CFPB releases policy statement offering UDAAP guidance
The Consumer Financial Protection Bureau (CFPB or bureau) released a policy statement outlining the elements of abusive acts or practices and offered a framework that may help credit unions identify practices that may fall under the scope of “abusive.” The CFPB outlines what it considers the two abusive prohibitions. The second of the two has “three independent disjunctive grounds for finding abusiveness.” First, an abusive act or practice is one that “[m]aterially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service.” The next is a practice or act that 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; [t]he inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or [t]he reasonable reliance by the consumer on a covered person to act in the interests of the consumer.
What does this look like at a high level or in practice? The CFPB suggests that, at a high level, it is a financial institution “obscuring important features of a product or service, or…leveraging certain circumstances to take an unreasonable advantage.” In practice, the CFPB maintains it is when there is a gap in the consumer’s understanding, unequal bargaining power between the parties, and the consumer relies on an institution to help or make a decision for the consumer. One thing to note is that the CFPB may also still consider an act or practice both deceptive or unfair as well as abusive.
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