By: Rhonda Coggins, CRCM, National Compliance Services Director
While compliance stakeholders have several different regulations to juggle, they also need to be on the lookout for acts or practices that are unfair, deceptive or abusive. As those concepts of UDAAP can sometimes be elusive, the industry has always wanted more guidance that will help clarify how a certain practice could be at a higher UDAAP risk. In addressing this need for clarity, the Bureau of Consumer Financial Protection issued a policy statement in January 2020. The policy statement is focused on the scope and meaning of abusiveness.
To address this, it’s important to first understand some background. It is the Dodd-Frank Act that gives the Bureau supervisory authority to cover UDAAP. That authority can be used to prevent a service provider from UDAAP in connection with a transaction with a consumer for a financial product or service or the offering to a consumer of a financial product or service.
So, what is the abusive standard?
The abusive standard, first, is referenced within the Dodd Frank Act. At a high level, the Act references that the Bureau will have no authority to declare an act or practice abusive unless certain criteria are met. Those include something that: 1) materially interferes with the consumer’s ability to understand a term or condition, or 2) takes unreasonable advantage of a consumer’s lack of understanding; the inability of the consumer to protect their interests; or the reliance by the consumer on a covered person to act in the consumer’s interest.
In helping to clarify this standard, the Bureau’s 2020 policy statement is intended to provide greater certainty and to foster a clearer standard. The statement includes discussion on how an abusive claim has often historically been accompanied by related claims of unfairness or deception. However, the Bureau makes clear than it intends to allege “stand-alone” abusiveness violations, where appropriate. The Bureau also states that future “Supervisory Highlights” will describe with greater clarity any basis for abusiveness citations.
The Bureau’s statement also clarifies three principles that will be applied in citing or challenging conduct as abusive, as follows:
- focus citations when the Bureau concludes that the harms to consumers from the conduct outweigh its benefits to consumers;
- generally avoid challenging conduct as abusive that relies on all or nearly all of the same facts that are alleged as unfair or deceptive; and
- generally avoid monetary relief for violations in situations where good faith efforts are made to comply with the abusiveness standard.
Compliance stakeholders wanting to learn more about UDAAP are encouraged to review the Bureau’s examination manual here: https://files.consumerfinance.gov/f/documents/102012_cfpb_unfair-deceptive-abusive-acts-practices-udaaps_procedures.pdf Also, interested persons wanting to read the entire 2020 Policy Statement may find it here: https://files.consumerfinance.gov/f/documents/cfpb_abusiveness-enforcement-policy_statement.pdf