MBA Compliance Essentials Unfair, Deceptive or Abusive Acts or Practices (UDAAP) and Mortgage Acts and Practices Act (MAP)

Mitchel H. Kider
Managing Partner
Weiner Brodsky Kider P.C.
Fed Kamensky
Member
Jason W. McElroy
Member
Unfair, Deceptive or Abusive Acts or
Practices (UDAAP) and Mortgage
Acts and Practices Advertising
(MAPS) Resource Guide
UPDATED: 5/1/2016
MBA COMPLIANCE ESSENTIALS℠
mba.org/compliance
ONE VOICE. ONE VISION. ONE RESOURCE.
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MBA Compliance Essentials℠:
UDAAP & MAPs Resource Guide
1
Unfair, Deceptive, or Abusive Acts or
Practices and Mortgage Acts (UDAAP)
and Practices-Advertising (MAPs)
Resource Guide
Developed By:
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COPYRIGHT
©2016 Weiner Brodsky Kider PC. This book is being provided to you with a limited license for
use solely within your organization. This book, its content and the link to it may be accessed by
up to fifteen (15) members of your organization for each such person’s internal use of the
materials. However, these materials may not be downloaded, reproduced, forwarded, or
otherwise distributed in any form or by any means outside of your organization. Your
organization will however, be entitled to comply with a subpoena or other validly issued
administrative or judicial process that may request information from the book, to the extent
required by law. Unauthorized reproduction, forwarding, distribution or display of this
copyrighted work is subject to criminal and civil penalties under federal law. For information
about extending this license to additional members of your organization, please contact:
David Upbin
Director, Strategy & Education Operations
Mortgage Bankers Association
1919 M Street, NW
Washington, DC 20036
(202) 557-2931
www.mba.org
If you would like to order additional copies of this publication or would like to inquire regarding
discounts for quantity purchases, please contact MBA at education@mba.org.
DISCLAIMER
PLEASE TAKE NOTE: These materials have been produced by Weiner Brodsky Kider PC.
These materials provide an overview of some of the federal laws and regulations that prohibit
unfair, deceptive, or abusive acts and practices, or UDAAP, and misrepresentations in
advertising under Mortgage Acts and Practices–Advertising Rule (MAPS Rule). These materials
are designed to provide the reader with a general overview and understanding of the UDAAP
and MAPS Rule provisions. These materials are not intended to and do not provide legal
advice, and does not create an attorney-client relationship between the firm of Weiner Brodsky
Kider PC and the recipient. The UDAAP and MAPS Rule provisions described herein are, in
many instances, paraphrased, and a careful reading of the relevant laws, regulations or cases
thereunder may reveal exceptions or different interpretations that might be applicable to a
particular set of facts. These materials cover areas in which the proper interpretation of law and
regulation can be highly dependent upon particular facts. Accordingly, taking action simply upon
the basis of information provided in these materials is not advisable. The materials are not a
substitute for consultation with qualified legal counsel regarding the manner in which the laws
and regulations referenced herein may be interpreted and apply to particular facts or to
particular business models. These materials are for informational and educational purposes
only, and are not a solicitation and should not be construed as such.
©2016 Weiner Brodsky Kider PC
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TABLE OF CONTENTS
I. Unfair, Deceptive, or Abusive Acts or Practices (UDAAP)
A. Introduction .............................................................................................................................................. 6
B. Regulatory Overview ............................................................................................................................... 6
C. Definitions of “Unfair,” “Deceptive” and “Abusive” ................................................................................... 8
D. The CFPB’s First Action to Stop Alleged Abusive Practices ................................................................. 14
E. Concurrent Authority—MOU between the CFPB and the FTC ............................................................. 15
F. Interplay With Other Federal and State Laws ........................................................................................ 16
G. The CFPB’s Guidance on UDAAPS in Collection of Consumer Debts ................................................. 18
H. The Role of Consumer Complaints ....................................................................................................... 20
II. The Mortgage Acts and Practices Rule (MAPS Rule)
A. Introduction ............................................................................................................................................ 21
B. Definition of “Commercial Communication” ........................................................................................... 21
C. Recordkeeping Requirement ................................................................................................................. 22
D. Prohibited Representations ................................................................................................................... 23
E. Penalties ................................................................................................................................................ 24
III. Recent Enforcement Activity for UDAAP and MAPS Rule ................................................................... 24
