Fast forward to 2016 when UDAAP enforcement slowed significantly during President Donald Trump’s administration. In January 2020, the CFPB released the Statement of Policy regarding Prohibition on Abusive Acts or Practices, which served as a framework for the bureau’s authority to exercise supervisory and enforcement power over acts or practices deemed “abusive.”
This statement outlines three guiding principles the bureau intended to apply to its supervision and enforcement:
The purpose of this 2020 statement was to provide much-needed clarity the Director Richard Cordray-era CFPB lacked by implying a meaning of “abusive” through an onslaught of enforcement actions rather than defining it with a rulemaking or guidance.
This left us reading the tea leaves, trying to discern the meaning of the standard. It also implied a shift toward less UDAAP enforcement in general, although that may not be the case for much longer.
In March 2021, the CFPB issued a new policy statement rescinding the 2020 Trump-era policy statement that sought to define an “abusive” act or practice.
That’s because the bureau believes the statement is inconsistent with the definition of abusive acts or practices in the Dodd-Frank Act, and it would limit the bureau’s ability to issue enforcement actions based on the abusive prong.
Where does that leave us now? And what does this mean for credit unions? Only time will tell.
It seems that the bureau’s decision to rescind the 2020 statement issued under former CFPB Director Kathy Kraninger is a direct pushback on the lighter enforcement that occurred under her leadership.
Additionally, rescinding the statement seems to indicate we could be moving back toward reading the tea leaves to define the abusive standard, and it seems unlikely we will receive a clear definition anytime soon.
This also could be a sign that a significant uptick in enforcement actions is on the horizon.
The best thing credit unions can do is continue to comply with what we know about UDAAP while watching the bureau’s enforcement actions and supervisory statements for tidbits of insight.
WHITNEY NICHOLAS is senior federal compliance counsel for Credit Union National Association. Contact the CUNA compliance team at firstname.lastname@example.org.
CUNA strongly encourages lawmakers and regulators to consider the impact proposed policies will have on credit unions’ ability to serve their members.
Regarding Unfair, Deceptive, or Abusive Acts or Practices (UDAAP), CUNA finds it troubling that the Consumer Financial Protection Bureau (CFPB) has proposed policies that conflict directly with feedback from NCUA, which examines credit unions for safety and soundness.
To provide more clarity and consistency for credit unions regarding UDAAP, CUNA says CFPB should:
Issue a request for information on whether to eliminate or clarify the overly subjective “abusive” prong of UDAAP and seek feedback on whether to change other aspects of its UDAAP authority.
Consumers and credit unions need more certainty about exactly what the rules and requirements are and how the bureau plans to engage in enforcement actions surrounding them.
Issue a bulletin clarifying that previous enforcement actions or consent orders that conflict with statutory or judicial precedent create no new expectations for compliance. This would provide more transparency and due process to credit unions and consumers.
This is particularly important for actions CFPB has taken that conflict with NCUA precedent.
Clarify its limited role in regulating the business of insurance. The bureau’s authority is shaped by the “enumerated consumer laws,” but its past enforcement actions have stepped over the line and relied on its UDAAP authority for its justification.
Clarify and reaffirm its narrow authority under the Dodd-Frank Act in regulating the business of insurance—particularly as it applies to credit unions and banks selling insurance—and that UDAAP is not a back door to regulate insurance activities.