The Dodd-Frank Act authorizes the Consumer Financial Protection Bureau to enforce more than a dozen existing statutes in defense of consumers. These statutes include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, and the Truth in Lending Act. Congress passed these laws with detailed definitions designed to protect consumers from specific harm. Nearly half of all CFPB enforcement actions since 2011 have cited violations of specific statutes.
However, more than half of all CFPB enforcement actions have alleged violations of the “unfair, deceptive and abusive acts and practices” (UDAAP) provision of the Dodd-Frank Act, language that is not tied to any specific statute or regulation. Indeed, the loose definitions of the terms “unfair,” “deceptive” and especially “abusive” give the CFPB wide powers to challenge business activities that it finds suspicious, even if those actions do not violate the law.
The terms “unfair” and “deceptive” originated in the Federal Trade Commission Act a century ago. They were incorporated into Dodd-Frank. Unfair and deceptive acts are based upon the actions taken by the lender. Unfair acts are those that cause “injury” to the consumer. Deceptive acts are those that make a false representation. Both definitions have been somewhat clarified over time.
The term “abusive,” however, was added by the authors of Dodd-Frank. Abusive acts are those that cause confusion for consumers. Thus, the focus of CFPB enforcement shifts from the actions of the regulated entity to the perception of the consumer. According to the CFPB Supervisory and Examination Manual issued in 2012, an act or practice is abusive when “a term or condition materially interferes with the consumer’s ability to understand the terms and conditions of the financial product or service,” when it “takes unreasonable advantage” of the consumer’s ignorance, or when the consumer is induced to rely upon the governed entity to act in the consumer’s best interest.
Since UDAAP violations of the “abusive” kind are triggered by the consumer’s perception, the CFPB’s online complaint database is a rich source of potential enforcement actions. Dodd-Frank authorizes fines up to $1 million per day for a knowing violation of the UDAAP language. In 2014, six of the bureau’s 14 UDAAP enforcement actions resulted in penalties of greater than $5 million, including two actions with penalties greater than $10 million. While both Congress and industry groups have called upon the bureau to clarify the meaning of “abusive,” the CFPB has declined to do so formally. Rather, the bureau seems satisfied to develop its UDAAP doctrine on a case-by-case basis.