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In response to the CFPB’s policy statement on how it defines “abusive” under its unfair, deceptive, or abusive acts or practices (UDAAP) authority, NAFCU Senior Regulatory Affairs Counsel James Akin reiterated the association’s call for the bureau to provide more clarity through an official rulemaking process.

In a letter to the bureau, Akin noted the abusiveness prong of UDAAP has been a source of uncertainty since the passage of the Dodd-Frank Act and financial institutions have experienced a significant increase in regulatory burden related to UDAAP. Without legal guidance to address abusive conduct, Akin said it has created compliance challenges and may impede consumer’s use of beneficial financial products.

While the new policy statement “is helpful in providing a clearer framework for credit unions to understand the type of conduct that might qualify as abusive, [it] lacks the nuanced approach to abusiveness found in the 2020 Policy Statement,” which was rescinded in 2021.

“The policy statement appears to place the burden solely on financial institutions without adequately considering consumer responsibility,” Akin argued, recommending the bureau institute a “reasonable person” standard in evaluating a consumer’s lack of understanding in instances where the bureau alleges an abusiveness violation based on an entity taking unreasonable advantage of a consumer’s lack of understanding.

NAFCU also recommended the bureau:

• 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; and
• engage in rulemaking to ultimately define the abusiveness prong and establish clear rules of the road.

Since Congress granted the CFPB authority to enforce UDAAP under the Dodd-Frank Act, there have been several efforts to detail how the bureau enforces it, varying under each director. Last year, the bureau announced it would heighten its UDAAP scrutiny.

NAFCU will continue to work with the bureau on the issue and provide credit unions with updated resources to support compliance.