislead potential customers to purchase or enroll in products or services, lacking full and clear disclosures. They can not deceive potential customers by using non-transparent disclosures in their marketing collateral, harming the consumer.
The Dodd-Frank Act defines “UNFAIR” with a three-part test:
- First the act or practice causes or is likely to cause substantial injury to consumers – keep in mind that it doesn’t have to be a financial injury to be an injury.
- The second piece is that the injury is not reasonably avoidable by consumers.
- And finally, the harm must not be outweighed by benefits to the consumers or the competition.
There are many risks associated with not complying with UDAAP, related to compliance, operations, strategy, and even your organization’s reputation. Non-compliance can also lead to litigation, enforcement actions, and fines.
A Quick Measure to Test for UDAAP Compliance
The CFPB adopts the FTC’s “four P’s” principal to measure if a product or service is UDAAP compliant, and whether a statement being made about a product or service is misleading or omitting important information.
- The first P is Prominence: Does a statement stand out and is it noticeable.
- The second P is Presentation: Is the statement easy to understand, not contradicted and timely.
- Third is Placement: Is the statement placed where consumers are expected to look for or hear it.
- The final P is for Proximity: Is a disclaimer close to the statement it qualifies.
Clearly, these regulations can make or break a payments program, and it is a topic that all payments professionals, especially in marketing, need to take very seriously. UDAAP compliance in all of your sales and marketing materials, including online collateral such as your website and social media activity, is essential to maintain your card program’s well-being and protect your company. An experienced and trained compliance agent must inspect and provide a final opinion on any UDAAP related questions. Don’t have the right personnel to manage the UDAAP compliance for your card program? Cascade can help!