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Unfair and Deceptive Acts and Practices: 6.14.4 Debt Settlement and Debt Negotiation

In contrast to credit counseling agencies, most debt settlement and debt negotiation companies claim to help consumers settle debts for less than the full amount owed. They usually encourage the consumer to stop paying their creditors and to send the money to the company instead. The company tells the consumer that it will hold the payments until enough has accumulated to offer a lump-sum settlement to the creditor. The company typically charges various fees that make saving difficult.

Unfair and Deceptive Acts and Practices: 6.14.5 Debt Elimination

Debt elimination companies are usually complete scams. They claim to eliminate debt without any payments to the creditor. Some schemes use bogus legal documents or fake arbitration programs. Another variant involves claiming damages for frivolous disputes under the Fair Credit Billing Act. Yet another version sells the consumer an instrument, such as a “bond for discharge of debt,” that the consumer is to present to the creditor and that supposedly forces the creditor to abandon the debt.

Unfair and Deceptive Acts and Practices: 3.2.7.6 Alleging That Practice Is Both a Per Se Violation and Unfair or Deceptive in Its Own Right

To be safe, consumer litigants should plead not only that the statutory violation is a per se UDAP violation, but that it is also an unfair or deceptive practice. The consumer can then explain how the specific injury caused by the specific law violation fits within either the “S&H” unfairness standard or the FTC’s unfairness interpretation or the state UDAP statute’s definition of deception.

Unfair and Deceptive Acts and Practices: 3.3.2 Develop the Facts

The most critical aspect of any UDAP case is to develop the facts. Unfairness is a question of fact for the jury or, in a non-jury case, the judge.163 Determining what is unfair is highly fact-specific and generally inappropriate for summary judgment.164 Too often consumer attorneys rely on one specific representation or practice to build a case.

Unfair and Deceptive Acts and Practices: 3.4.1 The Statute

The first source of guidance in a UDAP case is the statute itself. All state UDAP statutes are summarized in Appendix A, infra. Practitioners should not rely on this summary of their own statute, though, but must scrutinize the full text of the statute’s most recent version. They also must have the version of the statute that was in effect at the time of the challenged practice.

Unfair and Deceptive Acts and Practices: 3.4.2.2 Unfair Trade Practices and Consumer Protection Law

Many state UDAP statutes are patterned after the Unfair Trade Practices and Consumer Protection Law, developed by the Federal Trade Commission in conjunction with the Committee on Suggested State Legislation of the Council of State Governments. The Unfair Trade Practices and Consumer Protection Law offers three alternative versions, giving states an option concerning which trade practices are prohibited.

Unfair and Deceptive Acts and Practices: 3.4.2.5 Consumer Fraud Acts and Other Models

Seven states have enacted a different form of legislation, called Consumer Fraud Acts. While some of these statutes have since been amended to prohibit unfair or unconscionable acts, as originally drafted they prohibit “deception, fraud, false pretense, false promise, misrepresentation or knowing concealment, suppression or omission of any material fact with intent that others rely.”201

Unfair and Deceptive Acts and Practices: 3.4.3.1 Keeping Up with In-State UDAP Cases

This treatise summarizes all states’ UDAP case law as it relates to particular topics. In some states, a digest of decisions or a practice manual is available from the attorney general’s consumer protection division or a private publisher.205 State annotated statutes and practice digests are other good research shortcuts. A commercial publication also gives the full text and a brief summary of each state’s law and provides some case updates.206

Unfair and Deceptive Acts and Practices: 3.4.3.2 Other States’ UDAP Case Law

For many UDAP issues, a jurisdiction will have no case law on point, particularly since there is an almost infinite number of potentially deceptive practices. Moreover, reported appellate court decisions often concern questions of procedure or remedy and may not make an explicit holding as to whether the challenged practice itself is deceptive.

Unfair and Deceptive Acts and Practices: 3.4.4.2 Authority and Procedure to Adopt Regulations

UDAP regulations define specific prohibited practices, thereby providing notice of actions violating the act. The effect is to mitigate possible vagueness in a statute whose prohibition of unfair or deceptive practices is left open-ended to encompass new practices.211 Regulations may also require merchants to take certain actions, defining the failure to so act as deceptive. UDAP defendants are still liable for deceptive acts that are not specified in the regulations.212

Unfair and Deceptive Acts and Practices: 3.4.4.3 Precedential Effect of UDAP Regulations

A violation of a UDAP regulation is normally a per se UDAP violation.227 Properly adopted UDAP rules have the force of law in most states.228 For example, the Illinois UDAP statute gives the attorney general power to “promulgate such rules and regulations as may be necessary, which rules and regulations shall have the force of laws.”229 Such rules are not interpretive so as only to guide a court, but are legislative in that they have the force of l

Unfair and Deceptive Acts and Practices: 3.4.5.1 FTC Cases, Other Guidelines Are Important Sources of UDAP Precedent

FTC case law is an important source of UDAP interpretations, particularly since there are many federal circuit court decisions interpreting the FTC Act. Congress established the Federal Trade Commission in 1914 to prevent “unfair methods of competition,” and expanded this mission in 1938 by amending section 5(a)(1) of the FTC Act to prohibit “unfair or deceptive acts or practices.”

Unfair and Deceptive Acts and Practices: 3.4.5.2 Types of FTC Cases

The FTC can issue an administrative complaint against an individual company. If a settlement is not reached, the Commission can pursue its complaint before an FTC administrative law judge who makes findings of fact and law, and orders such relief as is appropriate and authorized. Either the Commission staff or the respondent can appeal the administrative law judge’s “initial decision” to the Commission. If neither party appeals, the Commission adopts the administrative law judge’s order as final, unless the Commission places the matter on its own docket, sua sponte.

Unfair and Deceptive Acts and Practices: 3.4.5.3 Precedential Value of FTC Consent Agreements

The precedential value of the thousands of FTC consent agreements and court settlements requires some explanation. Strictly speaking, an FTC consent order or settlement does not adjudicate disputed issues of fact and does not decide a disputed issue of law. The respondent does not admit any wrongdoing but, for settlement purposes only, agrees not to perform certain acts or agrees to meet certain requirements in the future.

Unfair and Deceptive Acts and Practices: 3.4.5.5 Researching FTC Case Law

For most purposes, the best approach to FTC case law is to use Chapters 4 through 9 of this treatise to find citations to FTC cases within each topic area. These chapters cite many FTC decisions, particularly ones in which the FTC analyzes basic concepts of unfairness and deception or explains why those concepts apply to a particular activity.

Unfair and Deceptive Acts and Practices: 3.4.6 CFPB UDAAP Authority, Standards, and Precedent

The Consumer Financial Protection Bureau (CFPB) has wide-ranging authority, including authority to write rules and bring enforcement actions, concerning unfair, deceptive, or abusive practices (UDAAP) in connection with consumer financial services and products.292 Its authority relates to such entities as banks, credit unions, mortgage lenders, credit bureaus, auto finance companies, debt collectors, student loan lenders, and payday lenders.