Unfair And Deceptive Practices in the United States
Unfair Acts or Practices
The Dodd-Frank Act prohibits conduct that constitutes an unfair act or practice. An
act or practice is unfair when:
- It causes or is likely to cause substantial injury to consumers;
- The injury is not reasonably avoidable by consumers; and
- The injury is not outweighed by countervailing benefits to consumers or to competition. Dodd-Frank Act §§ 1031, 1036, 12 U.S.C. §§ 5531, 5536)
A “substantial injury” typically takes the form of monetary harm, such as fees or costs paid by consumers because of the unfair act or practice. However, the injury does not have to be monetary (CFPB Exam Manual at UDAAP 2). See also FTC v. Accusearch, Inc., 06-cv-105-D, 2007 WL 4356786, at *7-8 (D. Wyo. Sept. 28, 2007); FTC Policy Statement on Unfairness (Dec. 17, 1980). Although emotional impact and other subjective types of harm will not ordinarily amount to substantial injury, in certain circumstances emotional impacts may amount to or contribute to substantial injury (CFPB Exam Manual at UDAAP). In addition, actual injury is not required; a significant risk of concrete harm is sufficient (CFPB Exam Manual at UDAAP).
An injury is not reasonably avoidable by consumers when an act or practice interferes with or hinders a consumer’s ability to make informed decisions or take action to avoid that injury (CFPB Exam Manual at UDAAP). Injury caused by transactions that occur without a
consumer’s knowledge or consent is not reasonably avoidable (CFPB Exam Manual at UDAAP).Injuries that can only be avoided by spending large amounts of money or other significant resources also may not be reasonably avoidable. Finally, an act or practice is not unfair if the injury it causes or is likely to cause is outweighed by its consumer or competitive
benefits (Dodd-Frank Act § 1031(c)(1)(B), 12 U.S.C. § 5531(c)(1)(B); see also CFPB Exam Manual at UDAAP 2).
Established public policy may be considered with all other evidence to determine
whether an act or practice is unfair, but may not serve as the primary basis for such
determination (Dodd-Frank Act § 1031(c)(2), 12 U.S.C. § 5531(c)(2); see also CFPB Exam Manual at UDAAP 3).
Deceptive Acts or Practices
The Dodd-Frank Act also prohibits conduct that constitutes a deceptive act or practice. An act or practice is deceptive when:
- The act or practice misleads or is likely to mislead the consumer;
- The consumer’s interpretation is reasonable under the circumstances; and
- The misleading act or practice is material.The standard for “deceptive” practices in the Dodd-Frank Act is informed by the standards for the same terms under Section 5 of the FTC Act. See CFPB Exam Manual at UDAAP 5.
To determine whether an act or practice has actually misled or is likely to mislead a consumer, the totality of the circumstances is considered (CFPB Exam Manual at UDAAP 5). Deceptive acts or practices can take the form of a representation or omission (CFPB Exam Manual at UDAAP 5). The CFP Bureau also looks at implied representations, including any implications that statements about the consumer’s debt can be supported. Ensuring that claims are supported before they are made will minimize the risk of omitting material information and/or making
false statements that could mislead consumers.
To determine if the consumer’s interpretation of the information was reasonable under the circumstances when representations target a specific audience, such as older Americans or financially distressed consumers, the communication may be considered from the perspective of a reasonable member of the target audience. A statement or information can be misleading even if not all consumers, or not all consumers in the targeted group, would be misled, so long as a significant minority would be misled. Likewise, if a representation conveys more than one meaning to reasonable consumers, one of which is false, the speaker may still be liable for the
misleading interpretation. Material information is information that is likely to affect a consumer’s choice of, or conduct regarding, the product or service. Information that is likely important to consumers is material.
Sometimes, a person may make a disclosure or other qualifying statement that might
prevent consumers from being misled by a representation or omission that, on its
own, would be deceptive. The Bureau looks to the following factors in assessing
whether the disclosure or other qualifying statement is adequate to prevent the
deception: whether the disclosure is prominent enough for a consumer to notice;
whether the information is presented in a clear and easy to understand format; the
placement of the information; and the proximity of the information to the other
claims it qualifies. See also CFPB Bulletin 12-06, Marketing of Credit Card Add-On Products (July 12, 2012)).
The United States Deceptive and Unfair Business Practices
General overview of the United States laws prohibiting businesses from engaging in unfair and deceptive trade tactics and practices, such as false advertising in the United States, bait and switch, or tampering with a car's odometer, with cross-references to additional information and resources on related topics in the United States.
- Information about Unfair And Deceptive Practices in the Gale Encyclopedia of American Law.