QUESTION
We are in the process of updating our UDAAP policy. The last
update was in December 2018. There is the view that CFPB’s enforcement is more
lenient these days. I am fighting a pitched battle to hold the line and stay prepared
for the possibility of enforcement. So, what can I tell my colleagues about
CFPB enforcement with regard to UDAAP?
ANSWER
The notion that the Trump Administration has caused the CFPB to
back away from enforcement is not entirely accurate. However, under the current
Administration, some critics believe that the CFPB has become more like a
consumer information agency rather than an aggressive pursuer of examination
and enforcement. That said, a case can be made that
the CFPB has been providing guidance continually in the form of its enforcement
actions.
Since the enactment of
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and
since the toning down of CFPB enforcement under the Trump Administration,
commentators have speculated how aggressively the CFPB would continue to pursue
its broad authority to regulate unfair, deceptive, or abusive acts or practices
(UDAAP).
Federal statutes had
previously given similar authority to federal agencies, including the Federal
Trade Commission under Section 5 of the FTC Act and under Section 511 of the
Credit CARD Act of 2009 (regulation of mortgage lending), and the Federal
Reserve Board under the FTC Act and the Truth-in-Lending Act. Most of the
states have adopted their own versions of UDAAP statutes.
The CFPB issued a UDAAP Policy on February 6, 2020.[i]
Its stated purpose is to
“provide greater certainty as to how the [CFPB] intends to use the
abusiveness standard in supervision and enforcement…”
So, it
is not the case that CFPB is avoiding enforcement. The Bureau’s approach seems
to be one of ensuring that there is a standard by which UDAAP may be evaluated. I
will outline a few key standards. You should incorporate them into your UDAAP
policy update. The following is a brief outline.
·
The CFPB plans to focus on citing
conduct as abusive if the CFPB concludes that the harms to consumers from the
conduct outweigh its benefits to consumers.
o
The CFPB’s
consideration of the harm and benefit can be qualitative as well as
quantitative. It intends to focus on the prevention of harm by citing conduct
as abusive in supervision and challenging conduct as abusive in enforcement if
the CFPB concludes that the harms to consumers from the conduct outweigh the
benefits to consumers, including its effects on access to credit.
o
Further, it seems
clear that the Bureau expects this approach to ensure that it uses its “scarce
resources” to address conduct that harms consumers and that its supervisory and
enforcement decisions are consistent.
o
It is worth mentioning
that the CFPB overtly considers this focus consistent with the FTC’s approach
to unfairness and deception, which weighs costs and benefits
under the unfairness standard but not under the deception standard.
§ The primary difference between
unfairness analysis and deception analysis is that deception does not ask
about offsetting benefits, instead presuming that false or misleading statements
either have no benefits or that the injury they cause to consumers can be
avoided by the company at very low cost. In other words, deception analysis
creates a shortcut, assuming that when a material falsehood exists, the
practice would not pass the full benefit/cost analysis of unfairness because
there are rarely, if ever, countervailing benefits to deception.
·
The CFPB generally will avoid
challenging conduct as abusive that relies on all or nearly all of the same
facts that the it alleges are unfair or deceptive.
o
When the CFPB decides
to include an alleged abusiveness violation, it intends to plead abusiveness in
a manner designed to clearly demonstrate the nexus between the cited facts and
its legal analysis of the claim. So, in supervision activity, the CFPB likewise
intends to provide more clarity as to the specific factual basis for
determining that a covered person has violated the abusiveness standard.
·
The CFPB does not intend to seek
certain types of monetary relief for abusiveness violations when the covered
person was making a good faith (reasonable, albeit mistaken) effort to comply
with the abusiveness standard.
o
If a covered person
makes a good faith but unsuccessful effort to comply with the abusiveness
standard, the CFPB still intends to seek legal or equitable remedies, such as
damages and restitution, but not civil penalties or disgorgement, to redress
identifiable consumer that would not otherwise be addressed.
o
It is our
understanding that the Bureau intends to consider all relevant factors,
including, but not limited, to the considerations outlined in CFPB Bulletin
2013-06 regarding Responsible Business Conduct.
·
The CFPB is committed to aggressively
pursuing the full range of monetary remedies against bad actors.
o These
are persons who were not acting in good faith in violating the abusiveness
standard, such as those who engage in fraudulent practices or consumer scams.
·
The Bureau intends to allege
“stand-alone” abusiveness violations (i.e., violations not accompanied by
related unfairness or deception violations) when doing so would be consistent
with the abusiveness standard and the Policy Statement.
o
As I’ve indicated
above, the CFPB intends to plead stand-alone claims in a manner designed to
demonstrate the nexus between the cited facts and its legal analysis of the
claims.
Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group
[i] Statement of
Policy Regarding Prohibition on Abusive Acts or Practices, Consumer Financial
Protection Bureau, 85 Federal Register 6733 (February 6, 2020)
