The legislation provides clarity for financial services companies on the CFPB’s UDAAP standards and guidance on what qualifies as a UDAAP violation.
12/18/2023 2:15 P.M.
2.5 minute read
U.S. Rep. Andy Barr, R-Ky., has introduced legislation to reform unfair, deceptive, or abusive acts or practices (UDAAP) authority granted to the Consumer Financial Protection Bureau and clarify standards for UDAAP enforcement actions.
“Since the Dodd-Frank Act passed, financial institutions and providers have been left without clarity of the definition for the term ‘abusive,’ and inadequate guidance from CFPB on what would constitute a UDAAP violation. Regulatory uncertainty leads to fewer choices and higher prices for consumers, and the agency tasked with protecting consumers should not be complicit in regulation that is causing these outcomes,” Barr said in a news release. “My legislation, the Rectifying Undefined Definitions of Abusive Acts or Practices or the Rectifying UDAAP Act, requires the CFPB to provide the transparency financial institutions need to serve consumers and ensure there is ample access to credit in our consumer markets.”
Barr initially announced he would introduce the legislation during a House Financial Services Committee hearing with CFPB Director Rohit Chopra in November 2023.
Barr asked Chopra if financial services companies should be held liable for not complying with recent guidance from the CFPB on a retroactive basis.
Chopra responded they shouldn’t be held liable and said that the bureau’s UDAAP guidance is to avoid uncertainty for industry.
“Clear and certain rules of the road for our industry ensure that the largest number of consumers can get the credit they need from reputable and ethical lenders,” said Celia Winslow, senior vice president of American Financial Services Association, in the news release from Barr’s office. “Congressman Barr’s proposal ensures the CFPB adds both accountability for the agency and greater clarity to such rules and we strongly support such an approach.”
A summary of Barr’s bill, H.R. 6789, is pending.
ACA’s Take
The CFPB issued a policy statement on UDAAP in April 2023 to outline the prohibition of “abusive conduct” in consumer financial markets and a framework for federal and state regulators to identify such conduct, ACA International previously reported.
It noted that while policy statements provide background on laws enforced by the CFPB and how they are enforced, they do not add new legal requirements for regulated entities.
In comments on the policy statement (PDF), ACA focused on how members benefit from clear requirements and standards, rather than uncertainty created by the policy statement—particularly the definition and guidance on “abusive.”
Commenters on the UDAAP policy statement, including ACA, argued the bureau’s framework for UDAAP appears to create a heightened standard for entities engaged with consumers “without consumer choice or market competition.”
Industries are concerned the CFPB would use its UDAAP authority to broadly increase standards for industries already subject to state and federal regulations, according to a client alert from Brownstein Hyatt Farber Schreck LLP shareholder Leah Dempsey and Policy Analyst Zachary Pfister.
ACA continues to advocate that the CFPB should implement new requirements through rulemaking under the Administrative Procedure Act, not enforcement or interpretative guidance and supports Barr’s legislation.
Remember, subscribe to ACA Daily and Member Alerts under your My ACA profile when logged in to acainternational.org to receive updates on the ACA Huddle.