It’s time to dust off those Unfair or Deceptive Acts or Practices Act (“UDAAP”) policies and risk assessments and put them to good use! In March the Consumer Financial Protection Bureau (“CFPB”) published a notice in the Federal Register that it is rescinding the previous administration’s statement of policy regarding the principles the CFPB would follow in UDAPP, particularly around the definition of “abusiveness” in the Abusive Acts or Practices component of UDAPP. The Abusive Acts or Practices has caused great angst and heartburn among financial institutions in trying to discern a clear set of standards by which they should conduct their activities. The CFPB may have only rescinded one policy statement so far, but I think it speaks volumes as to what financial institutions can expect from a Biden CFPB.
January 2020 Policy Statement
On January 24, 2020, the CFPB announced a policy statement which provided a framework for the CFPB to exercise its supervisory and enforcement authority to address abusive act or practices. Specifically, it set forth three principles it would apply when conducting its supervision and enforcement activities:
- It intended to focus on citing conduct as abusive if the CFPB concluded that the harms to the consumers from the conduct outweighed its benefits;
- It would generally avoid challenging conduct as abusive that relied on all or nearly all of the same facts that the CFPB alleged are unfair or deceptive;
- It did not intend to seek certain types of monetary relief for abusiveness violations where the covered person was making a good-faith effort to comply with the abusiveness standard.
This original policy statement was wonderful news for the industry because it clarified some of the uncertainties surrounding the “abusiveness” standard. Knowing that if things did go off the rails the financial institution would not be penalized twice for the same conduct or that violations that occurred while acting in good faith would focus on making consumers whole provided enhanced predictability.
2021 Rescinding of 2020 Policy Statement
However, a scarce few months under the new administration, the CFPB has concluded that the January 2020 Policy Statement does not actually help provide clarity and in fact inhibits the CFPB’s ability to do so. The CFPB has concluded it should exercise the full scope of its supervisory and enforcement authority to identify and remediate abusive acts or practices.
Only time will tell if this is a not so subtle signal that the CFPB is about to return to its more aggressive use of the vague and difficult to clearly define “abusiveness” standard, but I read this as the first shot across the bow and all financial institutions should be carefully assessing the UDAAP risk associated with all of its activities, especially when launching new products or functionality.
Practus is a proud Corporate Member of the Independent Community Bankers of America® (ICBA)