CFPB symposium: How to implement UDAAP?

The Consumer Financial Protection Bureau recently held the first of a series of planned symposia on various regulatory themes, including a panel on how to practically implement the abusive standard.

Editor’s note: This is the second in a two-part series. Click here for part one.

The Consumer Financial Protection Bureau recently held the first of a series of planned symposia on various regulatory themes. The first topic addressed was “unfair, deceptive, or abusive acts or practices”.

The symposium featured one panel addressing policy issues relating to the abusive standard and another panel examining how the abusive standard has been used in practice. The second panel focused on the definition of “abusive” in UDAAP proceedings.

Some members of the panel felt that there was no need for any further clarification. Using only the statutory language and the secondary sources such as court findings and CFPB enforcement actions, some panelists felt that “abusive” had a definition that was clear enough for regulated entities. These panelists noted that no court has ever gone beyond the statutory language when evaluating the questions of “abusive.”

Other panelists disagreed, noting that the vast majority of court cases that have addressed the issue have resulted in motions to dismiss. Such a dismissal does not address the merits of a case. Similarly, most CFPB enforcement actions end in a consent order, where the court merely accepts the terms of the two parties without ruling on the merits. This, the panelists claimed, is far short of hearing a court’s considered opinion.

It was also noted that there are 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. When courts do speak to the merits on questions of “abusive” conduct in a way that would add clarity, it is typically when a federal regulatory agency such as the CFPB loses. Regulatory agencies are unlikely to file in federal court unless they are confident of prevailing, thus limiting the options for the courts to contribute.

One panelist noted that while “deceptive” and “unfair” have clear meanings, “abusive” seems to be used as a catch-all to be used when the bureau encounters a policy or product that it doesn’t like but can’t be neatly described as “deceptive” or “unfair.” This, he said, has led to accusations that the bureau is engaging in “regulation by enforcement.” He said compliance officers should be considered extensions of the bureau disseminating information. More clarity, he noted, would allow these professionals to have a stronger hand in discussions with their business counterparts about why specific actions are and are not advisable.

Fredrikson & Byron Law