Unfair and Deceptive Acts and Practices

Issue

Banks often feel the effects of unfair or deceptive acts and practices (UDAP) conducted by our non-bank competitors when federal or state policy makers respond with new laws and regulations; these new restrictions unfailingly burden banks—where few or no examples of the problems occurred—but often fail to reach the actual source of the abuses.

Position Statement

ABA members strive to conduct their product and service promotions and delivery responsibly and to guard against unfair or deceptive acts and practices. We support uniform regulatory policies governing UDAP that treat all charter types consistently and maintain a level playing field with respect to non-bank financial institutions.  To this end, ABA supports providing the OCC and the FDIC with regulatory powers, already bestowed on the Federal Reserve and OTS, to be used jointly by the several agencies so that the agencies can act in a consistent and coordinated fashion when establishing UDAP standards.  ABA strongly opposes predatory lending and believes that the conduct that is commonly ascribed as predatory occurs largely outside the market of direct lending by depository institutions. Accordingly, predatory lending is best addressed through more vigorous enforcement against non-bank creditors using the authority and principles that govern unfair or deceptive acts and practices in addition to other existing federal consumer protections for which banks are already held accountable.

Explanation

Predatory lending is primarily the result of non-bank creditors and loan brokers engaging in practices that mislead vulnerable borrowers to enter into credit obligations in circumstances without appropriate information and/or under conditions that are harmful to their economic welfare. These predatory practices are already prohibited as violations of existing regulations, such as the Equal Credit Opportunity Act, the Truth-in-Lending Act, the Real Estate Settlement Procedures Act, section 5(a) of the Federal Trade Commission Act governing unfair or deceptive acts and practices, as well as several other specific consumer protections.

Under the Federal Trade Commission Act, the Federal Reserve Board and the OTS have authority to prohibit unfair or deceptive acts or practices across all banking charters; however, the statute has not provided either the OCC or FDIC direct authority to impose regulations against UDAP—although they have enforcement authority to take action against banks that commit such practices.  ABA supports the call by OCC and the FDIC to enable them also to issue appropriate regulations, provided such authority is exercised jointly with the Federal Reserve and OTS, to assure consistent oversight and application across all banking charters.

Under the Administration proposal, the Consumer Financial Protection Agency (CFPA) would be granted not only UDAP authority over financial institutions, but also the authority to declare practices abusive. As designed, there is no statutory standard to govern the determination of such abusive practices. ABA believes the CFPA proposed expansion of UDAP is arbitrary and unwarranted. 

Contact for further information: Richard Riese (202) 663-5051.