IV. Model UDAAP Policies and Procedures ............................................................................................... 32
V. Model Mortgage Acts and Practices Rule Policy ................................................................................... 41
A. General Advertising Considerations ...................................................................................................... 41
B. The Mortgage Acts and Practices Rule ................................................................................................. 42
VI. Model Internal UDAAP & MAPS Compliance Audit Checklist .............................................................. 45
VII. Examples of Recent UDAAP and MAPs Rule Alleged Violations ........................................................ 48
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AUTHOR BIOGRAPHIES AND INFORMATION ABOUT THE FIRM
Mitchel H. Kider is the Chairman and Managing Partner of Weiner Brodsky Kider PC,
a national law firm specializing in the representation of financial institutions, residential
homebuilders, and real estate settlement service providers. In his 34 years as a
practicing attorney, Mitch has represented banks, mortgage companies, homebuilders,
credit card issuers, and other financial service companies in a broad range of litigation
and regulatory and compliance matters. He represents clients in investigative and
enforcement actions before the Consumer Financial Protection Bureau, Department of
Housing and Urban Development, Department of Veterans Affairs, Department of
Justice, Federal Trade Commission, Ginnie Mae, Fannie Mae, Freddie Mac, and
various state and local regulatory authorities and Attorneys General offices. Mitch
speaks frequently on regulatory and litigation matters before trade associations and other industry
groups. He is a Fellow of the American College of Consumer Financial Services Lawyers, and a Faculty
Fellow of the Mortgage Bankers Association. Mitch is the author of six books pertaining to residential
mortgage finance and also has written numerous law review and real estate journal articles on the
subject. His most recent books are Consumer Protection and Mortgage Regulation Under Dodd-Frank
(West/Thomson Reuters 2015) and Real Estate and Mortgage Banking: A New Era of Regulatory Reform
(West/Thomson Reuters 2014-2015).
Fed Kamensky’s practice focuses on state and federal regulatory compliance matters
related to the financial services industry. He represents and advises mortgage
companies, financial institutions, and secondary market investors in the areas of
mortgage origination and servicing. Fed’s experience includes:
• Assisting companies with new and emerging reverse mortgage programs,
including the design, development and implementation of programs and related
documentation.
• Performing regulatory compliance services for clients with respect to new and
existing reverse mortgage programs.
• Drafting loan documents and consumer disclosures, including security
instruments, credit agreements, and state and federal disclosure forms.
• Advising clients on federal and state mortgage banking, real estate and related
laws that impact the origination and servicing of residential mortgage loans.
• Assisting with the evaluation of legal aspects of emerging international markets.
Fed also prepares multi-state regulatory surveys and analyses of matters pertaining to residential
mortgage lending, brokering, and servicing; assists companies with implementing new state laws and
regulations; and represents clients in state and federal consumer compliance audits.
Jason W. McElroy represents companies in the financial services and housing
industries in state and federal litigation. Jason has experience in all aspects of
litigation, including pre-trial proceedings, motions, discovery, pleadings, and appellate
practice. Jason has represented clients in federal and state courts, as well as before
federal agencies such as the Department of Justice, Federal Trade Commission (FTC),
U.S. Department of Housing and Urban Development (HUD), and the Consumer
Financial Protection Bureau (CFPB). Jason defends claims involving state and federal
consumer protection statutes, unfair trade practices, financial regulatory statutes, and
housing regulations.
Jason also provides regulatory counsel to financial companies regulated by the CFPB, including assisting
with preparation for regulatory examinations, representation in investigations, and targeted reviews.
Jason regularly speaks at industry functions nationwide regarding regulatory and litigation matters
affecting the financial services industry. Jason also has previously served on the Editorial Advisory Board
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for Banking Law 360, and is a member of the American Bar Association’s Consumer Financial Services
Committee.
WEINER BRODSKY KIDER PC is a Washington, D.C.-based firm with a
national practice focused on the mortgage and financial services
industries. It represents a broad client base, from start-up businesses to
Fortune 500 companies, throughout the United States.
Our attorneys have been serving mortgage bankers for more than three
decades, and we are one of the leading law firms in the country practicing
in this area. From our considerable experience, we bring to each matter a
depth of industry knowledge that enables us to develop approaches and solutions that combine expert
legal analysis and business reality. We are committed to bringing value and satisfaction to our clients.
We offer full-service legal representation and counseling to our clients, with teams devoted to federal and
state licensing and regulatory compliance, corporate and transactional matters, representation before
government agencies, and litigation.
