The Consumer Financial Protection Bureau’s (CFPB) authority to prevent unfair, deceptive or abusive acts or practice (UDAAP) under the Dodd-Frank Wall Street Reform and Consumer Protection Act is, as it turns out, a very powerful weapon. UDAAP, particularly with the addition of the new abusive standard, is a highly utilitarian policy tool in the hands of our neophyte regulator.
What do I mean by that? What I mean is that the CFPB, if it chooses, can use the broad and vaguely worded UDAAP standards to address a policy agenda—even one that is unpublished, unwritten or unstated, as opposed to regulating unfairness, deception and abuse by guidance through public rulemaking or some other less opaque means. In other words, UDAAP gives the CFPB the power to look at the acts and practices of anyone subject to its jurisdiction and declare those acts or practices—without notice—to be unfair, deceptive or abusive. The CFPB can use its own subjective nose and declare something foul.
There are some very compelling reasons for the CFPB to engage in UDAAP rulemaking. First, it will ultimately conserve the CFPB’s precious resources as well as those of the regulated. Clear rules will narrow the CFPB’s focus and give financial institutions—many of which are being crushed under the weight of Dodd-Frank absorption—a meaningful resource to guide their behavior.
Second, comprehensive and comprehensible rules will provide clarity and uniformity in the application of UDAAP. The CFPB’s use of supervision, enforcement and adjudication are backward-looking and antithetical to notions of fairness and forward-looking clarity.