Rectifying UDAAP Act

To amend the Consumer Financial Protection Act of 2010 to clarify standards for UDAAP enforcement actions brought by the Bureau of Consumer Financial Protection, and for other purposes. 1. Short title This Act may be cited as the Rectifying Undefined Descriptions of Abusive Acts and Practices Act Rectifying UDAAP Act 2. Mitigating factors in assessing civil penalties Section 1055(c) of the Consumer Financial Protection Act of 2010 ( 12 U.S.C. 5565(c) (6) Rulemaking The Bureau shall, not later than 180 days after the date of the enactment of this paragraph, issue a rule that establishes policies and procedures relating to the imposition of civil monetary penalties sought under this subsection, including the application of the mitigating factors described in paragraph (3). . 3. Rulemaking relating to unfair, deceptive or abusive acts or practices (a) In general Section 1031(b) of the Consumer Financial Protection Act of 2010 ( 12 U.S.C. 5531 (b) Rulemaking (1) In general The Bureau may prescribe rules applicable to a covered person or service provider identifying as unlawful unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer finanical product or service, or the offering of a consumer financial product or service. Rules under this section may include requirements for the purpose of preventing such acts or practices. (2) Cost benefit analysis required Any final rule issued by the Bureau relating to abusive, unfair, or deceptive acts or practices shall include a cost-benefit analysis. (3) Definition of abusive act or practice The Bureau shall, not later than 180 days after the date of the enactment of this subsection, issue a rule that defines the term abusive act or practice . (b) Opportunity for comment The Bureau of Consumer Financial Protection shall, not later than 180 days after the date of the enactment of this subsection, allow the public to submit comments with respect to any confusion about how the Bureau of Consumer Financial Protection uses its authority with respect to unfair, deceptive, or abusive acts or practices. 4. Authority to declare an act unlawful based on discrimination The Bureau of Consumer Financial Protection may not interpret the authority of the Bureau of Consumer Financial Protection relating to unfair, deceptive, or abusive acts and practices, as such term is used in section 1031 of the Consumer Financial Protection Act of 2010, to include discriminatory practices. 5. Clarifying the abusive standard for the Bureau of Consumer Financial Protection Section 1031 of the Consumer Financial Protection Act of 2010 ( 12 U.S.C. 5531 (d) Abusive (1) In general The Bureau shall have no authority to declare an act or practice of a covered person abusive in connection with the provision of a consumer financial product or service, unless the act or practice— (A) intentionally and materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (B) takes unreasonable advantage of— (i) a lack of understanding by the consumer with respect to the possible impact, material risks, costs, or conditions of the product or service, or the likelihood of the risks, costs, or conditions of the product or service negatively affecting the consumer; and (ii) the reasonable reliance the consumer places on an affirmative action or representation of such covered person to induce such consumer to rely on such action or representation. (2) Abusive actions Conduct of a covered person shall be considered abusive if— (A) the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers; (B) such substantial injury is not outweighed by countervailing benefits to consumers or to competition; or (C) the conduct is otherwise prohibited by Federal consumer financial law. (e) Good-Faith effort To comply (1) In general The Bureau may not seek monetary relief from a covered person under this section unless the covered person has not established by a preponderance of the evidence that they made a good-faith effort to comply. (2) Authority to seek legal or equitable remedies The limitation described in subparagraph (A) shall not restrict the authority of the Bureau to seek legal or equitable remedies, such as damages and restitution, to redress an identifiable consumer injury caused by the abusive acts or practices of such covered person. . 6. Notice and opportunity to cure Section 1031 of the Consumer Financial Protection Act of 2010 ( 12 U.S.C. 5531 (g) Notice and opportunity To cure (1) In general If a covered person self-identifies a potential unfair, deceptive, or abusive act or practice carried out by such covered person, the Bureau shall, not later than 90 days after such self-identification, provide a written notice in the form of a potential action and request for response letter or a notice and opportunity to respond and advise letter of the potential unfair, deceptive, or abusive act or practice to such covered person and inform the covered person that such person has 180 days after the date the covered person receives such notice to cure such potential unfair, deceptive, or abusive act before the Bureau may pursue other legal action. (2) Tolling of statute of limitations Any applicable statute of limitations that applies to conduct under which the Bureau has given notice and an opportunity to cure shall not toll until— (A) the covered person cures the potential abusive, unfair, or deceptive act or practice and notifies the Bureau that such act or practice has been cured; (B) the covered person notifies the Bureau that such covered person will not cure the act or practice; or (C) the 180-day period to cure ends. . 7. Abusive, unfair, or deceptive acts or practices enforcement actions (a) In general Subtitle E of title X of the Consumer Financial Protection Act of 2010 ( 12 U.S.C. 5561 et seq. 1059. Unfair, Deceptive, or Abusive Acts or Practices Enforcement Actions Enforcement actions brought by the Bureau under section 1031 under this title shall be brought in— (1) the United States district court located where the covered person has its headquarters location; or (2) the United States District Court for the District of Columbia. . (b) Actions under section 1031 Section 1031 of the Consumer Financial Protection Act of 2010 is amended by adding at the end the following: (g) Enforcement Actions (1) In general If the Bureau brings an enforcement action under this section, the Bureau shall state with particularity the circumstances that the Bureau alleges constitute violation of this section. (2) Alternative Claims If the Bureau brings an enforcement action under this section— (A) claiming that an activity is unfair or deceptive, the Bureau may not claim in the alternative that the activity is abusive; and (B) claiming that an activity is abusive, the Bureau may not claim in the alternative that the activity is unfair or deceptive. . 8. Look-back provisions for the Consumer Financial Protection Bureau Subtitle B of title X of the Consumer Financial Protection Act of 2010 ( 12 U.S.C. 5511 et seq. 1029B Examination period limitations (a) In general When enforcing Federal consumer financial laws, the Bureau may not seek a civil money penalty for any violating conduct that occurred prior to the most recent assignment of a consumer compliance rating. (b) Rule of construction This limitation described in subsection (a) may not be construed to restrict the ability of the Bureau to seek other forms of legal or equitable relief available under subparagraphs (A) through (G) of section 1055(a)(2) for any violating conduct that occurred prior to the most recent assignment of a consumer compliance rating. .

Summary: Rectifying Undefined Descriptions of Abusive Acts and Practices Act or the Rectifying UDAAP Act This bill restricts the Consumer Financial Protection Bureau’s (CFPB’s) authority to deem a financial practice abusive for purposes of enforcement activities. Currently, under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB may take enforcement action against a financial product or service provider in connection with any transaction with a consumer for a consumer financial product or service that is unfair, deceptive, or abusive.Specifically, the bill prohibits the CFPB from including discrimination as an abusive practice. Further, the bill revises what an abusive practice is, including by additionally requiring the act or practice to intentionally interfere with the ability of a consumer to understand a term or condition.The bill also establishes additional criteria for abusive actions. For example, conduct is considered abusive if (1) it causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers, (2) the substantial injury is not outweighed by countervailing benefits to consumers or to competition, or (3) the conduct is otherwise prohibited under federal consumer financial law.The bill also eliminates the CFPB’s ability to seek monetary relief for unfair, deceptive, or abusive acts or practices if the provider establishes a good faith effort to comply with requirements. The bill establishes rulemaking requirements, including requiring a cost-benefit analysis for a rule relating to unfair, deceptive, or abusive acts or practices.Finally, the bill establishes the right for providers to cure violations if they self-report and limits the CFPB’s use of alternative claims in court.