Deceptive Trade Practices In Texas Real Estate

With a Focus on Real Estate Transactions

by David J. Willis J.D., LL.M.


The Deceptive Trade Practices-Consumer Protection Act (DTPA, Bus. & Com. Code Sec. 17.46 et seq.) is exactly what it says it is: legal protection for consumers from those who would deceive them. In the context of real estate, cases applying the DTPA consistently declare that residential real estate is a tangible consumer good as that term is defined in the statute, and prospective buyers of residential real property are consumers.

False, Misleading, Deceptive, or Unconscionable Acts

The DTPA states that “false, misleading, or deceptive acts or practices in the conduct of any trade or business are hereby declared unlawful. . . .” Also expressly stated to be unlawful are misrepresenting the characteristics and uses of a particular item; representing that goods or services are of a particular quality and standard when they are not; advertising with intent not to sell as advertised; and failing to disclose information in an attempt to induce the consumer into buying. Additionally, a consumer may seek relief if the consumer relied to the consumer’s detriment upon a seller’s breach of an express or implied warranty (Sec. 17.50(a)(2)) or if the seller is culpable of “any unconscionable action or course of action. . . .” (Sec. 17.50(a)(3)).

The last-mentioned statutory wording bears repeating: any unconscionable action, which is a broad standard indeed. An “unconscionable action or course of action is defined as an act or practice which, to a consumer’s detriment, takes advantage of the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree.” Martinez v. Martinez, No. 13-19-00518-CV, 2020 WL 5887587 (Tex.App.—Corpus Christi 2020, no pet.).

Originally one of the most progressive consumer protection laws in the U.S., the broad tools and remedies of the DTPA have been curtailed by amendments over the years, most significantly in 1995 when a conservative legislature riding the wave of tort reform (derided as “tort deform” if one did not support those changes) amended the Act to include provisions more favorable to the defendant. The DTPA nonetheless remains a formidable weapon in the hands of the consumer.

The DTPA also provides a healthy subsidy to the plaintiffs’ bar by creating a profitable avenue for collecting contingent fees—not good news for real estate investors. Anytime a plaintiff is relieved of the burden of raising legal fees and costs in order to pursue a lawsuit then suits become both more numerous and harder to settle.

DTPA suits that affect real estate are often brought in conjunction with a claim pursuant to the Statutory Fraud Act (Bus. & Com. Code Sec. 27.01).


Who is a consumer?

One must qualify as a consumer to seek relief under the DTPA. A consumer under the DTPA may be an individual, partnership, corporation, LLC, or even a state agency. Excluded are business consumers with assets of 25 million or more. Suit may also be brought in the interest of consumers at large by the Texas attorney general’s consumer protection division (see the discussion of Colony Ridge below) and, with the AG’s consent, by local county and district attorneys.

The consumer’s claim must relate to consumer goods. The issue of whether or not residential real estate is a consumer good subject to DTPA remedies was resolved long ago. It is. Chastain v. Koonce, 700 S.W.2d 579, 582 (Tex. 1985). In fact, the definition of consumer good includes just about everything except intangibles such as accounts receivable, stock, and money.

Note that a consumer may not sell, assign, or transfer his or her DTPA claim to another. PPG Indus. v. JMB/Houston Ctrs. Partners, 146 S.W.3d 79, 82 (Tex. 2004).

The Consumer Need Not Buy Anything

Amazingly, it is not required that the consumer actually pay for the goods or services in question—only that the consumer must be seeking or in the process of acquiring them by means of either purchase or lease. Martin v. Lou Poliquin Enterprises, Inc., 696 S.W.2d 180 (Tex.App.—Houston [14th Dist.] 1985). Under the DTPA, it is required only that the consumer be the intended beneficiary of goods or services. Arthur Anderson & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 815 (Tex. 1997).

There is not even a requirement that the consumer be in privity (in a direct contractual or business relationship) with the defendant—only that the claimed violation occurred in connection with the consumer’s transaction. Amstad v. U.S. Brass Corp., 919 S.W.2d 644, 649 (Tex. 1996). “The connection can be demonstrated by a representation that reaches the consumer or by a benefit from the second transaction to the initial seller.” Todd v. Perry Homes, 156 S.W.3d 919, 922 (Tex.App.—Dallas 2005, no pet.).

