In Consumer Financial Protection law, there is sometimes a reference by regulators and courts to the “least sophisticated consumer.” This creates a standard that may be adopted in applying the meaning of laws and regulations in consumer financial services transactions. It is a telling standard, and frankly, one that is difficult for which to draft.

In some instances, the laws and regulations require specific disclosure language. When such language is required, this eliminates the concern as to whether the language used by the creditor is clear enough to meet any standard. When the statute or regulation does not mandate specific disclosure language, then the creditor is left to his or her own devices in determining whether consumers will be able to understand the meaning of contractual language.

Many of our laws and regulations do recognize a “reasonable consumer” standard. This standard is more accommodating to creditors, and frankly, makes more sense in our world today.

Nevertheless, creditors should always evaluate their contracts through the lens of simplicity. Would the reasonable consumer understand the contract terms? Would a least sophisticated consumer understand?

All of this becomes important in defending against a UDAAP claim—a claim that the creditor has exercised unfair, deceptive or abusive acts or practices in the conduct of a consumer financial services transaction. The CFPB has let it be known that it will apply a UDAAP deception analysis in connection with financial services transactions. That is, whether

• the contract or solicitation language is misleading to the consumer;
• the consumer’s interpretation is reasonable under the circumstances; and
• there are any misrepresentations or omissions of a material element to the transaction.

The CFPB’s decision to expand its view of UDAAP to fair lending laws, in general, should serve notice on creditors to take another look at their forms and communications.

Please Note: This is the two hundred third blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking Dentons - Consumer Finance Report.