In case you missed the CFPB announcements, the Bureau released two Policy Statements earlier this year. One statement addressed the prohibition on Abusive acts or practices and another notice described a new designation for some Bureau guidance, known as “Compliance Aids,” used to explain the legal status and role of guidance with that designation.
Compliance Aid Announcement
The “compliance aid” policy statement was released on February 1, 2020. It takes previously issued “guidance” documents, such as small entity compliance guides, instructional guides for disclosure forms, executive summaries, summaries of regulation changes, factsheets, flow charts, compliance checklists, frequently asked questions, and summary tables and designates them as “compliance aids.”
Similar to recent issuances by the other agencies, the statement simply states these compliance aids are not rules, regulations or statutes and do not carry the force of law but are meant to distill the regulatory requirements into understandable pieces and provide practical suggestions for complying with the rules, regulations and statutes.
The Bureau quickly points out these aids may not address all situations, there can be multiple methods to comply and Bank’s must make a business decision about which method to use. In the Bureau’s words, “regulated entities are not required to comply with the Compliance Aids themselves. Regulated entities are only required to comply with the underlying rules and statutes and when exercising its enforcement and supervisory discretion, the Bureau does not intend to sanction, or ask a court to sanction, entities that reasonably rely on Compliance Aids.”
“Abusive” Treatment Announcement
The second policy statement was a Statement of Policy Regarding Prohibition on Abusive Acts or Practices. Dodd-Frank added “abusive” as a second “A” to the term UDAP – Unfair or Deceptive Acts or Practices.
The scope of abusiveness is uncertain and the Bureau is attempting to clarify how abusiveness will be approached. The policy statement went into effect in January.
Dodd-Frank section 1031(d) describes, in general terms, that an act or practice is abusive if it (1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (2) takes unreasonable advantage of— (A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.
In alleging an act or practice as abusive in violation of the Dodd-Frank Act, the Bureau intends to apply the following principles:
- consistent with the prevention of harm, focus on citing conduct as abusive in supervision or challenging conduct as abusive in enforcement if the Bureau concludes that the harm to consumers from the conduct outweighs its benefits to consumers;
- will generally avoid citing conduct as abusive that relies on all or nearly all of the same facts that the Bureau alleges are unfair or deceptive and when including an alleged abusiveness violation, will structure said claims in a manner designed to clearly demonstrate the intersection between the cited facts and legal analysis of the claim. In its supervision activity, the Bureau similarly intends to provide more clarity as to the specific factual basis for determining that a covered person has violated the abusiveness standard; and
- does not intend to seek certain types of monetary relief for abusiveness violations where the covered person was making a good-faith effort to comply with the abusiveness standard.
The “good-faith effort” standard invoked reactions both pro and con. In its efforts to assuage these responses, the Bureau added that whether or not a covered person made a good-faith effort to comply with the abusiveness standard, 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 Bureau emphasizes that it is committed to aggressively pursuing the full range of monetary remedies against bad actors 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’s seeking such relief will prevent and deter the continuation or recurrence of such abusive acts or practices and nothing in these principles affect whether and how the Bureau will proceed in taking supervisory or enforcement action to address violations of any other provision of the Dodd-Frank Act (including its prohibition of unfair or deceptive acts or practices), or any of the other statutes, rules, or orders that the Bureau enforces.
UDAAP, with or without the extra “A” can be a complicated area, and TCA is A Better Way to help you recognize and comply with the requirements. Contact us at 800-934-7347 or by email at [email protected].