Unfair, Deceptive, or Abusive Acts or Practices (UDAAP)

Your bank is being examined for unfair, deceptive, or abusive acts or practices (UDAAP). Which item might an examiner most likely ask you to provide to determine if your bank's acts or practices are unfair or deceptive? A. A list of your bank's products and services B. A copy of your bank's internal audits C. Your customer complaint file D. Your compliance manual

C

Assignment of wages

Prohibited except if revoked by debtor, a preauthorized payment plan, applies to wages or earnings.

Pyramiding late charges

Prohibits a delinquency charge on a full payment made in a timely manner if attributable to charge assessed on earlier installment.

To be abusive, an act or practice need only meet one of the criteria for abusive

True

A deceptive practice must be material in that the practice must be likely to affect a customer's choice to buy or use the product.

True

Can an act or practice be both unfair and deceptive?

Yes as long as the practice meets the definition of both terms. It is easier to prove deceptive practices, so those are cited more often

ACME Bank published an advertisement for its new deposit account that has no service charge. The bank advertised the account as a "free" account since there are no charges associated with maintaining the account. If an accountholder overdraws their balance, an overdraft fee will be charged, and if the overdrawn amount is outstanding for more than five days, an additional continuing overdraft charge will be added. What UDAAP issue, if any, is a concern? a. deception b. unfairness c. abusiveness d. none

a

Taking advantage of a consumer's inability to understand the terms or conditions of a financial services product would be considered: a. deceptive b. abusive c. unfair d. unproductive

b

An act or practice is unfair if it meets all of the three standards:

-Causes or is likely to cause substantial consumer injury -Injury is not reasonably avoidable by consumers -Injury not outweighed by countervailing benefits to consumers or to competition

Abusive acts and practices must:

-Materially interfere with a consumer's ability to understand the terms or conditions of a financial product or service; or -Take unreasonable advantage of: --The consumer's lack of understanding of the material risks or costs of the product or service; or --The consumer's inability to protect his or her own interests when selecting or using a financial product or service; or --A consumer's reasonable reliance on the financial service provider to act in the interests of the consumer.

What are the standards for deceptive practices?

-The representation, omission, or practice is likely to mislead the customer -The customer's interpretation of the representation, omission, or practice is reasonable under the circumstances -The misleading representation, omission, or practice must be material

An ''abusive'' act or practice is illustrated by which example? A. A practice that takes unreasonable advantage of the inability of consumers to protect their interests in selecting or using a consumer financial product or service B. A practice that helps a consumer to understand a term or condition of a consumer financial product or service C. A practice that represents an account as free when there could be a monthly service charge D. A practice of representatives leading customers to believe they would receive money in addition to bonus points if they sign up for a particular credit card program, even though they would not

A

An abusive act or practice is currently defined by law as one that does what? A. Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service B. Presents information in English if the person only speaks Spanish C. Is not material to the overall understanding of the product or service D. Presents information taking into consideration the educational level of the customer

A

Deception in the unfair, deceptive, or abusive acts or practices (UDAAP) rules is correctly identified in which statement? A. Deception is a representation, omission, or practice that is likely to mislead customers B. Deception occurs when an advertisement includes important information C. Deception only occurs in conjunction with unfairness and not a stand-alone finding D. Deception is limited to situations in which a bank has actually misled a customer

A

Lilly, the branch manager at North Bank, is reviewing the bank's advertisements. How can she ensure they are not unfair, abusive, or deceptive? A. Review all promotional materials and marketing scripts to ensure that they fairly and adequately describe the terms, benefits, and material limitations of the product or service being offered B. Omit any product information that may be required but could potentially be confusing C. Omit the use of the ''Member Federal Deposit Insurance Corporation (FDIC)'' advertising statement in deposit advertisements because the insurance rules are complicated and could confuse customers D. Only advertise ''in branch'' instead of in newspapers and other public media because in-branch advertisements are not subject to the unfair, deceptive, or abusive acts or practices (UDAAP) rules

A

Peggy is reviewing credit contracts as part of a bank audit and notes that many of the loan contracts contain language that could result in the bank being cited for an unfair or deceptive acts or practices (UDAP) violation. What language is Peggy concerned with? A. Confession of judgment, waiver of exemption, wage assignment, and security interest in household goods B. Confession of judgment, payment acceleration upon default, and security interest in household goods C. Waiver of exemption, confession of judgment, and balloon payments D. Wage assignment, security interest in household goods, and fees for late payments

