The CFPB’s growing reliance on its vague Unfair, Deceptive and Abusive Acts or Practices authority continues to cause concern in the credit and collection industry as the CFPB considers proposed rules for debt collection.
Enforcement of Unfair, Deceptive and Abusive Acts or Practices in the credit and collection industry is on the rise, and the Consumer Financial Protection Bureau is increasing its focus on this broad and vague enforcement mechanism.
In fact, of the more than 40 enforcement matters that the CFPB has made public so far, half have alleged violations of the UDAAP provision of the Dodd-Frank Act, according to a November 2015 ACA seminar on UDAAP and the data available at that time. These actions resulted in restitution to consumers totaling more than $1.7 billion, as well as civil money penalties totaling more than $142 billion.
Since 2013, the CFPB has published two bulletins on UDAAP that provide statutory definitions, non-exhaustive examples of UDAAPs and remind entities that are not subject to the Fair Debt Collection Practices Act, such as first party collectors, that they are nevertheless subject to the CFPB’s UDAAP authority.
Based on the bulletins, some examples of UDAAP violations include:
- Collecting or assessing a debt and/or any additional amount in connection with debt not expressly authorized by the agreement creating the debt or permitted by law.
- Failing to post payments timely or properly credit a consumer’s account.
- Revealing the consumer’s debt to a third party, without the consumer’s consent.
However, the contours of what actually constitutes a UDAAP remain largely unknown. Because the UDAAP language is so broad and vague, the CFPB is able – and has shown it is willing – to use its UDAAP authority to challenge conduct it merely finds troubling, even if not in violation of any express legal requirement.
As a result, a company must do its best to decipher how to avoid violations by examining the applicable standards for UDAAPs found in the Dodd-Frank Act, evaluating limited CFPB UDAAP guidance and analyzing the ever-growing number of enforcement actions in which UDAAP violations are the centerpiece. This lack of clarity creates an emormous amount of angst among CFPB-regulated entities who have no assurance that they themselves might one day be the subject of a very public and hugely expensive enforcement action for activity that unbeknownst to them has been deemed a UDAAP by the CFPB.
And given that the CFPB has nearly doubled its enforcement cases from 2014 to 2015, including within the debt collection industry, according to a report by The Wall Street Journal, entities seem to be well-justified in their growing unease.
Adding to this concern, penalties for a UDAAP violation can be severe, up to $1 million per day for a knowing violation. Further, because there is also no safe harbor for UDAAP violations, collectors are left to defend themselves by pointing to what they did to try to avoid the UDAAP in the first place.
In 2013, UDAAPs were addressed in the CFPB’s Advanced Notice of Proposed Rulemaking for the debt collection industry , and are expected to be part of the debt collection proposed rule where hopefully more clarity will be provided. As ACA International previously reported, the CFPB updated its regulatory agenda in November and announced that it expects pre-rule activities for debt collection to last through February 2016, though timing for release of an actual proposed rule is not known.
Collection agencies may consider implementing their own policies and procedures to avoid UDAAP violations. For more information on the CFPB and UDAAP, ACA members may consult ACA’s SearchPoint webpage and click on the UDAAP tab. As a reminder, ACA members must be logged on to the website to access ACA SearchPoint documents.