CFPB writing rule to define ‘abusive’ standard: Mulvaney

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WASHINGTON — The Consumer Financial Protection Bureau is planning a rulemaking to define what types of practices qualify as "abusive" to provide more clarity to the industry about the controversial standard, the agency's interim chief said Monday.

The remarks by acting CFPB Director Mick Mulvaney are yet another example of how the agency is trying to remake its enforcement processes in the Trump administration. Former CFPB Director Richard Cordray had opted for letting individual enforcement actions define what "abusive" meant, but Mulvaney said he prefers clearer rules of the road.

"Regulation by enforcement is done," Mulvaney said in a speech to the Mortgage Bankers Association annual conference.

Toya Jordan Sarno/Bloomberg

U.S. law has long banned "unfair or deceptive acts or practices." But the 2010 Dodd-Frank Act expanded the prohibition to "unfair, deceptive, or abusive acts or practices." The 2010 law also gave the CFPB primary rulemaking authority for UDAAP.

But much to the industry's consternation, the agency under Cordray started issuing enforcement actions without stating clearly how it was interpreting the new UDAAP standard.

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,” Mulvaney said.

While Cordray made pursuing UDAAP violations a priority, the agency under Mulvaney has not appeared as interested in targeting firms for UDAAP violations.

“There’s been some stuff I’ve seen at the bureau that I really don’t like,” he said.

The CFPB's previous five-year strategic plan issued in 2013, under Cordray, had featured UDAAP prominently, citing the bureau's interest in making sure no company could "build a business model around unfair, deceptive, or abusive practices."

But the agency's vision statement unveiled as part of a new strategic plan earlier this year dropped any reference to so-called UDAAP claims. Previously, a memo Mulvaney sent to staff described how the bureau would pursue enforcement actions only as a last resort.

"On regulation, it seems that the people we regulate should have the right to know what the rules are before being charged with breaking them," he wrote in the memo. "This means more formal rulemaking on which financial institutions can rely, and less regulation by enforcement."

However, Mulvaney did acknowledge Monday that he lacks the authority to repeal the UDAAP provision of Dodd-Frank, and said the CFPB will continue to look at UDAAP cases.

“You have a right to know what the law is,” he said. “That being said, UDAAP is the law.”

He noted that he and his staff have agreed that some practices can be unfair and deceptive without being abusive, and vice versa, which he believes makes the provision confusing for consumers.