Consumers Buying Residential Real Estate

A real estate consumer under the DTPA does not need to have signed a contract with a seller. The Act applies even in the absence of contractual privity, meaning that seller liability for misrepresentation or non-disclosure in a proposed residential real estate transaction can arise even prior to execution of an earnest money contract. “To be actionable under the DTPA, the defendant’s deceptive conduct must occur [only] in connection with [italics added] a consumer transaction.” In other words, it is entirely possible that a non-disclosing seller of residential real estate can get into trouble by engaging in deception while showing the property. A signed contract is not required. Todd v. Perry Homes, above.

Liberal Construction in Favor of Consumers

The DTPA is intended to be construed liberally in favor of consumers:

Bus. & Com. Code Sec. 17.44(a). Construction and Application [of the DTPA]

This subchapter shall be liberally construed and applied to promote its underlying purposes, which are to protect consumers against false, misleading, and deceptive business practices, unconscionable actions, and breaches of warranty and to provide efficient and economical procedures to secure such protection.


The Producing Cause Standard

A consumer who claims to have suffered economic damages or damages for mental anguish may seek relief if the other party’s action was a producing cause of the damages. That is a liberal standard indeed, especially considering that most events in life have multiple causes—and the defendant’s alleged action is required to be only one of those causes.

Any offense enumerated in the laundry list of Section 17.46 is a basis for a consumer claim so long as the defendant’s actions were “relied on by a consumer to the consumer’s detriment” (Bus. & Com. Code Sec.17.50(B)).

According to the Texas Supreme Court, it is not even a requirement that harm to a potential buyer be foreseeable. Helena Chem. Co. v. Wilkins, 47 S.W.3d 486 (Tex. 2001). All that is required is that a seller’s dishonesty be a producing cause of harm, perhaps one of several such causes. Foreseeability of harm is not required. Intent to harm is not required. A reasonable prospect that harm might occur is not required.

The DTPA protects even the ignorant from the consequences of their ignorance: “An act is false, misleading, or deceptive if it has the capacity to deceive an average or ordinary person, even though that person may [be] ignorant, unthinking, or credulous.” Daugherty v. Jacobs, 187 S.W.3d 607 (Tex.App.—Houston [14th Dist.] 2006, no pet.).

DTPA Laundry List of Offenses

Chapter 17 of the Business and Commerce Code declares the following to be unlawful:

Bus. & Com. Code Sec. 17.46. Deceptive Trade Practices Unlawful

(a) False, misleading, or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful and are subject to action by the consumer protection division under Sections 17.47, 17.58, 17.60, and 17.61 of this code.

(b) Except as provided in Subsection (d) of this section, the term “false, misleading, or deceptive acts or practices” includes, but is not limited to, the following acts:

(1) passing off goods or services as those of another;

(2) causing confusion or misunderstanding as to the
source, sponsorship, approval, or certification of goods or services;

(3) causing confusion or misunderstanding as to
affiliation, connection, or association with, or certification by, another;

(4) using deceptive representations or designations
or geographic origin in connection with goods or services;

(5) representing that goods or services have
sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have or that a person has a sponsorship, approval, status, affiliation, or connection which he does not;

(6) representing that goods are original or new if they
are deteriorated, reconditioned, reclaimed, used, or secondhand;

(7) representing that goods or services are of a
particular standard, quality, or grade, or that goods are of a particular style or model, if they are of another;

(8) disparaging the goods, services, or business of another by false or misleading representation of facts;

(9) advertising goods or services with intent not to
sell them as advertised;

(10) advertising goods or services with intent not to supply a reasonable expectable public demand, unless the advertisements disclosed a limitation of quantity;

(11) making false or misleading statements of fact concerning the reasons for, existence of, or amount of price reductions;

(12) representing that an agreement confers or involves rights, remedies, or obligations which it does not have or involve, or which are prohibited by law;

(13) knowingly making false or misleading statements of fact concerning the need for parts, replacement, or repair service;

(14) misrepresenting the authority of a salesman, representative or agent to negotiate the final terms of a consumer transaction;

(15) advertising of any sale by fraudulently representing that a person is going out of business;

(16) using or employing a chain referral sales plan …;

(17) representing that a guarantee or warranty confers or involves rights or remedies it does not have . . . ;

(18) promoting a pyramid promotional scheme, as defined by Section 17.461;

(19) representing that work or services have been performed on, or parts replaced in, goods when the work or services were not performed or the parts replaced;

(20) failing to disclose information concerning goods or services which was known at the time of the transaction if such failure to disclose such information was intended to induce the consumer into a transaction into which the consumer would not have entered had the information been disclosed . . . .

