Avoid compliance uncertainty with guidance and best practices
On January 24, 2020, the Consumer Financial Protection Bureau issued a new policy statement designed to clarify how it will define, supervise and enforce “abusive” standards under the Dodd-Frank Act going forward.
When Dodd-Frank was passed into law on July 21, 2010, it prohibited any covered person or service provider from engaging in any unfair, deceptive or abusive act or practice (UDAAP) in connection with the provision of consumer financial products or services. According to the original standard, “an act or practice is considered ‘abusive’ if it materially interferes with the consumer’s ability to understand a term or condition of a consumer financial product or service, or takes unreasonable advantage of a consumer’s (1) lack of understanding of the material risks, costs or conditions of the product or service; (2) inability to protect his or her interests in selecting or using a consumer financial product or service; or (3) reasonable reliance on a covered person to act in his or her interest.”
However, nearly a decade later there remains uncertainty regarding the meaning and scope of the term abusiveness.
The new policy statement provides the following points of clarification to guide financial institutions regarding how the Bureau intends to apply abusiveness during supervision and enforcement, in order to promote compliance certainty and ensure that supervisory and enforcement decisions are consistent:
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