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I. Unfair, Deceptive, or Abusive Acts or Practices (“UDAAP”)
A. INTRODUCTION
Federal and state enforcement actions against financial service providers have substantially increased in
recent years and are likely to continue for the foreseeable future. At the federal level, enforcement by the
Federal Trade Commission (“FTC”) and the Consumer Financial Protection Bureau (the “CFPB”) in the
area of unfair, deceptive, or abusive acts or practices (“UDAAP”) is on the rise. The CFPB has indicated
that its enforcement is informed by FTC precedents in this area.
The CFPB gained expanded enforcement authority under the Dodd-Frank Act which confers authority to
bring enforcement actions against “abusive” in addition to "unfair" and "deceptive" acts and practices. The
CFPB’s Supervision and Examination Manual (“CFPB Manual” or “Manual”) sets forth the CFPB’s
standards for determining when an act or practice is considered to be unfair, deceptive, or abusive.1 In
May 2013, the CFPB filed its first enforcement action using its new authority over “abusive” practices.
Since then, it has exercised its UDAAP authority several times as discussed in this volume.
Note that compliance with federal UDAAP requirements does not necessarily comprise compliance with
similar state laws. State statutes prohibiting unfair and deceptive acts and practices vary widely from
state to state. Accordingly, UDAAP is an important compliance area that should be carefully considered
by all mortgage compliance professionals.
B. REGULATORY OVERVIEW
The Federal Trade Commission Act “UDAP” Authority
The Federal Trade Commission Act (“FTC Act”), originally enacted by Congress in 1938, and updated
and revised several times since then, prohibits unfair methods of competition, or unfair or deceptive acts
or practices in or affecting commerce. Section 5(a) of the FTC Act provides that “unfair or deceptive acts
or practices in or affecting commerce ... are ... declared unlawful.”2 Under the FTC Act, the Federal Trade
Commission (“FTC” or “Commission”) is authorized to prevent business practices that are deceptive or
unfair to consumers.
Under the FTC Act, the FTC has authority to issue cease and desist orders.3 The FTC also has authority
to recover civil penalties in the amount of up to $16,000 for a violation of a final order issued by the FTC.4
The FTC may obtain such civil penalties in a civil action brought by the Attorney General of the United
States. Each separate violation of an order is considered a separate offense. For continuing violations of
an order, each day of a continued violation also is deemed a separate offense. The FTC Act empowers
1 CFPB Supervision and Examination Manual, Version 2, UDAAP (Oct. 2012).
2 15 U.S.C. § 45(a).
3 The FTC Act provides that “[w]henever the Commission shall have reason to believe that any such
person, partnership, or corporation has been or is using any … unfair or deceptive act or practice in or
affecting commerce, and if it shall appear to the Commission that a proceeding by it in respect thereof
would be to the interest of the public, it shall issue and serve upon such person, partnership, or
corporation a complaint stating its charges in that respect and containing a notice of a hearing upon a day
and at a place therein fixed at least thirty days after the service of said complaint. … If upon such hearing
the Commission shall be of the opinion that the … act or practice in question is prohibited by [the FTC
Act], it shall make a report in writing in which it shall state its findings as to the facts and shall issue and
cause to be served on such person, partnership, or corporation an order requiring such person,
partnership, or corporation to cease and desist from using such … act or practice.” 15 U.S.C. § 45(b).
4 15 U.S.C. § 45(l); 16 C.F.R. § 1.98(c).
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the United States district courts to grant mandatory injunctions and other equitable relief deemed
appropriate in the enforcement of the FTC’s final orders.5
The FTC Act authorizes the FTC to recover civil penalties in the amount of up to $16,000 for violations of
any rule under the FTC Act regarding unfair or deceptive acts or practices. The FTC may recover such
civil penalties by bringing a civil action in a district court of the United States.6 The violation must be with
actual knowledge or knowledge fairly implied on the basis of objective circumstances that the act is unfair
or deceptive and is prohibited by the rule.
The FTC also has authority to recover civil penalties in the amount of up to $16,000 for a knowing
violation of a final cease and desist order whether or not the person, partnership, or corporation was
subject to such cease and desist order.7 If the FTC has determined in a prior proceeding under section
5(b) of the FTC Act that an act or practice is unfair or deceptive by issuing a final cease and desist order
other than a consent order, then a person, partnership, or corporation which engages in such act or
practice with actual knowledge that such act or practice is unfair or deceptive shall be liable for a civil
penalty of not more than $16,000 for each violation.8
The Dodd-Frank Act “UDAAP” Authority
Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) makes
it unlawful for any covered person or provider of consumer financial products or services to engage in
unfair, deceptive, or abusive acts and practices.9 Title X of the Dodd-Frank Act authorizes the CFPB to
take any action within its enforcement powers to prevent a covered person or service provider from
committing or engaging in an unfair, deceptive, or abusive act or practice under Federal law in connection
with any transaction with a consumer for a consumer financial product or service or the offering of a
consumer financial product or service.10 Title X also provides the CFPB with the rulemaking authority
over unfair, deceptive, or abusive acts and practices in relation to consumer financial products and
services.11
In addition, under the Dodd-Frank Act, the CFPB has supervisory authority to require reports and conduct
examinations on a periodic basis of entities within its jurisdiction for purposes of, among other things,
detecting and assessing risks to consumers and to markets for consumer financial products and
services.12
As noted, the CFPB Manual sets forth the CFPB’s standards for determining when an act or practice is
considered to be unfair, deceptive, or abusive.13 These standards are described in the sections below.