Breach of Warranty and Unconscionability

Additionally, a consumer may file suit if the consumer has relied to the consumer’s detriment upon a breached warranty or if the consumer has been the object of any unconscionable action:

Bus. & Com. Code Sec. 17.50(a)(2) breach of an express or implied warranty;

Bus. & Com. Code Sec. 17.50(a)(3) any unconscionable action or course of action by any person. . . .

Breach of warranty would seem to be reasonably clear. But what about unconscionability? What exactly does that mean? It turns out that the key factor in unconscionability is the taking advantage of another who is less sophisticated and less informed—something real estate investors are accused of doing nearly every day in courts across Texas. Insurance Co. of N. Am. v. Morris, 981 S.W.2d 667,677 (Tex. 1998).

It is likely that a real estate investor will be considered to be a party with superior knowledge in nearly every encounter with a consumer, making it easier for a plaintiff to paint a picture of exploitation and unconscionability. This is true regardless of whether the investor is a real estate license holder or not.

Cumulative Remedies

DTPA causes of action are cumulative as to other remedies (Bus. & Com. Code Sec. 17.43), meaning that a plaintiff can throw not only DTPA allegations at a defendant but just about everything else arising from both statutory and common law, so long as the plaintiff can plausibly argue that the defendant’s conduct was a producing cause of economic damages or damages for mental anguish (Bus. & Com. Code Sec. 17.50(a)).
A related item: the DTPA states that in event the Act conflicts with the Property Code, then the Property Code provisions will prevail (Bus. & Com. Code Sec. 17.44(b)).

Colony Ridge: A Pattern of Deceptive Behavior

The DTPA is especially effective in cases where a seller exhibits a pattern of deceptive acts and practices. Colony Ridge, a sprawling raw land development north of Houston, made news for aggressively promoting the sale of residential lots primarily to Hispanic buyers, many of whom were lured from Mexico by boiler-room marketing tactics worthy of the Wolf of Wall Street.

In March of 2024, the Texas Attorney General filed suit against Colony Ridge Inc., its affiliated entities, and promoter John Harris for violation of the DTPA, the Texas Statutory Fraud Act (Bus. & Com. Code Sec. 27.01 et seq.), the federal Consumer Financial Protection Act (12 U.S.C. Sec. 5567), and the Interstate Land Sales Act (15 U.S.C. Chap. 42). The suit alleged that Colony Ridge:

(1) made false promises of cheap, ready-to-build land with available utilities and city services;
(2) trained its marketing personnel in predatory and fraudulent marketing tactics designed to
exploit unsophisticated buyers;
(3) used fake social media accounts with fake names and photos (not of the land being sold)
while employing multiple SIM cards to create fictitious online profiles;
(4) falsely represented that sales were “by owner” when in fact the seller was the developer;
(5) falsely induced prospects into believing that rapid action was necessary due to a shortage
of lots;
(6) concealed the tendency of the lots to flood;
(7) failed to evaluate the buyers’ ability to repay loans, resulting in the extension of credit to
persons who could not otherwise have qualified for a residential loan;
(8) used English-only documents in sales to primarily Spanish-speaking buyers;
(9) conducted rushed closings where the paperwork was neither translated nor adequately
(10) utilized unlawful DTPA waivers in their documents;
(11) withheld possession of the land from the buyers for up to two years after closing;
(12) fraudulently collected HOA dues for non-existent improvements and services and then commingled these funds; and
(13) operated a foreclosure mill to repossess lots when buyers discovered that they could not build or obtain utilities and then defaulted, resulting in the churning and flipping of lots at increasingly higher prices and profits for the developer.

The nearly 50-page filing goes into great detail. It was as if Colony Ridge went out of its way to intentionally violate nearly every meaningful prohibition of the DTPA.

Consumer Damages

Business & Commerce Code Section 17.50 spells out relief available to consumers. There is a low threshold for liability. As previously noted, a consumer may sue for damages if a seller’s actions were a producing cause of those damages (even in the absence of legal privity) so long as the seller’s misrepresentations were relied upon by the consumer.

