Panelists at CFPB Symposium Urge Guidance on “Abusive Standard”

The Consumer Financial Protection Bureau (CFPB) held its first symposium earlier this week where it focused on the abusive standard of unfair, deceptive, and abusive acts or practices (UDAAP). Lawyers participating in the event urged the CFPB to clarify the standard, preferring the use of guidance rather than formal rulemaking. 

UDAAP has its origins in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that created the CFPB. Prior to Dodd-Frank, financial institutions were subject to laws regulating unfair or deceptive acts or practices, or simply UDAP, for decades. Over time, the terms unfair and deceptive have become fairly well established.

In Dodd-Frank, Congress added the word “abusive” to UDAP, yet failed to fully define or clarify its meaning. Since its creation in 2010, the CFPB has failed to issue any agency guidance to supplement the brief descriptions of “abusive” in Dodd-Frank. “One of the biggest challenges is identifying what conduct is abusive that is not already deceptive or unfair,” former CFPB Deputy Enforcement Director Ori Lev said in 2015.

Mick Mulvaney, the acting director of the CFPB in 2018, had stated that the federal agency would explore rulemaking to help clarify abusive standards. However, many of the panelists at the symposium said the CFPB was not ready to issue rulemaking, and instead encourage the agency to issue guidance. 

“It would not be a bad start for the Bureau to issue some guidance that explains exactly when they’ll enforce, for example, the prohibition on abusive conduct,” said panelist Eric Mogilnicki, a partner at Covington & Burling LLP. “Think of that as a first draft that we can discuss further in forums like this, experience, and have ripen into a rule after we’re a little further along.”

Lucy Morris, another panelist and a Hudson Cook LLP partner, added, “The enforcement cases to date have not shown how abusiveness is different from unfairness or deception, and they have been inconsistent at times in applying different abuse prongs to similar facts and circumstances … The result is that enforcement can appear arbitrary and results-oriented.”

Although most panelists were in agreement, Nicholas Smyth, who leads Pennsylvania’s newly created consumer financial protection unit, disagreed that the CFPB needed to clarify the abusive standard, claiming that industry and legal concerns were overblown. 

“If you try to do a rule that narrows how abusive would apply to the whole market, it would be outside of what’s permitted under [Dodd-Frank] and I think it could face legal challenge from consumer advocates or state attorneys general,” Smyth said.

Nonetheless, federal regulators often issue guidance or engage in rulemaking to clarify rules or regulations that are unclear or cause unnecessary confusion, and it appears that the CFPB is interested in clarifying abusiveness in some format in the near- to mid-term.