Just What is a UDAAP Violation, Anyways?

January 27, 2020 at 9:40 am Leave a comment

It isn’t often that you see a Bureau scaling back its enforcement powers, but this is exactly what the CFPB announced on Friday when it issued an updated policy statement narrowing its use of enforcement and supervisory actions based on abusive acts or practices. Coming on top of the Bureau’s refusal to defend itself against claims that its structure is unconstitutional, the Bureau’s actions are sure to keep its critics fired up for months to come.

As many of you know, one of the core rights given to the CFPB was the authority to take action against unfair, deceptive or abusive acts and practices, but what is the distinction between an act which is unfair or deceptive as opposed to simply abusive? The question may seem esoteric- okay, it is- but one of the major criticisms of the Bureau has been its broad interpretation of its UDAAP powers.

Specifically, the Bureau will still be citing acts as abusive, but will generally try to avoid categorizing misconduct as such if the act shares the same characteristics that would deem it to be unfair and deceptive. This means that for an act to be abusive, it will generally need to be more harmful than beneficial to consumers.

This by itself wouldn’t be too big of a deal, but the Bureau goes on to explain that:

“To ensure that uncertainty regarding the abusiveness standard does not impede beneficial conduct, the Bureau generally does not intend to seek certain monetary remedies for abusive acts or practices if the covered person made a good-faith effort to comply with the law based on a reasonable—albeit mistaken—interpretation of the abusiveness standard.”

This is what I call the “my bad” approach to enforcement, under which entities will effectively be getting a warning before they are penalized for harmful conduct. As someone who has consistently argued that UDAAP is entirely too vague, this is a worthwhile change, but I am sure there are many groups out there that disagree.

As a matter of fact, the Bureau’s announcement will provide a further opening for New York State’s DFS Superintendent, Linda Lacewell, to argue for increasing the Department’s UDAAP powers. Since she became Superintendent, she has been sharply critical of the CFPB’s lack of enforcement priorities, and highlighted the need to give DFS the authority to pick up their slack. Most notably, this year’s state budget proposal includes a provision (see section NN) increasing the authority of the DFS to take action against UDAAP violators.


Entry filed under: New York State, Regulatory. Tags: , , , , , , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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