CFPB Expands Scope and Enforcement of UDAAP

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ESTEE Compliance LLC

3 minutes

The regulator will now scrutinize the two kinds of discrimination complaints more closely.

The Consumer Financial Protection Bureau has published revised examination guidance and a compliance bulletin that expand the scope of unfair, deceptive or abusive acts or practices. This expansion will result in greater scrutiny and increased enforcement actions for entities regulated by CFPB. The likelihood that other regulators will follow suit increases the compliance risk for credit unions.

The guidance, released on March 16, includes discrimination as an unfair practice, even when the claim does not involve a credit product or an underlying anti-discrimination law. Under it, the description regarding two of the three elements in the definition of “unfair” were amended to include discrimination as follows:

  1. The act or practice must cause or be likely to cause substantial injury to consumers. Substantial injury, such as monetary and/or emotional harm, may be caused by discriminatory behavior.
  2. Consumers may not reasonably be able to avoid the injury. Consumers cannot reasonably avoid discrimination or the harms associated with it.

“Discrimination” is not defined in the guidance but includes anti-discrimination law “such as the ECOA” (the Equal Credit Opportunity Act, implemented by Regulation B). Because the guidance does not specify which protected classes are covered, it would be wise for credit unions to adhere to the groups included under both Regulation B §1002.1(b) and the Fair Housing Act.

On March 28, CFPB published a bulletin to remind its regulated entities that the Consumer Review Fairness Act of 2016 prohibits unfair, deceptive or abusive acts or practices in connection with transactions with consumers for financial products or services. The bulletin outlines how financial institutions can violate CRFA by interfering with consumer reviews.

CFPB notes it would be considered deceptive to include any contractual provision that would restrict consumers from writing negative reviews, pressuring consumers to remove such reviews, or assessing a penalty or fee for failure to remove a negative review—regardless of whether the contractual provision is actually enforced. CFPB believes such restrictions would deprive other consumers of material information they may rely on to make purchase decisions from a financial institution.

Deceptive behavior also includes deleting negative reviews, failing to publish negative reviews, instructing employees to dislike negative reviews and instructing employees to manufacture positive ones.

CFPB will now scrutinize both complaints for discrimination claims more closely to determine whether discrimination with regard to any product or service is alleged. Reviews will also be scrutinized, not only to determine whether discrimination claims are made, but also to ensure reviews are permitted and relate to actual credit union members and member transactions.

It would not be a stretch to predict that other regulators, such as the National Credit Union Administration, as well as many state credit union regulators, will follow this CFPB examination guidance. In addition to amended policies and procedures, compliance risk assessments and training modules to address this expansion of UDAAP, credit unions will need to respond to the increased compliance risk by ensuring reviews and complaints are regularly reviewed and issues related to the expanded UDAAP are immediately addressed.

Veronica Madsen is CEO of ESTEE Compliance, LLC in the Detroit area. Please note: The information and opinions provided here are not intended to be legal advice. No attorney-client relationship is formed, nor should any such relationship be implied. Nothing in this content intended to substitute for the advice of an attorney licensed in your jurisdiction.

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