Additionally, if a trial court determines that the defendant’s actions were committed knowingly, then the availability of treble damages plus attorney’s fees is triggered (Bus. & Com. Code Sec. 17.50(b)(1)). Otherwise, a DTPA claim does not require that the consumer prove that the defendant acted knowingly or intentionally, at least so long as the plaintiff’s objective is merely actual rather than exemplary damages. Miller v. Keyser, 90 S.W.3d 712, 716 (Tex. 2002). Note, however, that exemplary damages may be available to the plaintiff by other means—common law or statutory fraud, for instance.

Practice note: alleging and proving knowledge and intent can be hazardous when it comes to the defendant’s insurance. Intentionality generally voids coverage, which can limit the plaintiff’s chances for a sizeable settlement or judgment.


Notice Requirement for Plaintiffs

A requirement of 60 days’ notice and demand was included in the DTPA to promote settlement and avoid frivolous lawsuits:

Bus. & Com. Code Sec.17.505. Notice; Inspection

(a) As a prerequisite to filing a suit seeking damages under Subdivision (1) of Subsection (b) of Section 17.50 of this subchapter against any person, a consumer shall give written notice to the person at least 60 days before filing the suit advising the person in reasonable detail of the consumer’s specific complaint and the amount of economic damages, damages for mental anguish, and expenses, including attorneys’ fees, if any, reasonably incurred by the consumer in asserting the claim against the defendant. During the 60-day period a written request to inspect, in a reasonable manner and at a reasonable time and place, the goods that are the subject of the consumer’s action or claim may be presented to the consumer.

(b) If the giving of 60 days’ written notice is rendered impracticable by reason of the necessity of filing suit in order to prevent the expiration of the statute of limitations or if the consumer’s claim is asserted by way of counterclaim, the notice provided for in Subsection (a) of this section is not required, but the tender provided for by Subsection (d), Section 17.506 of this subchapter may be made within 60 days after service of the suit or counterclaim.

(c) A person against whom a suit is pending who does not receive written notice, as required by Subsection (a), may file a plea in abatement not later than the 30th day after the date the person files an original answer in the court in which the suit is pending. This subsection does not apply if Subsection (b) applies.

Offers of Settlement by Defendants

As an accommodation to business, the DTPA provides a means of minimizing a potential damage award by making a reasonable offer of settlement, but this offer must encompass both the consumer’s damages and attorney’s fees:

Bus. & Com. Code Sec. 17.5052. Offers of Settlement

(a) A person who receives notice under Section 17.505 may tender an offer of settlement at any time during the period beginning on the date the notice is received and ending on the 60th da y after that date.

(b) If a mediation under Section 17.5051 is not conducted, the person may tender an offer of settlement at any time during the period beginning on the date an original answer is filed and ending on the 90th day after that date.

(c) If a mediation under Section 17.5051 is con-ducted, a person against whom a claim under this subchapter is pending may tender an offer of settlement during the period beginning on the day after the date that the mediation ends and ending on the 20th day after that date.

(d) An offer of settlement tendered by a person against whom a claim under this subchapter is pending must include an offer to pay the following amounts of money, separately stated: (1) an amount of money or other consideration, reduced to its cash value, as settlement of the consumer’s claim for damages; and (2) an amount of money to compensate the consumer for the consumer’s reasonable and necessary attorneys’ fees incurred as of the date of the offer.

(e) Unless both parts of an offer of settlement required under Subsection (d) are accepted by the consumer not later than the 30th day after the date the offer is made, the offer is rejected.

(f) A settlement offer tendered by a person against whom a claim under this subchapter is pending that complies with this section and that has been rejected by the consumer may be filed with the court with an affidavit certifying its rejection.

(g) If the court finds that the amount tendered in the settlement offer for damages under Subsection (d)(1) is the same as, substantially the same as, or more than the damages found by the trier of fact, the consumer may not recover as damages any amount in excess of the lesser of: (1) the amount of damages tendered in the settlement offer; or (2) the amount of damages found by the trier of fact. [Italics added]

(h) If the court makes the finding described by Subsection (g), the court shall determine reasonable and necessary attorneys’ fees to compensate the consumer for attorneys’ fees incurred before the date and time of the rejected settlement offer. If the court finds that the amount tendered in the settlement offer to compensate the consumer for attorneys’ fees under Subsection (d)(2) is the same as, substantially the same as, or more than the amount of reasonable and necessary attorneys’ fees incurred by the consumer as of the date of the offer, the consumer may not recover attorneys’ fees greater than the amount of fees tendered in the settlement offer.

