By Chris Bruce
The Consumer Financial Protection Bureau could find its enforcement powers crippled under a Republican proposal to curb the bureau’s power to attack unfair, deceptive or abusive acts or practices.
The CFPB would lose its authority to target behavior deemed unfair, deceptive or abusive — a catch-all legal tool used in more than two-thirds of all CFPB enforcement actions — under a memo circulated last month among House Republicans. The proposed addition to legislation overhauling the Dodd-Frank Act goes further than the bill approved by the committee last year, which would have only stripped the bureau’s authority over abusive acts or practices.
The House Financial Services Committee did not respond to a request for comment on which approach Chairman Jeb Hensarling (R-Texas) may take in the newest version of the bill expected to be released in coming weeks, nor did the CFPB respond to a request for comment on its potential impact.
Lawyers and consumer protection advocates said that stripping the CFPB of its power to attack abusive practices would limit the agency’s assault on illegal practices while a broad repeal of power to bring so-called UDAAP cases would make the agency a shadow of its former self.
“That would have a very dramatic impact, particularly in the enforcement area, where many of the agency’s actions have relied on UDAAP authority,” said Quyen T. Truong, a partner in the Washington offices of Stroock & Stroock & Lavan and a former CFPB assistant director and deputy general counsel.
The power to attack unfairness and deception gives consumer protection regulators sweeping power to punish actions or practices that may be difficult or impossible to address through specific statutes.
As helpful as that may be for consumers, UDAAP authority, especially as applied by the CFPB, has been a major flashpoint since Congress created the agency in 2010.
Joann Needleman, who represents financial services providers, said it’s not always clear what’s “unfair,” “deceptive,” or “abusive.” Needleman, a member of Clark Hill in Philadelphia who leads the firm’s consumer financial services regulatory and compliance group, said clear definitions are needed, calling UDAAP “too subjective.”
“With each consent order, the CFPB varies in their definition of UDAAP and that variation occurs from industry to industry and market to market,” she said.
The CFPB has relied on its UDAAP authority far more than other regulators since its first public enforcement action in July 2012 against Capital One Bank N.A.
UDAAP claims to date have figured in 122 various CFPB complaints, consent orders, judgments and other actions, according to Bloomberg Law data on CFPB enforcement. That’s more than two-thirds of the CFPB’s 180 enforcement actions brought so far.
In contrast, the Federal Trade Commission, which doesn’t have authority to address abusive practices, used its “UDAP” authority in 10 actions during roughly the same period.
Meanwhile, the Office of the Comptroller of the Currency took UDAP action in 13 cases, while the Federal Deposit Insurance Corporation brought three cases, followed by the Federal Reserve, which brought two.
Even those numbers don’t tell the whole story, because some actions by the FTC or the prudential bank regulators were brought in partnership with the CFPB, such as the 2012 action against Capital One.
In addition, the raw numbers only represent publicly announced actions. They don’t account for active UDAAP allegations that aren’t yet public, such as CFPB allegations in court cases that are sealed and shielded from public scrutiny.
Nor do they reflect the wider impact that UDAAP has for supervision and compliance. Examiners look for compliance with specific statutory and regulatory requirements, as well as whether a company’s conduct raises UDAAP questions, according to Truong.
That matters even outside the active enforcement context, she said. “That can be cited in a supervisory exam and require corrective action,” Truong said.
Matthew S. Yoon, a partner with Dentons in New York, said a full-blown repeal would take away the CFPB’s primary enforcement mechanism and likely slash the number and kinds of actions brought by the agency.
“It’s hard for the agency to bring large enforcement actions for violations of enumerated statutes, because of the technical nature of those statutes,” Yoon told Bloomberg BNA. “UDAAP gives the CFPB a kind of catch-all `Call it like you see it’ option.”
Enforcement would be most directly affected, but that’s not all. For example, the CFPB is considering an array of proposals that could produce the first-ever regulations to implement the Fair Debt Collection Practices Act. One part of that effort that’s been pushed back for the moment is whether first creditors such as banks should face new obligations.
Any UDAAP changes could affect CFPB efforts to write new FDCPA rules, Needleman said, because the FDCPA itself doesn’t apply to first creditors.
“Therefore, the only way that the CFPB can issue rules for first party debt collection is if they issue rules under UDAAP,” she said. “If there is a change to UDAAP and certainly if the statute is eliminated or curtailed, then the CFPB may be limited in the types of rules it can write for first parties if at all,” she said.
The other course, simply stripping the CFPB’s power to go after abusive practices, would still allow the agency to address unfairness and deception, Truong said.
In its early years the agency didn’t assert claims of abuse, Truong said. The first such action didn’t come until May 2013 when a Florida debt-relief company ended up in the CFPB’s crosshairs.
Needleman also said little change might result, but for a different reason, saying FTC and the CFPB take different approaches to unfairness and deception in general.
Although the FTC has used its authority “very judiciously,” she said, the CFPB “has used its UDAAP authority as a sword; If they can’t find anything, they use UDAAP.”
“Even if you were to take the `abusive’ element out of UDAAP, I don’t think it will make much difference in how the CFPB views these cases,” Needleman said. “It’s just the culture of the Bureau.”
Debbie Goldstein, vice president of the Center for Responsible Lending, had a different take, saying the “abusive” authority allows the CFPB to reach otherwise hard-to-get problems.
“It makes a lot of sense that the CFPB enforces not just existing statutes, but also can take action against schemes that lenders invent that can skirt existing rules,” she said. “The CFPB wouldn’t be able to get at new abuses.”
She cited the agency’s recent $100 million action against Wells Fargo, which alleged abuse in connection with the opening of unauthorized deposit and credit card accounts.
“That’s not something that anyone thought they had to write into a statute, but the CFPB can attack it,” Goldstein told Bloomberg BNA.
For financial institutions, a UDAAP-less CFPB might not be unalloyed good news. States have in many cases chosen to defer to the CFPB on consumer protection matters, but probably will move to fill any enforcement gaps if the CFPB’s powers are scaled back, according to Truong.
That could create a new set of headaches for financial services companies. Many states have their own prohibitions against unfair and deceptive practices, raising the prospect of a different and more scattered enforcement landscape.
“States often impose more demanding standards than federal statutes and regulations,” Truong said. “Any increased activism at the state level can bring more headaches for companies, particularly due to the lack of uniformity among states where they do business.”
--With assistance from Kyle Correa-Brady
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Bloomberg Law's CFPB Enforcement Tracker is available to subscribers at: https://www.bloomberglaw.com/secondary_page/enforcement_tracker_cfpb.
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