Typically, a fiduciary relationship arises when one party places special confidence and trust in another, who then becomes obligated to act with due regard for the interests of the first party. While the law varies slightly from state to state, courts have been reluctant to impose fiduciary duties on banks in their dealings with consumers. As the Supreme Court of Ohio explained, “advice given by a creditor to a debtor in a commercial context in which the parties deal at arm’s length, each protecting his or her respective interests, is insufficient to create a fiduciary relationship.” By enacting the unfair, deceptive or abusive acts or practices (UDAAP) provisions in the Dodd-Frank Act, Congress initiated a process that appears certain to change the nature of the relationship between financial institutions and their consumers, creating something more than an arm’s length business negotiation but less than a fiduciary relationship.
Commentators have suggested that the UDAAP definition of abusive conduct comes close to, but stops short of, creating a fiduciary duty requiring financial institutions to act in the interests of their consumers. Under the act, an abusive act or practice is one which: “(1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (2) takes unreasonable advantage of—(A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.”