Unfair and Deceptive Acts and Practices: 11.4.3.1 Almost All States Reject a Public Interest Requirement
Courts in a number of states have considered whether a public interest requirement should be imposed on private UDAP damage actions.
Courts in a number of states have considered whether a public interest requirement should be imposed on private UDAP damage actions.
The New York Court of Appeals has ruled that UDAP plaintiffs need not show repetition or a pattern of deceptive behavior, but they must show that the acts or practices are consumer-oriented—i.e., that they “have a broader impact on consumers at large.”581 To be “consumer-oriented,” the product need not be intended for personal, family, or household use—for example, marketing a law book to lawyers, judges, and tenant advocates who will use it professionally is consumer-oriented.
The following types of conduct have all been found, based on some of the factors described in the preceding section, to be consumer-oriented for purposes of New York’s UDAP statute: a bank’s protection of its larger but not its smaller depositors from the devaluation of a foreign currency;605 charging hidden foreign currency transaction fees to consumers who used their credit cards in foreign countries;606 misrepresenting the circumstances under which a bank would charg
On the other hand, under the specific circumstances alleged, courts have found the following types of conduct not to be consumer-oriented, but rather private disputes over behavior not likely to affect consumers at large: deception with respect to the purchase of securities or other investments;644 disputes in a variety of business transactions;645 an employer’s purchase of products for its employees to use;646 misrepresentations that are made to a
Nine state UDAP statutes755 require consumers to send sellers notice or demand letters before initiating a UDAP action.
Statutes vary in specifying which parties must be sent the notice letter.
The highest court in Massachusetts has held that a demand letter by one class member suffices for other members if no reasonable offer is made in response.850 If the defendant makes an offer that is reasonable for the named plaintiff but not for the class, the named plaintiff may proceed with the class action and is entitled to attorney fees for the class action work if the case is successful.851 It is not necessary to have a second round of demand letters and offers after the class is certified
Unless the UDAP statute explicitly requires dismissal, failure to send a required notice letter should not bar the suit. Maine’s Supreme Court has ruled that the failure to send the statutorily required notice letter is not a jurisdictional defect and does not preclude the plaintiff from maintaining a UDAP suit. The court suggested other remedies for failure to send the notice, such as imposing a delay in the suit or denying attorney fees and costs.867
Courts must consider both the state’s long-arm statute and due process principles when determining whether they can exercise jurisdiction over out-of-state defendants. Since many state long-arm statutes are interpreted to allow jurisdiction to the maximum extent allowed by the Constitution,911 the constitutional and statutory analyses tend to merge.
A major impediment to consumers vindicating their rights under UDAP statutes is the widespread use of mandatory, binding arbitration clauses in consumer agreements. These clauses seek to force consumers out of court and into an arbitration forum designated by the seller or creditor. Typically, they also prohibit class-wide relief either through a court or arbitration proceeding. Proceedings are generally kept secret and discovery may be limited.
The Consumer Financial Protection Bureau (CFPB) has authority to issue a rule limiting consumer arbitration agreements involving consumer financial products and services after conducting a study of arbitration agreements.1068 The CFPB completed its study in 2015 and submitted a lengthy report to Congress.1069
A Department of Education rule, repealed effective July 1, 2020, prohibited arbitration agreements and class action waivers involving schools that participate in the federal Direct Loan Program, when the legal claims concerned the school’s acts or omissions regarding the educational services for which the Direct Loan was obtained or the school’s actions in making the loan.1087 The rule applied to arbitration requirements found in enrollment agreements entered into even before the rule’s effective date.
Arbitration is a matter of contract between the parties. There can be no arbitration requirement without a written contract assented to by both parties that specifies that disputes will be subject to binding arbitration. If there is no agreement, then there is no arbitration requirement.
A key issue for any consumer challenge to the enforceability of an arbitration agreement is a determination as to whether the arbitration agreement has a clear and unmistakable provision delegating to the arbitrator any dispute as to the enforceability of the arbitration agreement. These are often called “delegation” clauses and are surprisingly common in consumer agreements.
The FAA provides that arbitration clauses are enforceable “save upon such grounds as exist at law or in equity for the revocation of any contract.” Thus, contract defenses are enough to defeat an arbitration requirement. But the Supreme Court has added an additional wrinkle. The contract defense must be applicable to the arbitration provision and not just to other aspects of the consumer agreement apart from the arbitration provision.1110
Consumer agreements today often include a provision that the consumer not only has to resolve disputes in arbitration, but that such arbitration must be on an individual basis and not on a class-wide basis.
Some state courts have developed standard lists of elements for a UDAP claim:
Many courts apply Federal Rule of Civil Procedure 9(b) or a state equivalent to UDAP claims, requiring that averments of each element of the claim be pleaded with particularity.1224 This holding is unnecessarily restrictive, in light of the liberal construction required of UDAP statutes and the clear distinction between UDAP statutes and common law fraud.1225 This position is also inconsistent with the Supreme Court’s admonition that “[t]he liberal notice pleading of Rule 8(a) is the startin
As long as it is not deceptive, commercial speech is protected by the First Amendment, but it is entitled to considerably less protection than noncommercial speech.1389 The Supreme Court recognizes the common sense distinction between commercial and noncommercial speech, terming commercial speech “a hardy breed of expression that is ‘not particularly susceptible to being crushed by overbroad regulation.’”1390
Once a transaction is deemed a loan, state credit and usury laws may apply.586 State general credit laws may apply even if the state rejects the equitable mortgage doctrine and will not deem the deed to be a mortgage.587 Moreover, even in states that do not have a usury cap, the transaction may violate laws specifying the form of disclosures for credit.588 Most states have several different usury statutes.
Standing is a basic element of any civil action. A plaintiff who fails this basic test will be barred from all relief.
For federal courts, standing has a constitutional foundation. Article III of the United States Constitution limits a federal court to jurisdiction over “cases” or “controversies” between parties.1422
State laws that affect the interest paid by national banks and federal savings associations on deposit accounts are governed by the OCC’s regulations and case law regarding preemption of state laws governing deposit-taking activities.169
Literally true statements can be deceptive.289 Literal truthfulness is only the beginning of deception analysis, which must also analyze whether the statement has deceptive implications.