5 15 U.S.C. § 45(l).
6 15 U.S.C. § 45(m)(1)(A); 16 C.F.R. § 1.98(d).
7 15 U.S.C. § 45(m)(1)(B); 16 C.F.R. § 1.98(e).
8 15 U.S.C. § 45(m)(1)(B); 16 C.F.R. § 1.98(e).
9 12 U.S.C. § 5536(a)(1)(B).
10 12 U.S.C. § 5531(a).
11 12 U.S.C. § 5531(b).
12 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, §§ 1024(b)(1),
1025(b)(1), 124 Stat. 1987, 1990 (2010).
13 CFPB Supervision and Examination Manual, Version 2, UDAAP (Oct. 2012).
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C. DEFINITIONS OF “UNFAIR,” “DECEPTIVE” AND “ABUSIVE”
The FTC Act Definition of the Terms “Unfair” and “Deceptive”
Section 5 of the FTC Act prohibits “unfair” or “deceptive” commercial acts or practices (“UDAPs”).14 The
definition of an “unfair” act or practice under the FTC Act involves a three-part test. The act or practice
must be one that: (1) “causes or is likely to cause substantial injury to consumers,” (2) “is not reasonably
avoidable by consumers themselves,” and (3) is “not outweighed by countervailing benefits to consumers
or to competition.”15
The FTC defines a “deceptive” act or practice as: (1) a representation, omission, or practice that is likely
to mislead the consumer, (2) from the perspective of a consumer acting reasonably under the
circumstances, and (3) the representation, omission or practice is material.16 An act or practice is
material if it is likely to affect a consumer’s conduct or decision with regard to a product or service.
Accordingly, the FTC will deem an act or practice “deceptive” if there is a representation, omission or
practice that is likely to mislead the consumer acting reasonably in the circumstances, to the consumer’s
detriment.17
The “Four Ps” of the FTC: Prominence, Presentation, Placement and Proximity
In assessing whether a disclosure, disclaimer or other qualifying statement is adequate to prevent
deception, lenders should ensure that the disclosure, disclaimer or qualifying statement meets the “Four
P’s” of the FTC test. Under the “Four Ps” test, in order to determine whether an act or practice is “likely to
mislead,” the FTC considers the following four (4) factors:
1. Is the statement prominent enough for the consumer to notice?
2. Is the information presented in an easy, non-contradictory way when the consumer is not
distracted?
3. Is the placement of the information as the consumer might expect?
4. Is the information in close proximity to the claim it qualifies?18
In the context of advertising, to be “prominent,” the advertising should be large enough for consumers to
notice and read. “Presentation” requires the marketing materials provide information to consumers in a
way that is easy for the consumer to read and understand. Presentation should not include the excessive
use of “legalese” and “fine print.” “Placement” means ensuring disclosures are located where the
consumer is likely to look. Advertisers should avoid “burying” important information about a loan next to
insignificant items. Finally, “proximity” means information must be located close to the term that it
describes or qualifies. When advertising on a web site, for example, requiring consumers “click” several
times before the consumer can get to information about the loan may be problematic under this standard.
14 15 U.S.C. § 45.
15 15 U.S.C. § 45(n).
16 FTC Policy Statement on Deception (Oct. 14, 1983), available at http://www.ftc.gov/bcp/policystmt/ad-
decept.htm.
17 FTC Policy Statement on Deception (Oct. 14, 1983), available at http://www.ftc.gov/bcp/policystmt/ad-
decept.htm.
18 See FTC Dot Com Disclosures, Information about On-Line Advertising (March 2013), available at
http://www.ftc.gov/os/2013/03/130312dotcomdisclosures.pdf.
