This week’s question addresses what the heck that second A in UDAAP stands for.
Q: What does Abusive mean in UDAAP?
My initial reaction to that is that it’s a catch-all. If the CFPB doesn’t like what you’re doing, and it doesn’t really fit into the deceptive, or the unfair, abusive is it.
The actual statutory language of that is:
“Abusive is an act that materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service, or it takes an 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, or the reasonable alliance by the consumer on a covered person to act in the interest of the consumer. “
Now, that is definitely longer than the deceptive and unfair definition. And the reason for that is because it’s intended to be very broad, intended to catch anything else that would otherwise fall between the cracks of the deceptive and unfair. But the CFPB still believes it to be wrong somehow. There’s been a lot of CFPB guidance on what can be considered a UDAAP, and what you can do to prevent UDAAPs. Most of it focuses on, you know, you wanna do a risk assessment to identify them in your particular business and how you’re conducting your business. You know, it goes to the same kind of processes that we talked about for your compliance program, is you identify what the risks are and your responsibilities, and you go through that cyclical process like we talked about before.
There’s been a recent case and guidance from the CFPB about when consumer financial companies are charging pay-by-phone or have pay-by-phone options to when a consumer pays by phone and they’re charged a fee for that. CFPB has listed off just a laundry list of different things that can get you in trouble for doing that. So those kinds of things, again, that goes back to when you see some of this guidance come out, it’s more than to say, “Wow, that is new,” or “That doesn’t feel right,” or “That makes sense.” Take that opportunity to go back and look at your compliance program, and make sure that the new issue fits in within it, and that you would catch that issue.