Collector - October 2016 - 44

COMPLIANCE UDAAP: "A" is for Abusive Recent CFPB enforcement actions have provided some specific examples of what's considered "abusive" conduct. By Andrew Pavlik B y now, most debt collectors are aware that the Consumer Financial Protection Bureau has the authority to protect against unfair, deceptive or abusive acts or practices (UDAAPs). The concepts of "unfair" and "deceptive" acts and practices were borrowed from the Federal Trade Commission Act, but Congress added the additional concept of "abusive" when it passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. At the time, there was considerable case law detailing the unfair and deceptive prongs of the statute, but there was little information as to what would be considered abusive. Under the law, an act or practice is abusive when it: * 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; > A consumer's lack of understanding of the material risks, costs, or conditions of the product or service; > A consumer's inability to protect his or her interests in selecting or using a consumer financial product or service; or > A consumer's reasonable reliance on a covered person to act in his or her interests. Though this description helps outline the concept, it does not provide examples 44 of abusive conduct-leaving industry participants to speculate what the CFPB may consider "abusive." Recent CFPB enforcement actions, however, provide a few specific examples of "abusive" conduct. While there are still relatively few cases alleging abuse under UDAAP, two recent actions involving debt collection from military service members provide a few specific examples of "abusive" conduct, as well as some insight into practices that are abusive. In one action, the CFPB alleged a lender engaged in abusive conduct by filing lawsuits against military service members in a state in which the consumers had not signed their contracts and did not reside. These suits were based on a venue selection clause in the contract. The CFPB claimed the clause took unreasonable advantage of consumers' inability to protect their interests while using or choosing credit agreements because most consumers were unaware that contracts contained venue selection clauses, had little opportunity to review contracts at the time of signing, and the clause was non-negotiable. Based on these factors, the CFPB claimed the practice of filing suits in distant venues was an abusive practice under UDAAP. In another example, the CFPB alleged a lender threatened to contact and actually contacted military service members' commanding officers regarding debts. Although the contracts included a provision authorizing such contacts, the CFPB found that consumers were unaware of the provision and that it was non-negotiable. The lender also allegedly stated that failure to pay a debt could result in an action against the consumer under the Uniform Code of Military Justice, resulting in adverse career consequences, when in fact such actions were unlikely to occur. The CFPB asserted that threats to contact commanding officers and exaggerated claims about impacts to military careers brought enormous pressure on service members that would not be available with civilian borrowers and took unreasonable advantage of consumers' inability to protect their interests by leveraging their military status. Based on these allegations, the CFPB found the conduct abusive under UDAAP. It's notable that both actions concerned service members. This may be an indication that certain populations may be more prone to abuse than the general population due to factors that are unique to that group of consumers. Upcoming CFPB enforcement actions will no doubt continue to shed light on what collection practices fall under this broad definition. Andrew Pavlik is ACA International's senior compliance analyst. ACAINTERNATIONAL.ORG http://www.ACAINTERNATIONAL.ORG

Table of Contents for the Digital Edition of Collector - October 2016