Legislation seeking to clarify and restrict the Consumer Financial Protection Bureau’s (CFPB) authority to cite certain acts and practices as “abusive” in enforcement actions is gaining popularity among financial industry advocates.
The bill aims to provide clear descriptions of the types of activities that should be deemed abusive under the Consumer Financial Protection Act (CFPA) provision regarding unfair, deceptive and abusive acts and practices (UDAAP). The bill’s name plays on the “UDAAP” acronym – the Rectifying Undefined Descriptions of Abusive Acts and Practices Act, aka the Rectifying UDAAP Act.
The legislation was introduced in the House by Rep. Andy Barr (R-Ky.), proposing amendments under Sec. 1031 and Sec. 1055(c) of the CFPA restricting when it is permissible for the CFPB to invoke the “abusive” standard and to modify stipulations related to civil money penalties ordered by the bureau.
“Since the Dodd-Frank Act passed, financial institutions and providers have been left without clarity of the definition for the term ‘abusive,’ and inadequate guidance from the CFPB on what would constitute a UDAAP violation,” Barr said in a statement. “Regulatory uncertainty leads to fewer choices and higher prices for consumers, and the agency tasked with protecting consumers should not be complicit in regulation that is causing these outcomes.”
The bill has 14 cosponsors, all Republican, and has gained expressed support from several trade groups representing banks and credit unions.
Section 5 of the bill stipulates that the CFPB would not be permitted to declare an act or practice “abusive” unless the act or practice “[i]ntentionally or materially interferes with the consumers ability to understand a term or condition of a consumer financial product” or takes unreasonable advantage of a consumer’s “lack of understanding of the possible impact, material risks, costs, or conditions of the product/service, or the likelihood of the risks, costs and conditions negatively impacting the consumer.”
The legislation also would prohibit the bureau from applying its UDAAP authority to matters involving “discrimination.” In September, the Eastern District Court of Texas ruled the bureau could not expand the definition of “unfairness” to include discrimination, reasoning that Congress provided language sufficiently outlining the bureau’s authority to supervise entities for discriminatory actions.
Additionally, the bill would make it so the CFPB could “not seek monetary relief if the covered person has established by a preponderance of evidence that they made a good-faith effort to comply. However, this limitation does not restrict the authority of the CFPB to seek legal or equitable remedies, such as damages or restitution, to redress consumer injury caused by abusive acts or practices.”
Consumer Bankers Association (CBA) President and CEO Lindsey Johnson issued the following statement in support of the legislation:
“It is imperative that Congress better define the bureau’s UDAAP authority to ensure it acts within its statutory boundaries. If history is any guide, even the most well-intentioned rules without clear expectations can lead to unintended consequences when applied to the marketplace. Thank you to Rep. Barr for introducing this important legislation which would ensure the bureau operates beyond reproach while also providing the industry with the clarity needed to comply with current and future regulatory requirements.”
Independent Community Bankers of America (ICBA) President and CEO Rebeca Romero Rainey expressed support for the bill in a letter on behalf of the more than 5,000 community banks her organization represents.
“As you have recognized, the bureau has exceeded its statutory authority under UDAAP and thereby threatened continued access to the products and services on which American consumers depend,” Romero Rainey wrote. “The bureau must act with accountability and respect for the limits of its statutory authority. Your bill would promote such accountability by requiring clear descriptions of acts or practices that are ‘abusive‘; establishing policies and procedures for the imposition of civil penalties, including mitigating factors; mandating cost-benefit analysis of any final rule under UDAAP; and clarifying that the bureau may not interpret its authority under UDAAP to include discriminatory practices, among other requirements.”
American Bankers Association (ABA) President and CEO Rob Nichols said Barr’s bill “would more clearly define what the bureau can and cannot do and would rein in the bureau’s overly aggressive stance on ‘abusive’ acts or practices by requiring it to prove intentional misconduct.” He also asserted that discriminatory practices “are already governed by our nation’s anti-discrimination laws.”
Credit union advocates also have noted their support for Barr’s bill in a joint statement by leaders of the Credit Union National Association (CUNA) and the National Association of Federally-Insured Credit Unions (NAFCU).
“The CFPB has attempted to exert its power well beyond what Congress ever intended, most strikingly with its UDAAP authority,” CUNA President and CEO Jim Nussle and NAFCU President and CEO Dan Berger said. “We applaud Rep. Barr’s efforts to rein in the CFBP’s abuse of this authority to help credit unions continue to advance communities and support the financial well-being of American families.”