A

Unfair, deceptive, or abusive acts or practices (UDAAP) compliance may present a challenge for which reason? A. The analysis may be somewhat subjective and dependent on the individual circumstances B. It is always clear in advance what may later be deemed a violation C. Determinations of violations are often based on an emotional response D. There are no clear legal standards

A

Unfairness is a defined legal concept under the unfair, deceptive, or abusive acts or practices (UDAAP) rules. For unfairness to be present, which element is necessary? A. The act or practice must cause or be likely to cause substantial injury to customers B. Customers must reasonably be able to avoid the injury C. Customers must consider the practice to be unfair D. The injury must be outweighed by countervailing benefits to customers or to competition

A

Which option identifies a factor designated as part of the "unfair" standard in the unfair, deceptive, or abusive acts or practices (UDAAP) rules? A. If the injury is not outweighed by countervailing benefits B. If it does not cause or will likely not cause substantial customer injury C. If the injury is reasonably avoidable by customers D. If the misleading representation, omission, or practice is immaterial

A

Which two situations are considered abusive acts or practices? A) A practice that materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service B) A practice that represents an account as free when there could be a monthly service charge C) A practice that takes unreasonable advantage of the inability of consumers to protect their interests in selecting or using a consumer financial product or service D) A practice of representatives leading customers to believe they would receive money, in addition to bonus points, if they sign up for a particular credit card program even though they would not

A & C B is incorrect because it is an example of unfair, not abusive, practices. D is incorrect because it is an example of deceptive, not abusive, practices.

Waiver of exemption

A consumer waives the benefit of any laws that protect the consumer ́s real or personal property from seizure or sale to satisfy a debt.

Confession of judgment

A consumer waives the right to notice and an opportunity to be heard in event of a lawsuit.

Which three statements are accurate for the purpose of concluding if an advertisement is deceptive? A) The advertisement must contain a representation or omission or involve a practice that is likely to mislead a consumer B) The bank's regulators must prove that the advertisement actually misled consumers C) The representation or omission must be material D) The advertisement must be likely to mislead the targeted audience

A, C, and D are correct. B is incorrect because the legal standard is "likelihood" of misleading. It is not necessary to demonstrate if consumers were actually misled.

Pete agreed to be the cosigner for Jane's loan. Jane has missed three payments and incurred some late charges on the loan. How much of the loan will the bank require Pete to repay?

At the very least, Pete could be responsible for paying the missed payments and late fees. It is also possible that the bank could hold Pete responsible for paying off the entire loan if the bank chooses to end its relationship with Jane.

A "bait and switch" practice in advertising may be illustrated with which example? A. Advertising a bonus for opening an account but not paying the bonus due to undisclosed conditions B. Advertising low auto rates, knowing that most applicants will not be able to qualify for such rates, then offering loans with much higher rates at time of application C. Referring to an account as free when there is a monthly service charge if the customer does not maintain a specified balance D. Advertising a special high rate on a certificate of deposit (CD) without disclosing that the minimum opening deposit is $50,000

B

Potentially unfair, deceptive, or abusive acts or practices (UDAAP) may be identified by which key factor? A. Regulatory fines and penalties B. Consumer complaints C. Newspaper articles D. Audit findings

B

Reliable Savings Bank is advertising a new loan product specifically targeted to individuals who have never had a loan before and are financially unsophisticated. Considering the "reasonable consumer" standard under the deceptive practices' standards, what must the bank consider when creating this ad? A. The bank may omit important information in the advertisement but cure the violation later when the banker meets with the customer face-to-face B. A reasonable interpretation of the advertisement should be based on that of someone who is financially unsophisticated C. The bank can wait to disclose important information until loan closing so applicants feel pressured to proceed D. The bank should only be concerned if the advertisement deceives a majority of customers

B

Shannon is a customer of National Bank. She believes that the bank's mortgage loan advertisements are unfair and deceptive and that she was harmed by relying on the information in those advertisements. What must Shannon's attorney be prepared to establish if she seeks to prevail in a lawsuit against the bank? A. That the bank's conduct was intentional B. That the bank's conduct might possibly have an effect on the public C. That the bank profited from the deceptive or unfair act D. That the bank's regulatory disclosures are also unfair or deceptive

B

The law defines "deceptive," "unfair," and "abusive" as principles or concepts rather than simply prohibiting specific practices. Why is this an appropriate approach? A. Banks would always know in advance if a practice is deceptive, unfair, or abusive B. A list of specific practices could become quickly outdated or leave loopholes for easy evasion C. It is easier to train bank employees on concepts rather than specific practices D. All the banking laws clearly spell out what specific practices are illegal