Subsection (g) is the key provision when it comes to limiting the defendant’s potential liability. It is important to note that a settlement offer is not an admission of guilt or liability and cannot be introduced into evidence at trial (Bus. & Com. Code Sec. 17.5052(k)). Given the foregoing, missing an opportunity to make a reasonable offer of settlement in response to a DTPA claim is usually unwise.


Mere Puffing is Not Illegal

Even though the DTPA laundry list of offenses is daunting in scope, a certain level of factual flexibility in advertising is recognized by courts as the commercial norm—so mere puffing, as the case law calls it, is not actionable under the DTPA:

Three factors are considered in determining whether a representation is ‘mere puffing:’ (1) the specificity of the representation; (2) the comparative knowledge of the buyer and seller; and (3) whether the representation relates to a future event or condition.

See Bossier Chrysler Dodge II, Inc. v. Rauschenberg, 201 S.W.3d 787, 800 (Tex.App—Waco, 2006).

Whether a representation is a warranty or merely an expression of [the seller’s] opinion depends in part upon whether the seller asserts a fact of which the buyer is ignorant, or merely states an opinion or judgment on a matter on which the seller has no special knowledge and on which the buyer may be expected to have an opinion and exert his judgment. . . . [A] general statement concerning a future event . . . should be looked at differently than a statement concerning a past or present event or condition.

See Humble Nat’l Bank v. DCV, Inc., 933 S.W.2d 224, 230 (Tex.App.—Houston [14th Dist.] 1996, writ denied).

Bait and switch is not considered mere puffing (Bus. & Com. Code Sec. 17.46(B)(10); Martin v. Lou Poliquin Enterprises, Inc., cited above).

Waiver of Consumer Rights

A consumer may waive DTPA rights in writing pursuant to Section 17.42, but the requirements for a valid waiver are extremely strict—including the requirement that the consumer be represented by a lawyer. As a result, DTPA waivers (at least valid ones) are uncommon.

The statute describes the very limited circumstances under which such a waiver might be enforceable. Moreover, the defense of waiver is not assertable in an action that is brought by the attorney general on behalf of the public generally (Sec. 17.42(e)); nor will a waiver be effective against anything the DTPA expressly defines as a deceptive or wrongful act. Southwestern Bell Tel. Co. v. FDP Corp., 811 S.W.2d 572, 576-77 (Tex. 1991).

Attempting to procure an enforceable DTPA waiver from a prospect in a real estate transaction is likely to be both risky and of questionable value for a couple of reasons:

(1) any consumer will likely be alarmed at the idea of a blanket waiver of consumer protections and the idea of having to get an independent lawyer to sign off on that; and

(2) a court will find any consumer waiver void if it wants to—particularly if the defendant is a real estate investor who is disliked by the judge or jury.

All in all, it may be best for businesses and sellers to avoid DTPA waivers entirely. An exception is in connection with the sale of new homes. “[T]he implied warranty of good workmanship [for a new home] may be disclaimed by the parties when their agreement provides for the manner, performance or quality of the desired construction.” But the implied warranty of habitability may not be disclaimed. Centex Homes v. Buecher, 95 S.W.3d 266, 274-75 (Tex. 2002).

Does an “as is” clause constitute the effective equivalent of a waiver of consumer rights? No, not according to the Prudential case (cited above). See also Larsen v. Carlene Langford & Assocs., 41 S.W.3d 245, 255 (Tex.App.—Waco 2001, pet. denied).

The Value of a Good “As Is” Clause

The value of an effective “as is” clause cannot be underestimated in Texas, even in consumer transactions subject to the DTPA. For DTPA purposes, such a clause—when properly written—negates the requirement of producing cause, letting the defendant off the hook so long as the consumer knowingly and voluntarily signed a contract containing such a clause. Prudential Insurance Company of America v. Jefferson Associates, Ltd., 896 S.W.2d 156 (Tex. 1995).

An “as is” clause should be clear, unequivocal, and conspicuous (bold and capitalized).

