CFPB Reviews Defining Abusive Acts or Practices Under the Dodd-Frank Act

Bureau’s first symposium series meeting to inform policy development focuses on UDAAP standards.

6/27/2019 2:00 PM

NewsCFPB
CFPB Reviews Defining Abusive Acts or Practices Under the Dodd-Frank Act

Consumer Financial Protection Bureau Director Kathy Kraninger started the bureau’s symposium series June 25 with a panel discussion on unfair, deceptive, or abusive acts or practices (UDAAP) under the Dodd-Frank Act—in particular whether the bureau should further define “abusive acts or practices” under the law with a new policy or rulemaking.

“With the Dodd-Frank Act, Congress gave the bureau the authority to protect consumers from (UDAAP)—a fundamental and critical responsibility,” Kraninger said during her opening remarks. “But whereas unfairness and deception have been substantially developed, abusiveness does not have the same record.”

Leah Dempsey, ACA International’s vice president and senior counsel of federal advocacy, attended the event in addition to several ACA members.

Some legal and regulatory panelists selected for the meeting said more guidance is needed from the bureau on the definition of abusive acts or practices while others felt guidance would contravene the original intent of Congress.

“Deception and unfairness have a long history of case law and guidance, but there is no clear guidance on the four types of abusive practices,” said ACA International member Lucy Morris, a panelist and a partner at Hudson Cook LLP. “The bureau has different tools to declare an unfairness standard abusive, but it primarily uses its enforcement authority to do so.”

Based on what ACA has seen over the last few years, an act may be seen as abusive under Dodd-Frank when it interferes with the consumer’s ability to understand a term or a condition or takes advantage of the consumer’s lack of understanding. For instance, creating an artificial sense of urgency to induce borrowers to make a payment or charging fees in excess of what’s allowed by law might be abusive acts.  

According to the CFPB, an act or practice is abusive when it:

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 consumer’s lack of understanding of the material risks, costs, or conditions of the product or service;
  • A consumer’s inability to protect his or her interests in selecting or using a consumer financial product or service; or
  •  A consumer’s reasonable reliance on a covered person to act in his or her interests.

“It is important to note that, although abusive acts or practices may also be unfair or deceptive, each of these prohibitions are separate and distinct, and are governed by separate legal standards,” according to the bureau.

Morris also noted during the discussion that most court decisions on UDAAP “were decided on a motion to dismiss, which is not a definitive decision on the merits that provides clarity on the term's definition … there are also very few cases that allege abusive acts and practices but don't allege deceptive and misleading acts and practices, making it difficult to differentiate the terms through court decisions,” according to an article from Hudson Cook LLP.

Nicholas Smyth, assistant director of the Pennsylvania Office of Attorney General’s Bureau of Consumer Protection, Senior Deputy Attorney General, said the courts' interpretations of abusive acts or practices have worked to date and will continue to develop over time through litigation and court decisions.

He argued the bureau should not institute a rule or guidance to further define abusive practices, but rather propose legislation for Congress.

ACA has urged the CFPB to provide additional guidance in this area. In comments in response to the CFPB’s Request for Information regarding the enforcement process, ACA stated, “Concerns are widespread about the bureau’s practice of characterizing conduct as an unfair, deceptive, or abusive act or practice (“UDAAP”) without prior notice, and then holding other businesses accountable under this retroactive interpretation of legally required or proscribed behavior. Moreover, it remains unclear how the bureau defines UDAAP, with the “unfair” prong continuing to be a particularly subjective matter for individual enforcement attorneys and examiners. Objections on fairness grounds to an enforcement action that faults a business for conduct in the past that was legal at the time have fallen on deaf ears.”

The panelists also discussed the Federal Trade Commission’s authority under the FTC Act to address unfair and deceptive acts and practices that impact consumers.

“The bureau first announced in the fall 2018 Unified Regulatory Agenda that it was ‘considering whether rulemaking or other activities may be helpful to further clarify the meaning of abusive acts or practices’ under the Dodd-Frank Act,” Kraninger said. “Today’s symposium will help inform the bureau’s thinking as to whether the bureau should use its rulemaking or other tools to provide clarity about the general meaning of abusiveness—and, if so, which principles should be applied to determine the scope of abusiveness.”

The bureau will continue to review options to further define the meaning of abusiveness under the Dodd-Frank Act to protect consumers and provide clarity for business stakeholders in complying with the law.

“We have heard from some stakeholders that there is uncertainty about abusiveness’s parameters, which makes it harder for businesses that want to comply with the law to do so,” Kraninger said. “And this uncertainty creates impediments to innovation and other salutary developments in the marketplace.”

The bureau intends to continue the symposium series, likely in the fall, on topics including small business loan data collection disparate impact and the Equal Credit Opportunity Act, cost-benefit analysis, and consumer authorized financial data sharing.

Related Content from ACA International:

Industry Experts Selected for CFPB Panels on UDAAP

From Collector: Understanding UDAAPS


Follow ACA International on Twitter @ACAIntl and @acacollector, Facebook and request to join our LinkedIn group for news and event updates. ACA International members are welcome to submit news items for possible publication to comm@acainternational.org. Visit our publications page for news submission guidelines and subscriptions to ACA Daily, Collector magazine and Pulse.

Advertising is available for companies wishing to promote their products or services. Be sure to visit the ACA Events Calendar on the Education and Training page to view our listing of upcoming CORE Curriculum and Hot Topic seminars featuring critical educational opportunities for your company.


