CBA Voices Support For Legislation That Would Bring Needed Reform To The CFPB

WASHINGTON, D.C. – The Consumer Bankers Association (CBA) in a letter today voiced its support for the Rectifying UDAAP Act, which would better define the Consumer Financial Protection Bureau’s (CFPB) unfair, deceptive, and abusive acts or practices (UDAAP) authority. The legislation was introduced this week by House Financial Services Committee Financial Institutions and Monetary Policy Subcommittee Chair Andy Barr (R-Ky.).

CBA President and CEO Lindsey Johnson issued the following statement in support of the legislation:

“It is imperative that Congress better define the Bureau’s UDAAP authority to ensure it acts within its statutory boundaries. If history is any guide, even the most well-intentioned rules without clear expectations can lead to unintended consequences when applied to the marketplace. Thank you to Rep. Barr for introducing this important legislation which would ensure the Bureau operates beyond reproach while also providing industry with the clarity needed to comply with current and future regulatory requirements.”

CBA has long called for legislation to provide clarity on the Bureau’s UDAAP authority to ensure it is acting within its statutory bounds. As the letter states:

“By granting new and undefined UDAAP authority to the Bureau, the Dodd-Frank Act created an anomaly within the existing and well-documented regulatory regime. Many depository institutions are now supervised by the CFPB for UDAAP violations and by their prudential regulator for UDAP violations, resulting in an overlapping and often confusing supervisory regime. Beyond that, Congress did not provide clarity as to why the additional “abusive” prong was created, and it was not adequately defined when these powers were granted to the Bureau. This has placed all companies that the Bureau regulates at risk of inadvertent noncompliance because it is still unclear how or when the “abusive” standard will be applied or how it is different from unfair or deceptive.”

The undefined nature of the Bureau’s UDAAP authority has empowered it to act outside of its statutory bounds as seen in the unilateral and illegal update to its UDAAP exam manual in March 2022.  As CBA outlines in the letter:

“The CFPB’s action created significant uncertainty in the financial services marketplace to the detriment of consumers and banks alike, and it raised profound substantive and procedural legal concerns.”

In response to the Bureau’s unilateral and illegal actions regarding the UDAAP exam manual, CBA and other leading groups filed a lawsuit challenging the update. The U.S. District Court for the Eastern District of Texas ultimately ruled in CBA’s favor and deemed the CFPB’s UDAAP manual update to be unconstitutional and an overstep of the Bureau’s authority.

In the letter, CBA concludes by calling on Congress to enact due process protections under UDAAP consistent with those adopted by the CFPB in 2020, which were subsequently reversed by the current CFPB Director. These include:

• Ensuring the CFPB cannot retroactively seek a civil money penalty for a practice that was not previously identified as being prohibited under UDAAP;
• Requiring the Bureau to conduct a rulemaking to clearly define “abusive act or practice”;
• Not conflating the statutorily defined concepts of “abusive,” “unfair,” and “deceptive” with one another;
• Providing institutions that self-report UDAAP issues with an opportunity to cure violations;
• Reiterating that discrimination is not part of UDAAP;
• Seeking monetary penalties only when there has been a lack of good faith effort to comply with the law (not to impede the Bureau’s ability to seek restitution for consumers who were harmed); and
• Not challenging conduct as abusive when the benefits to consumers outweigh the alleged harms.

To read the full letter to Rep. Barr, click HERE.

CBA Advocacy

• To read CBA’s statement on the U.S. District Court for the Eastern District of Texas’ ruling, click HERE.
• In February and March 2023, CBA President and CEO Lindsey Johnson authored op-eds calling for CFPB oversight and reform, particularly as it relates to the Bureau’s UDAAP authority. You can read the op-ed in American Banker HERE and RealClear Markets HERE.
• In September 2022, CBA and other trade associations filed a lawsuit challenging the CFPB’s changes to the UDAAP Exam Manual on several grounds, including the agency’s lack of statutory authority and failure to follow appropriate policymaking procedure. You can read the lawsuit HERE.
• In June 2022, after CFPB attempted to extend its UDAAP authority without legislative authority, CBA and other trade associations authored a white paper calling on the Bureau to rescind its decision. You can read the white paper HERE