Posted: Nov 14, 2018
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ThePaymentsReview compliance feature occasionally highlights regulatory topics important to credit unions

On October 17, 2018, Acting Director of the Bureau of Consumer Financial Protection (BCFP) (previously the Consumer Financial Protection Bureau - CFPB), Mick Mulvaney, announced at the Mortgage Bankers Association, that the Bureau has set out on an agenda to better define the term “Abusive” in the Unfair, Deceptive, and Abusive Acts or Practices (UDAAP).


The first version of UDAAP, formerly referred to as Section 5 of the Federal Trade Commission (FTC) Act, was introduced in 1938. In 2004, the FTC expanded the section to include deceptive and unfair acts and practices, and UDAP was born. After that, the 2010 Dodd-Frank Wall Street Reform Act introduced the "abusive" statutory standard, changing UDAP to UDAAP, and refocused regulatory attention on this area of compliance. When the law was enacted, it also gave the primary UDAAP rulemaking authority to the CFPB. Now, enforcement of UDAAP for institutions over $10B is done by the CFPB, while institutions under $10B are enforced by FTC, the Attorney General, as well as Federal and State Regulators. The overall intent of UDAAP is to detect and prevent misleading or harmful behaviors by those who offer financial products or services to consumers. 


This new agenda to clarify the standards has caused many questions and struggles as financial institutions try to understand UDAAP. The challenges are due in part to any number of factors, such as:

  • It’s broad in scope 
  • It can intertwine with other consumer protection laws and regulations
  • It's standards and perspectives are not always consistent
  • It's sometimes used in a general sense and can relate to good and fair practices


Since the introduction of the “abusive” standard, financial institutions have had to rely on individual enforcement actions to define what “abusive” means. Mulvaney states “regulation by enforcement is done.” However, the Bureau will continue any investigations and bring any lawsuits on supposed rule violations. In moving forward, Mulvaney said the Bureau, under his leadership, is going in a different direction. “I think ‘unfair’ is fairly well-established in the law, ‘deceptive’ is very well-established in the law, and to my knowledge, I don’t think ‘abusive’ is nearly as established in the law.”


In clarifying the term “abusive,” the goal is to create more formal laws that financial institutions can count on and adhere to, versus having to be regulated based on enforcement.


Here are some examples of how the terms are currently being interpreted:


Unfair Act or Practice - Causes or is likely to cause substantial injury to consumers

Deceptive – Misleads or is likely to mislead the consumer

Abusive Act or Practice - Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service, or takes unreasonable advantage of consumer’s (lack of understanding of material risks, costs or conditions of the product or service)



While further clarity and rulemaking of UDAAP are forthcoming, now is a good time to review some UDAAP considerations within your credit union:


  • Put in place a formal process for new product design and implementation
  • Always include your Risk and Compliance staff members in the process
  • Define the characteristics of your products’ target market
  • Review all potential marketing and advertising strategies 
  • Understand your products terms and conditions, and how any costs or fees will be assessed and collected
  • Conduct reviews of all marketing, sales, and any other consumer complaints


For guidance or advice on how to tackle the compliance and regulatory issues in your credit union, reach out to our compliance consultants at Trellance at We would be happy to help.

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Dave Chojnacki

Dave ChojnackiDave Chojnacki

Dave has more than 10 years of relationship management experience and holds a Credit Union Compliance Expert (CUCE) Designation from CUNA. He currently serves as Director of Consulting Services at Trellance.

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