Abusive Acts or Practices
In this Compliance Clip (video), Adam discusses the definition of “abusive” in UDAAP. This short training is actually based on a section of our UDAAP Foundations program which discusses everything related to UDAAP - including a discussion on over 50 known UDAAP violations. For those interested in more on UDAAP beyond this short clip on “abusive” acts and practices, be sure to check out our UDAAP Foundations program here.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about abusive acts or practices. Specifically, the question we want to answer today is “What is an abusive act or practice?”
Abusive acts or practices come from UDAAP. Prior to the Dodd-Frank Act, we just had UDAP, which was Unfair and Deceptive Acts or Practices. Of course, “abusive” is the newest piece of that. And so the answer to our question really comes from the Dodd-Frank Act, but we're going to explain this as it is explained in the CFPB’s Examination Procedures.
Unlike unfair and deceptive, that the Federal Trade Commission has defined a three-pronged test for each unfair and deceptive, abusive act or practice isn't as clearly defined. So let's take a look at the Exam Procedures, or really what the Dodd-Frank Act, tells us what an abusive act or practice is.
The abusive act or practice is potentially a number of things. First of all, it must materially interfere with the ability of a consumer to understand a term or condition of a financial product or service. If that occurs, that would potentially be considered abusive. It would also need to take unreasonable advantage of the consumer's lack of understanding regarding material risks, costs, or conditions. It would take unreasonable advantage of the inability of a consumer to protect their own interests. And it would take unreasonable advantage of a reasonable reliance by the consumer for a covered person to act in the consumer's best interest. This is the guidance we're given on abusive acts or practices. Now, obviously this isn't very clear to know where to look to find abusive acts or practices, or even to know if an act or practice that we have in front of us is, in fact, abusive.
What the CFPB recently did is actually released guidance on how they were going to enforce abusive acts and practices. Basically, what they said is when something is clearly unfair or something is clearly deceptive under the other tests of UDAAP, they're not also going to tag on abusive, unless it's very, very obvious it's an abusive behavior. So, this is the guidance we have to go on.
Of course, one of the biggest challenges as I just said is to identify which acts or practices could be potentially abusive. That's very difficult to do based on this guidance. We believe the easiest way to do that is to look at a list of known violations where the CFPB has said, this actor practice is abusive. Really, that's the best way to identify an unfair or deceptive act or practice as well. So we're talking really about all of UDAAP, but that's the best way to do it.
If you're looking for a resource that does just that, we actually have a program in our store at www.compliancecohort.com/store, and this is called UDAAP Foundations. The first part of our program talks about unfair, it talks about deceptive, and it talks about abusive acts or practices. It talks about complaint management and everything you need to know in regards to UDAAP. But the second portion of the program is pretty exciting because we go over a list of over 50 known UDAAP violations. These are both unfair, deceptive, as well as a couple of abusive acts or practices that the CFPB has included. So we go over quite a few different examples. So if you're looking to enhance your UDAAO program or really mitigate your risk against unfair, deceptive, or abusive acts and practices, take a look at our UDAAP Foundations training program in our store at www.compliancecohort.com.
That's all I have for you today in this Compliance Clip. I hope you found it beneficial.