B

What information is contained in a cosigner notice? A. That the cosigner only becomes obligated if the borrower fails to pay B. That the lender may collect the debt from the cosigner and does not first have to try to collect from the borrower C. That if the borrower does not pay the debt, the cosigner may have to pay late fees or collection costs but is not fully liable for the debt D. That the cosigner is required to sign the cosigner notice or otherwise acknowledge its receipt

B

Why are the legal standards for establishing unfairness more burdensome than those establishing deception? A. Because consumers think everything a bank does is unfair B. Because establishing unfairness requires finding that the injury could not be avoided and weighing the injury against benefits to consumers and to competition C. Because the standards for unfairness are not clearly defined D. Because it is not easy to distinguish between unfairness and deception

B

The prudential regulators have the authority to enforce the prohibitions against unfair and deceptive acts and practices, but only one agency has authority over abusive practices. This agency has the authority to adopt unfair, deceptive, or abusive acts or practices (UDAAP) regulations, but to date, has not. What is this agency? A. Federal Reserve (Fed) B. Office of the Comptroller of the Currency (OCC) C. Consumer Financial Protection Bureau (Bureau) D. Federal Deposit Insurance Corporation (FDIC)

C

The terms "unfairness" and "deception" have separate legal definitions. Which element is necessary to establish deception? A. There must be a representation, omission, or practice that does not mislead or is not likely to mislead the customer B. The act or practice must be considered from the perspective of the bank C. The representation, omission, or practice must be material D. A significant number of customers must have suffered a large monetary loss

C

Under the original standards broken down by the unfair or deceptive acts or practices (UDAP) concerning the two different legal standards—one for unfair and another for deceptive—in what manner can a bank violate these standards? A. A bank cannot be held liable under UDAP because it is not a banking regulation B. A bank is liable under UDAP only when both unfair and deceptive standards are violated C. A bank is liable under UDAP when it violates either or both of these standards D. Only the Consumer Financial Protection Bureau can cite a bank for violations of UDAP

C

What does "material" signify in regard to deceptive unfair, deceptive, or abusive acts or practices (UDAAP)? A. A person acting reasonably under the circumstances B. The bank's failure to provide the service or product C. A practice that is likely to affect a customer's choice to buy or use the product D. The physical attributes of a product during manufacture

C

Which best practice would be a good way to help your bank avoid the unfair, deceptive, or abusive acts or practices (UDAAP) claims? A. Market discretely: Ensure that only bank employees understand the true value of the product B. Communicate the bargain: Be open about the trade-off between benefits and costs, but do not disclose the downside C. Deliver what you promise: Make sure your products and services contain all the features and benefits you advertise that they do D. Ignore feedback: Do not be concerned with customer misunderstanding as long as your advertisements and disclosures appear to be adequate

C

Security interests in household goods

Creates a security interest in household goods if the consumer does not incur the debt to purchase the goods.

The unfair, deceptive, or abusive acts or practices (UDAAP) rules include an "abusive" concept, introduced by which act? A. Federal Trade Commission (FTC) Act B. Truth in Lending Act C. Consumer Financial Protection Bureau (CFPB) Act D. Dodd-Frank Act

D

Which situation is an example of an unfair and deceptive trade practice? A. Marketing a credit card with an annual fee and not explaining the benefits of the annual credit protection service B. Marketing a credit card and not disclosing the annual percentage rate (APR) on the lobby rate board C. Marketing a credit card and not explaining the advantages of money savings with no annual fee D. Marketing a credit card with no annual fee but not disclosing the mandatory yearly credit protection

D

Of the three types of acts or practices—unfair, deceptive, and abusive—the most commonly cited in enforcement actions is.....

Deceptive because an interpretation of abusive acts or practices is not well-established, and the criteria for establishing deception is less burdensome than the criteria for unfairness

Substantial injury may consist of ..?

Either a small amount of harm to a large number of consumers, or significant harm to a small number of consumers.

An unfair practice may include the lack of access to important information that may prevent consumers from comparing available alternatives, choosing the product that best fits their needs, or avoiding those that are inadequate or unsatisfactory.

True

The FTC Policy Statement on Deception clarifies that information about costs, benefits, and restrictions on the use or availability of a product or service is ____ material: a) Never b) Usually c) Always d) Often

c-when the bank makes express claims with respect to a financial product or service, it will be presumed to be material