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The CFPB’s New Guidance on UDAAP Abusive Standard and How To Best Comply

Learn how to make a good-faith effort to comply with the CFPB’s new abusiveness policy in order to avoid enforcement actions.

The CFPB recently announced a new policy regarding the prohibition on abusive acts or practices which outlines a common-sense framework on how the Bureau intends to apply the “abusiveness” standard in supervision and enforcement matters. As part of the Dodd-Frank Act, its purpose is to further clarify the scope and meaning of “abusiveness” in UDAAP. This new policy is important for organizations to be aware of as it sheds insight on how to best comply in order to avoid enforcement actions and costly penalties.

Summary of New Policy Regarding Prohibition on Abusive Acts or Practices 

This new policy consists of three main aspects of how the Bureau intends to approach its use of the abusiveness standard in its supervision and enforcement matters going forward.

Prevention of Consumer Harm from Abusive Acts or Practices

It is the Bureau’s mandate to protect consumers from harm in the financial services marketplace. Therefore, under this new policy, the Bureau will focus on citing or challenging conduct as abusive in supervision and enforcement matters only when the harm to consumers outweighs the benefit (including its effects on access to credit). 

By focusing their efforts on acts or practices that significantly harm the consumer, the Bureau will ensure that it is using resources only when necessary while creating consistency for their supervisory and enforcement going forward.

 

Articulating Acts or Practices that Violate the Abusiveness Standard

In order to further clarify what conduct is considered “abusive,” the Bureau will generally avoid "dual pleading" of abusiveness and unfairness or deception violations arising from all or nearly all the same facts. Meaning, the Bureau will not allege abusiveness on a violation that relies on all or almost all of the same facts as unfairness or deception. The Bureau will focus on "stand-alone" abusiveness violations (i.e., violations that are not accompanied by related unfairness or deception violations) that demonstrate clearly the nexus between cited facts and the Bureau’s legal analysis.

This practice will provide more clarity around what types of acts or practices are considered “abusive” and will create case law for determining if a company has violated the abusiveness standard. Additionally, the Bureau will include these use cases and further clarity in future editions of their Supervisory Highlights.

 

Limits on Monetary Relief in Abusiveness Enforcement Actions

The last piece of this new policy states that the Bureau will only seek monetary relief for abusiveness when there has been a lack of good-faith effort to comply with the law. Meaning, if a company had good-faith intentions but mistakenly misinterpreted the law (within reasonable measures), that company will not receive a monetary fine from the Bureau. However, the Bureau will continue to seek restitution for injured consumers regardless of whether a company acted in good faith or bad faith. 

The Bureau will continue to aggressively pursue the full-range of monetary remedies against those who are not acting in good faith, such as those who engage in fraudulent practices or consumer scams.

Learn the risk signals from consumer complaints that could put your company on high alert


How To Make A Good-Faith Effort to Avoid Enforcement Actions 

The Bureau will consider all relevant factors when determining if a company made a good-faith effort, including the considerations outlines in its Responsible Business Conduct bulletin. 

According to the CFPB's guidelines on Responsible Business Conduct, there are four activities that businesses should conduct:

Self-monitoring

Self-monitoring refers to a business’s proactive commitment to early detection and prevention of violations. As part of self-monitoring efforts, businesses should keep detailed records that clearly show their efforts in adhering to the latest CFPB rules and regulations. 

Self-reporting

Should a violation or potential violation occur, businesses should immediately report it to the CFPB. Through self-reporting, businesses can provide concrete evidence of their commitment to compliance with consumer financial laws. Self-reporting also shows a willingness to "do right" for the consumer.

Remediation

If a business does violate a regulation, the business is expected to resolve the issue in a timely and effective manner. This response should include holding accountable the individuals who are responsible for the misconduct. Additional remediation actions include providing redress to harmed consumers and preventing the violation from reoccurring.

Cooperation 

In the event that a violation or multiple violations occur, businesses need to demonstrate cooperation with the CFPB. They must review the violations and provide the CFPB with the results in a timely fashion. A willingness to cooperate shows that the business is committed to remediating the situation for the betterment of consumers now and in the future.

Download the 4 Must-Do’s To Meet the CFPB Code of Conduct Checklist to evaluate if your organization is acting in good faith according to guidelines.

PerformLine Can Help

The PerformLine platform, an automated marketing compliance monitoring platform, can be used to help your business mitigate risk. PerformLine makes it easy for any business to:

 

Self-monitor: PerformLine monitors for and detects potential marketing compliance violations on the web, in calls from your contact center, in messaging, emails and social media.

Self-report: PerformLine provides reports on all potential marketing compliance violations

Remediate: PerformLine centralizes tracking and documentation of all compliance and remediation activity

Cooperate: PerformLine provides a complete history of discovery through remediation for Proof You Can Use™ in any audit situation

 

If you want to learn more about how PerformLine can help you ensure your organization is making a good-faith effort to comply with the law, our experts are ready to help.

 

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John Zanzarella, VP of Sales

John's career spans sales, marketing, operations, and entrepreneurship. John's current focus is helping scale the sales organization during a period of tremendous growth while being an individual contributor and informing leadership on current and future initiatives. Outside of PerformLine, John enjoys traveling, exercise, eating (often) and spending time with his wife.

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