DTPA Statute of Limitations

A lawsuit pursuant to the DTPA must be brought within two years after the false, misleading, or deceptive act took place—or within two years after the consumer should reasonably have discovered such an act (the discovery rule). This period may be extended up to 180 days if it can be proven that a late filing resulted from the defendant’s actions in attempting to avoid or delay the filing (Bus. & Com. Code Sec. 17.565). As a practical matter, the two-year rule tends to prevail since it is common for courts to take the view that a consumer should have discovered the deceptive or wrongful act when it occurred.

Exemption for Professional Services: Attorneys and Brokers

Fortunately for attorneys and real estate brokers, their services fall within the professional services exemption of Section 17.49(c):

Bus. & Com. Sec. 17.49. [DTPA] Exemptions

(c) Nothing in this subchapter shall apply to a claim for damages based on the rendering of a professional service, the essence of which is the providing of advice, judgment, opinion, or similar professional skill. This exemption does not apply to:

(1) an express misrepresentation of a material fact that cannot be characterized as advice, judgment, or opinion;

(2) a failure to disclose information in violation of Section 17.46(b)(24) [failing to disclose information concerning goods or services which was known at the time of the transaction if such failure to disclose such information was intended to induce the consumer into a transaction into which the consumer would not have entered had the information been disclosed];

(3) an unconscionable action or course of action that cannot be characterized as advice, judgment, or opinion;

(4) breach of an express warranty that cannot be characterized as advice, judgment, or opinion; or

(5) a violation of Section 17.46(b)(26) [pertaining to illegal promotion of annuity contracts].

The professional services exemption is lost, however, in cases of fraud or misrepresentation. Since fraud is nearly always alleged in suits involving real estate, professionals in this area should expect to have to fight diligently to protect their status under this exemption.

Certain large transactions are also exempted under Section 17.49, although (significantly for real estate investors) the large-transaction exemption does not apply in the case of a consumer’s residence.

Groundless, Bad-Faith, or Harassing Lawsuits

The DTPA offers some relief to defendants if a suit is brought that is groundless, brought in bad faith, or brought for purposes of harassment:

Bus. & Com Code Sec. 17.50. Relief for Consumers

(c) On a finding by the court than an action under this section was groundless in law or in fact or brought in bad faith, or brought for purpose of harassment, the court shall award to the defendant reasonable and necessary attorneys’ fees and court costs.

This is, of course, in addition to rejecting the plaintiff’s claim. And note the word shall. Once a finding of groundlessness or bad faith is made, an award of attorney’s fees to the defendant is mandatory.


The appointment of a receiver is a common method of collecting DTPA judgments against businesses. A court-appointed receiver may be granted broad powers to manage and operate the business of a judgment debtor including the power to manage its finances. Business & Commerce Code Section 17.59 offers an expedited path to receivership for a judgment creditor so long as there has been a good-faith but failed attempt to execute on the judgment by the usual means. If such is the case, certain presumptions exist:

Bus. & Com. Code Sec. 17.59. Post-Judgment Relief

(a) If a money judgment entered under this subchapter is unsatisfied 30 days after it becomes final and if the prevailing party has made a good faith attempt to obtain satisfaction of the judgment, the following presumptions exist with respect to the party against whom the judgment was entered: (1) that the defendant is insolvent or in danger of becoming insolvent; and (2) that the defendant’s property is in danger of being lost, removed, or otherwise exempted from collection on the judgment; and (3) that the prevailing party will be materially injured unless a received is appointed over the defendant’s business; and (4) that there is no adequate remedy other than receivership available to the prevailing party.

In other words, all the usual preconditions for receivership are simply presumed, facilitating a relatively smooth appointment process. The consequences of a receiver’s intervention can be devastating and often fatal to the business involved.


Consumer Financial Protection Act

The Dodd-Frank Wall Street Reform and Consumer Financial Protection Act of 2010 (CFPA, 12 U.S.C. Sec. 5567) contains Title X (often referred to as Title X of the Dodd-Frank Act) which generally prohibits unfair, deceptive, or abusive acts and practices (UDAAPs) in interstate commerce. The Act also established the Consumer Financial Protection Board (CFPB) which is charged with rulemaking and enforcement in the area of financial products and services that are offered to consumers.

