I was an “I can argue that” kind of kid in grade school. Oftentimes, when filling out a multiple choice test, I would actually write that line next to a question I thought was ambiguous. Of course, none of my teachers were ever impressed by this, nor did they ever jump at the chance to hear any of my well-crafted arguments. This, of course seems like a shame, mostly because I really did want to argue. The actual quality of my argument may have been questionable, but since I never got the chance, I will never really know.
It’s all in the definition when it comes to UDAAP
This feels a bit like the CFPB’s enforcement of UDAAP, especially in reference to the word “abusive.” UDAAP stands for Unfair, Deceptive, or Abusive Acts and Practices (UDAAP). The first two terms, while broadly defined, at least have precedence. As for “abusive,” no prior precedence exists, so it easily falls into the “I can argue that” bucket. It’s all in the definition, or lack thereof, when it comes to UDAAP.
Why is definition of “abusive” important?
UDAAP violations are crazy expensive, including civil penalties up to $1 million a day. No one wants to find themselves in a situation where they are trying to argue their way out of one these penalties, and the likeliness of succeeding is slightly higher than the arguments I never got to use in grade school. Knowing how to avoid one of these penalties, when the definitions are broad and vague, and sometimes nonexistent, might be akin to a pointless task.
What constitutes an abusive act claim?
This is the current set of circumstances where the CFPB can claim an abusive act:
Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service, or
Takes unreasonable advantage of:
– a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service
– the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service
– the reasonable reliance by the consumer on a covered person to act in the interests of the consumer
These circumstances seem fairly vague, and to be honest, maybe that is the point. There is a bit of “let’s throw a bunch of stuff at the wall and see what sticks,” stated here. And herein lies the problem with the abusive standard.
So, how can you protect your organization?
Here are some thoughts:
- Due diligence with your policies and procedures would be a good starting place.
- When was the last time you looked at your policies?
- When was the last time you trained your affected employees?
- Do you audit deals to make sure they are in line with policies?
- What kind of remediation steps do you take if there are errant practices under the UDAAP standard?
Having refinanced my house recently I can think of a dozen places where I signed my name and thought to myself, “I should probably ask for clarification here,” and didn’t. Does this indicate that the practices of my lender took unreasonable advantage of me? No, of course not, and for that matter, what constitutes unreasonable? But to be fair, my understanding or lack thereof, does not truly indicate whether or not it’s unreasonable.
I would venture a guess that arguing claims is exactly how the CFPB will whittle down the definition for “abusive” and create precedence. Truth be told, I could probably argue that.