Clarify ‘Abusive,' CU Trades Ask CFPB

In April, the CFPB issued a policy statement about how the agency suggested to define “abusive” under its unfair, deceptive or abusive acts or practices (UDAAP) authority.

Comments filed with the CFPB by the July 3 deadline from credit union trade groups, as well as banking and commerce organizations, focused on the bureau providing clarity in this rulemaking process and laid out what exactly the type of conduct might qualify as “abusive.”

One letter, jointly filed by CUNA, American Financial Services Association, Bank Policy Institute, Consumer Bankers Association, Mortgage Bankers Association and the U.S. Chamber of Commerce Center for Capital Markets Competitiveness, challenged the CFPB on its failure to provide clear guidance on this issue.

“Responsible providers already take steps to identify and avoid practices that may be unfair, deceptive or abusive, and federally-regulated financial institutions have extensive compliance management systems specifically to monitor for such conduct,” the letter stated. “By identifying conduct that may be abusive because it is more egregious than conduct that is solely unfair or deceptive, the Bureau will enable institutions to better calibrate compliance systems, change practices, and better protect consumers.”

A letter filed by NAFCU Senior Regulatory Affairs Counsel James Akin argued without legal guidance to address abusive conduct, the CFPB has created compliance challenges.

“Because the Dodd-Frank Act was the first federal law to broadly prohibit abusive acts or practices, there has been little, if any, basis for how to approach and apply the standards,” Akin wrote. “Of particular concern is the absence of a body of jurisprudence addressing the parameters of abusive conduct and the desired legal response to such enforcement actions. The prevailing uncertainty has created challenges for covered persons in complying with UDAAP and may impede the lawful use of financial products or services that are beneficial to consumers.”

According to a summary by CUNA, it and the five other organizations that filed the letter asked the CFPB to clarify the following items:

• Abusive acts or practices are distinct from unfair or deceptive acts or practices. Certain key factors are critical in distinguishing the two.
• Material interference requires different — and more egregious — actions than deceptive acts or practices.
• The statement does not accord with the statutory language or fully account for the bureau’s prior rulemaking or enforcement history in distinguishing between a “reasonable advantage” and an “unreasonable advantage.”

NAFCU’s letter recommended the following:

• Provide clear criteria and guidelines to help financial institutions determine material interference and unreasonable advantage.
• Avoid penalizing financial institutions for acts or practices that are outside of an institution’s control.
• Engage in rulemaking to ultimately define the abusiveness prong and establish clear rules of the road.

READ MORE: The CFPB’s Policy Statement on Abusive Acts or Practices