CFPB Guidelines (March 2022). The standard for unfairness in the Dodd-Frank Act is that an act or practice is unfair when (1) it causes or is likely to cause substantial injury to consumers; (2) the injury is not reasonably avoidably by consumers; and (3) the injury is not outweighed by countervailing benefits to consumers or to competition.

A representation, omission, act, or practice is deceptive when (1) the representation, omission, act, or practice misleads or is likely to mislead the consumer; (2) the consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances; and (3) the misleading representation, omission, act, or practice is material.

An abusive act or practice [is one that] materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service or takes unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs, or condition of the product or service; the inability of the consumer to protects its interest in selecting or using a consumer financial product or service; or the reasonable reliance by the consumer on a covered person to act in the interests in the consumer.

Although abusive acts also may be unfair or deceptive, examiners should be aware that the legal standards for abusive, unfair, and deceptive [practices are] separate.

Inherent in the foregoing is the principle that for a practice to be unlawful, a consumer must reasonably rely on that practice to their detriment (or injury as the CFPB puts it), although the CFPB also states:

Actual injury is not required in every case. A significant risk of concrete harm is also sufficient. However, trivial or merely speculative harms are typically insufficient for a finding of substantial injury. Emotional impact and other more subject types of harm also will not ordinarily amount to substantial injury. Nevertheless, in certain circumstances such as unreasonable debt collection harassment or discriminatory conduct, emotional impacts or dignitary harms may amount to or contribute to substantial injury.

This is an excellent example of bureaucratic doublespeak: substantial harm is required except when we decide that it’s not.

Examples of wrongdoing that can merit CFPB enforcement include refusing to release a lien on real estate after a consumer tenders the final payment; making misleading cost or price claims (no-money-down claims in the presence of substantial upfront fees); using bait and switch techniques; failing to provide services as promised; and offering inadequate disclosure or clarity in the communication of material terms (such as the true cost of a mortgage loan).

The CFPB may issue a cease and order against violators, charge a civil penalty of up to $10,000 for each violation, and commence a civil action in federal district court (15 U.S. Code Sec. 45(l) and (m)).

There is, however, a key difference between the federal Consumer Financial Protection Act and the Texas DTPA: unlike in Texas where aggrieved consumers may file suit, no private right of action is granted by the federal statute. One is therefore in the position of having to file an administrative complaint with the CFPB and then hoping that the agency will act.

Federal Trade Commission Act

Section 5 of the FTC Act (15 U.S.C. Sec. 45) prohibits unfair methods of competition and unfair or deceptive acts or practices in interstate commerce, with particular attention to banks. The FTC on its website states:

The Federal Trade Commission Act is the primary statute of the Commission. Under this Act, as amended, the Commission is empowered, among other things, to (a) prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting [interstate] commerce; (b) seek monetary redress and other relief for conduct injurious to consumers; (c) prescribe rules defining with specificity acts or practices that are unfair or deceptive, and establishing requirements designed to prevent such acts or practices; (d) gather and compile information and conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce; and (e) make reports and legislative recommendations to Congress and the public.

As with the CFPA, the FTC Act offers no private avenue for litigation. Instead, the FTC partners with the DOJ and U.S. attorneys to go after mortgage fraud, online and telemarketing scams, bogus health products, phony sweepstakes, and more.


Beware of Overly-Clever Schemes

Many real estate investors are engineers, medical doctors, computer coders, or others whose education and experience is quantitative rather than legal or linguistic. Left-brain professionals often think in black-and-white terms. In their minds, something should either be legal or not.

What non-lawyers typically do not understand is that the law, particularly when it reaches the courtroom, is not black and white, off and on, or yes and no. It is a continuum with shades of gray; and somewhere along that continuum a judge or a jury may feel that something undesirable has occurred—fraud, deception, or the like—and the human urge is then to find a remedy and assess a punishment.

In court, once you get past the summary judgment stage (where anything patently frivolous is usually eliminated) then everything, including the plain language of a statute, becomes a subject for subjective interpretation. At that point, it matters that one individual is an unsophisticated ordinary person who has lost his home and the other person is a sharp real estate investor.


Information in this article is provided for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. No attorney-client relationship is created by the offering of this article. This firm does not represent you unless and until it is expressly retained in writing to do so. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well.

Copyright © 2024 by David J. Willis. All rights reserved. Mr. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website,