The CFPB Continually Updates Its UDAAP Guidance. Is Your Compliance Management System Keeping Up?
Corporate & Business Law on September 19, 2017
We’ve said it before and we’ll say it again: to understand the CFPB, you need to understand another acronym—UDAAP. The Consumer Financial Protection Bureau exists, in large part, to guard consumers against what regulators deem “unfair, deceptive, or abusive acts and practices.” To that effect, half of the enforcement matters that the CFPB has made public have alleged UDAAP violations.
In theory, it sounds simple enough: a lender does something unfair, deceptive, or abusive, and the CFPB reacts in the form of a penalty, investigation, lawsuit, or other enforcement action. In practice, however, the words “unfair,” “deceptive,” and “abusive” sometimes seem to have no fixed, objective meaning. Who decides whether an act or practice constitutes a UDAAP? What’s really “abusive?”
How Does the CFPB Define “Abusive?”
Michael Semanie, an attorney with Killgore, Pearlman, Stamp, Denius & Squires, P.A, gets that question all the time. Here’s what he recently told our audience during our Blueprint for a Modern Compliance Program webinar: “It’s a catch-all. If the CFPB doesn’t like what you’re doing, and it doesn’t really fit into ‘deceptive,’ or ‘unfair,’ [it’s] abusive.”
To substantiate his point, Mike read the relevant statutory language. According to the UDAAP provisions in Title X of the Dodd–Frank Wall Street Reform and Consumer Protection Act, “abusive” refers to…
“…an act that materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or takes an unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or the reasonable alliance by the consumer on a covered person to act in the interest of the consumer.”
Mike told us that the Act’s definition of “abusive” is longer than the “deceptive” and “unfair” provisions because lawmakers intended it to be as broad as possible—“to catch anything else that would maybe otherwise fall between the cracks of the deceptive and unfair, but the CFPB still believes it to be wrong somehow.”
How Can You Prevent UDAAPs?
By now, consumer finance companies seeking to stay out of the CFPB’s way have learned how important it is to refrain from UDAAPs. But the same ambiguity that lends regulators broad authority has presented difficulties in terms of actionable preventative measures. What can an organization actually do to prevent UDAAPs?