the traditional interpretation of uDAP began to shift in 2008 when regulators used it o establish a duty to protect customers and customers’ customers from fraud, although there was never an allegation that the financial institution in question was the perpetrator.
public policy position that, based on UDAP, a bank may have
a duty to forego its traditional expectation of debt repayment,
collection (or realizing upon collateral), and adjust its practices
based on a consumer’s personal financial situation. The new
paradigm suggests that in the long run, the lender will need to
play a greater role in evaluating what is best for the consumer—no
matter what the contract or disclosures might say.
Alleviating unfair overdraft practices
UDAP findings have emerged in the deposit/operations world
too. New cases are firmly establishing that the new test is whether
the product is deemed fair to customers, regardless of how well
any product features or fees are disclosed. In the Woodforest
Bank case (April 2010), the bank had appropriately disclosed
its overdraft fees and no one asserted otherwise. However, the
Office of Thrift Supervision (OTS) determined that the fee was
too high and therefore unfair to customers. The bank agreed
to limit its overdraft fees and to set a daily cap on them. For its
trouble, the bank agreed to restitution in the amount of $12
million and a civil money penalty in the amount of $400,000—a
sizeable chunk of change for a community bank with assets of
less than $100 million.
Beyond regulator actions, civil suits raising UDAP-related
claims are growing in scope and severity. In the Wells Fargo
class action suit (Gutierrez v. Wells Fargo, August 2010), the
trial court determined that the bank was guilty of unfair and
deceptive check processing, in violation of California law. (Wells
processed checks from the highest dollar amount to the lowest
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MAY-JUNE 2011 | ABA BANK coMpliANcE | 13