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The Dodd-Frank Act Definition of the Term “Unfair”
The Dodd-Frank Act substantially adopted the definition of “unfair” act or practice under the FTC Act. The
CFPB may declare an act or practice to be “unfair” if the CFPB has a reasonable basis to conclude that
the act or practice (1) causes or is likely to cause substantial injury to consumers, (2) the injury is not
reasonably avoidable by consumers, and (3) the injury is not outweighed by countervailing benefits to
consumers or to competition.19 The determination of unfairness may take into account public policy
considerations, but may not be based solely on those considerations; nor may policy considerations be
the primary justification for a finding of unfairness.20
The CFPB has adopted the standard for unfairness through the CFPB Manual. The CFPB Manual sets
forth the standards for “unfair” acts or practices.21
(a) The act or practice must cause or be likely to cause substantial injury to consumers
As indicated, the act or practice must cause or be likely to cause substantial injury to consumers.
According to the CFPB Manual, substantial injury usually involves monetary harm. Monetary harm
includes, for example, costs or fees paid by consumers as a result of an unfair practice. An act or
practice that causes a small amount of harm to a large number of people may be deemed to cause
substantial injury.22
However, the injury does not have to be monetary. Although emotional impact and other subjective types
of harm will not ordinarily amount to substantial injury, in certain circumstances, emotional impact may
amount to or contribute to substantial injury. For example, in situations involving unreasonable debt
collection practices and/or harassment, emotional impact may amount to or contribute to substantial
injury.23
Further, according to the CFPB Manual, actual injury is not required in every case. A significant risk of
concrete harm is also sufficient. However, trivial or merely speculative harm is typically insufficient for a
finding of substantial injury.
(b) Consumers must not be reasonably able to avoid the injury
The CFPB Manual provides that an act or practice is not considered unfair if consumers may reasonably
avoid injury. A consumer is considered to be reasonably unable to avoid an injury, however, if the act or
practice interferes with the consumer’s ability to effectively make decisions or to take action to avoid
injury. The Manual provides that consumers cannot reasonably avoid the injury where material
information (e.g., pricing), is modified or withheld until after the consumer has committed to purchasing
the product. Consumers also cannot avoid injury if they are coerced into purchasing unwanted products
or services or if a transaction occurs without their knowledge or consent.24
According to the CFPB Manual, the question is whether an act or practice hinders a consumer’s decision-
making. The actions that a consumer is expected to take to avoid injury must be reasonable. For
19 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 1031(c)(1), 124
Stat. 2006 (2010).
20 Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 1031(c)(2), 124
Stat. 2006 (2010).
21 CFPB Supervision and Examination Manual, Version 2, UDAAP 2 (Oct. 2012).
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example, hiring independent experts to test products in advance or bringing legal claims for damages in
every case of harm, generally is not considered reasonable.25
(c) The injury must not be outweighed by countervailing benefits to consumers or
competition
To be “unfair,” the CFPB Manual provides that the act or practice must be injurious in its “net effects.”
The injury must not be outweighed by any offsetting consumer or competitive benefits (e.g., by lower
prices or wider availability). Costs for measures to prevent the injury are taken into account. This may
include the costs of preventive measures to the institution and the costs of any increased burden to the
society as a whole.
The CFPB’s Examples of Unfair Acts or Practices
The CFPB Manual provides several examples of conduct that could be considered “unfair” and a violation
of UDAAP principles.26 The examples stem from previous enforcement actions by the federal banking
agencies, including the FTC, the OCC and the FDIC.
An example of conduct that could be considered “unfair” includes failing to release a lien after the
consumer makes the final payment on a mortgage. This example was based upon a 2005 FTC
enforcement action that was brought against a mortgage company. In that enforcement action, the FTC
permanently restrained a mortgage lender and servicer from the alleged failure to release the lien on the
property securing a mortgage loan within thirty (30) days of loan payoff, or as may be required by
applicable law.27
The CFPB Manual provides an analysis of this practice under the “unfairness” standard. This analysis
shows how the unfairness standard may be applied:
 Substantial injury. Consumers sustained economic injury as a result of the failure to release the
lien after payment in full.
 Injury was not outweighed by benefits. There were no countervailing benefits to competition or
consumers.
 Injury was not reasonably avoidable. Consumers had no way to know in advance of obtaining the
loan that the mortgage servicer would not release the lien after full payment.
27 Press Release, Capital City Mortgage Corp. Defendant Settles with FTC (May 14, 2004) available at
http://www.ftc.gov/opa/2004/05/sanne.shtm (based upon FTC v. Capital City Mortg. Corp., No. 98 CV-
237 (D.D.C.)).
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