H.R. 1652 — Rectifying UDAAP Act

This section directs the Consumer Financial Protection Bureau (CFPB) to issue, not later than 180 days after the date of enactment, a rule establishing policies and procedures relating to the imposition of civil money penalties for violations of federal consumer financial law, including the application of mitigating factors. (As background, such penalties are tiered up to $5,000 per day for standard violations, $25,000 per day for reckless violations, or $1 million per day for knowing violations, with amounts determined considering mitigating factors.)

This section modifies the Consumer Financial Protection Bureau's (CFPB) rulemaking authority under the Consumer Financial Protection Act (12 U.S.C. 5531(b)) for unfair, deceptive, or abusive acts or practices (UDAAP) by requiring (1) a cost-benefit analysis for any final UDAAP rule, and (2) issuance of a rule defining "abusive act or practice" within 180 days of enactment. Separately, the section directs the CFPB to allow public comment within 180 days of enactment on any confusion regarding the CFPB's UDAAP authority. (As background, the CFPB enforces UDAAP standards to protect consumers from harm in financial products and services.)

This section prohibits the Bureau of Consumer Financial Protection from interpreting its authority over unfair, deceptive, or abusive acts or practices (UDAAP), as provided in the Consumer Financial Protection Act of 2010, to include discriminatory practices. (Thus, the CFPB must rely on other statutes such as the Equal Credit Opportunity Act for enforcement against discrimination.)

This section revises the standard for the Consumer Financial Protection Bureau (CFPB) to declare an act or practice of a covered person abusive in connection with consumer financial products or services (i.e., under its authority to enforce against unfair, deceptive, or abusive acts or practices). Specifically, it limits such authority to acts or practices that (1) intentionally and materially interfere with a consumer's ability to understand a product term or condition (previously, material interference without an intent requirement) or (2) take unreasonable advantage of both a consumer's lack of understanding of the product's possible impact, material risks, costs, conditions, or likelihood of negatively affecting the consumer and the consumer's reasonable reliance on an affirmative action or representation by the covered person designed to induce reliance (previously, unreasonable advantage of a consumer's lack of understanding of material risks, costs, or conditions; inability to protect their own interests; or reasonable reliance on the covered person to act in the consumer's interests). The section further deems conduct abusive if it causes or is likely to cause substantial consumer injury that is not reasonably avoidable by consumers—presumed avoidable if timely, clearly, and conspicuously disclosed—and not outweighed by countervailing benefits to consumers or competition. It also prohibits the CFPB from seeking monetary relief unless the covered person fails to prove by a preponderance of the evidence a good-faith effort to comply, while preserving CFPB authority for legal or equitable remedies (e.g., damages, restitution) to redress identifiable consumer injuries caused by abusive acts or practices.

This section establishes a notice and opportunity to cure process under the Consumer Financial Protection Bureau's (CFPB) authority over unfair, deceptive, or abusive acts or practices (UDAAP) by covered persons providing consumer financial products or services. If a covered person self-identifies a potential UDAAP, the CFPB must provide written notice within 90 days granting 180 days to cure before pursuing enforcement; the statute of limitations tolls until cure notification, non-cure notification, or period end.

This section amends the Consumer Financial Protection Act of 2010 with respect to enforcement actions by the Consumer Financial Protection Bureau (CFPB) for unfair, deceptive, or abusive acts or practices (UDAAP) as follows: (1) requires such actions to be brought in the U.S. district court where the covered person is headquartered or in the U.S. District Court for the District of Columbia; (2) requires the CFPB, in bringing such an action, to state with particularity the circumstances alleged to constitute a violation; and (3) prohibits the CFPB from claiming alternatively that an activity is both unfair or deceptive and abusive.

This section prohibits the Consumer Financial Protection Bureau (CFPB) from seeking civil money penalties, when enforcing Federal consumer financial laws, for any violating conduct that occurred prior to the most recent assignment of a consumer compliance rating to a supervised entity. This limitation does not restrict the CFPB's authority to seek other forms of legal or equitable relief available under section 1055(a)(2)(A)–(G) of the Consumer Financial Protection Act (i.e., temporary cease-and-desist orders, restitution, or redress to consumers) for such pre-rating conduct.