CFPB Urges N.Y. Legislature to Enact UDAAP Prohibitions

Bills are pending in both houses of state legislature

Even as House Republicans try to restrict the Consumer Financial Protection Bureau’s power to initiate enforcement actions based on “Unfair, Deceptive or Abusive Acts or Practices (UDAAP),” CFPB officials are urging the New York State Legislature to pass legislation giving state agencies those enforcement powers.

“The creation of the federal prohibition on abusive conduct was a significant milestone in the history of consumer protection,” Brian Shearer, the CFPB’s assistant director for the Office of Policy Planning and Strategy,” wrote in a letter to New York Gov. Kathy Hochul and state legislative leaders. Shearer noted that the CFPB was created and was given those enforcement powers in the wake of the 2008 financial crisis.

Consumer protection legislation has been introduced in both houses of the New York legislature and has been referred to committees for their consideration.

In legislative findings attached to the bill, supporters said that state law only protects consumers against deceptive acts, adding that other states have more expansive consumer protection statutes. “The State must not allow bad actors to peddle predatory products and services as long as they are clever enough not to get caught in a lie,” the findings state.

Shearer said that Congress also chose to add the abusive prohibition to federal law. “By adding the abusive prohibition, Congress recognized that the existing prohibitions on unfair and deceptive acts or practices were not adequate to prevent the economic meltdown,” he wrote. “As it had done many times before, Congress amended the law to address new challenges.”

Shearer wrote that CFPB Director Rohit Chopra has said that the CFPB does not have a monopoly on policing abusive conduct. “State actors are often at the front line of identifying abuses on the ground and can act swiftly to protect consumers.”

He encouraged state officials to include a prohibition on unfair acts or practices in the state law. He wrote, “The prohibition on unfairness is a critical standard of fair dealing which was codified in federal law 100 years ago and has longer roots in common law.”

Shearer expressed agency support for efforts to clarify that an act or practice may be deceptive even when the representation is not directed at a consumer. “This position is in alignment with the CFPA’s [Consumer Financial Protection Act’s] federal prohibition on deceptive conduct, which bars deceptive acts or practices without limitation – and hence including targeting other parties beyond a consumer,” he wrote.

While the CFPB is encouraging New York state officials to enact legislation similar to federal law, some House Republicans are attempting to rein in the agency’s power to enforce UDAAP prohibitions.

Rep. Andy Barr, R-Ky., chairman of the House Financial Services Committee’s Financial Institutions and Monetary Policy Subcommittee, introduced H.R. 6789 late last year. The bill would require the CFPB to specifically define what an “abusive act or practice” is. Critics, such as Barr, have charged that the CFPB decides something is abusive when they don’t like the practice, and that since there is no clear definition, enforcement is not predictable to outsiders.

“Since the Dodd-Frank Act passed, financial institutions and providers have been left without clarity of the definition for the term ‘abusive,’ and inadequate guidance from CFPB on what would constitute a UDAAP violation,” Barr said when he introduced the legislation.