Subscribe to ACA Daily NEWSROOM

CFPB Reviews Defining Abusive Acts or Practices Under the Dodd-Frank Act

Consumer Financial Protection Bureau Director Kathy Kraninger started the bureau’s symposium series June 25 with a panel discussion on unfair, deceptive, or abusive acts or practices (UDAAP) under the Dodd-Frank Act—in particular whether the bureau should further define “abusive acts or practices” under the law with a new policy or rulemaking.

“With the Dodd-Frank Act, Congress gave the bureau the authority to protect consumers from (UDAAP)—a fundamental and critical responsibility,” Kraninger said during her opening remarks. “But whereas unfairness and deception have been substantially developed, abusiveness does not have the same record.”

Leah Dempsey, ACA International’s vice president and senior counsel of federal advocacy, attended the event in addition to several ACA members.

Some legal and regulatory panelists selected for the meeting said more guidance is needed from the bureau on the definition of abusive acts or practices while others felt guidance would contravene the original intent of Congress.

“Deception and unfairness have a long history of case law and guidance, but there is no clear guidance on the four types of abusive practices,” said ACA International member Lucy Morris, a panelist and a partner at Hudson Cook LLP. “The bureau has different tools to declare an unfairness standard abusive, but it primarily uses its enforcement authority to do so.”

Based on what ACA has seen over the last few years, an act may be seen as abusive under Dodd-Frank when it interferes with the consumer’s ability to understand a term or a condition or takes advantage of the consumer’s lack of understanding. For instance, creating an artificial sense of urgency to induce borrowers to make a payment or charging fees in excess of what’s allowed by law might be abusive acts.  

According to the CFPB, an act or practice is abusive when it:

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 consumer’s lack of understanding of the material risks, costs, or conditions of the product or service;
  • A consumer’s inability to protect his or her interests in selecting or using a consumer financial product or service; or
  •  A consumer’s reasonable reliance on a covered person to act in his or her interests.

“It is important to note that, although abusive acts or practices may also be unfair or deceptive, each of these prohibitions are separate and distinct, and are governed by separate legal standards,” according to the bureau.

Morris also noted during the discussion that most court decisions on UDAAP “were decided on a motion to dismiss, which is not a definitive decision on the merits that provides clarity on the term's definition … there are also very few cases that allege abusive acts and practices but don't allege deceptive and misleading acts and practices, making it difficult to differentiate the terms through court decisions,” according to an article from Hudson Cook LLP.

Nicholas Smyth, assistant director of the Pennsylvania Office of Attorney General’s Bureau of Consumer Protection, Senior Deputy Attorney General, said the courts' interpretations of abusive acts or practices have worked to date and will continue to develop over time through litigation and court decisions.

He argued the bureau should not institute a rule or guidance to further define abusive practices, but rather propose legislation for Congress.

ACA has urged the CFPB to provide additional guidance in this area. In comments in response to the CFPB’s Request for Information regarding the enforcement process, ACA stated, “Concerns are widespread about the bureau’s practice of characterizing conduct as an unfair, deceptive, or abusive act or practice (“UDAAP”) without prior notice, and then holding other businesses accountable under this retroactive interpretation of legally required or proscribed behavior. Moreover, it remains unclear how the bureau defines UDAAP, with the “unfair” prong continuing to be a particularly subjective matter for individual enforcement attorneys and examiners. Objections on fairness grounds to an enforcement action that faults a business for conduct in the past that was legal at the time have fallen on deaf ears.”

The panelists also discussed the Federal Trade Commission’s authority under the FTC Act to address unfair and deceptive acts and practices that impact consumers.

“The bureau first announced in the fall 2018 Unified Regulatory Agenda that it was ‘considering whether rulemaking or other activities may be helpful to further clarify the meaning of abusive acts or practices’ under the Dodd-Frank Act,” Kraninger said. “Today’s symposium will help inform the bureau’s thinking as to whether the bureau should use its rulemaking or other tools to provide clarity about the general meaning of abusiveness—and, if so, which principles should be applied to determine the scope of abusiveness.”

The bureau will continue to review options to further define the meaning of abusiveness under the Dodd-Frank Act to protect consumers and provide clarity for business stakeholders in complying with the law.

“We have heard from some stakeholders that there is uncertainty about abusiveness’s parameters, which makes it harder for businesses that want to comply with the law to do so,” Kraninger said. “And this uncertainty creates impediments to innovation and other salutary developments in the marketplace.”

The bureau intends to continue the symposium series, likely in the fall, on topics including small business loan data collection disparate impact and the Equal Credit Opportunity Act, cost-benefit analysis, and consumer authorized financial data sharing.

Related Content from ACA International:

Industry Experts Selected for CFPB Panels on UDAAP

From Collector: Understanding UDAAPS


Follow ACA International on Twitter @ACAIntl and @acacollector, Facebook and request to join our LinkedIn group for news and event updates. ACA International members are welcome to submit news items for possible publication to comm@acainternational.org. Visit our publications page for news submission guidelines and subscriptions to ACA Daily, Collector magazine and Pulse.

Advertising is available for companies wishing to promote their products or services. Be sure to visit the ACA Events Calendar on the Education and Training page to view our listing of upcoming CORE Curriculum and Hot Topic seminars featuring critical educational opportunities for your company.


Subscribe to ACA Daily NEWSROOM

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