Latest / COMPLY: The Marketing Compliance Podcast / UDAAP Compliance Under CFPB Director Chopra Pt. 1

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UDAAP Compliance Under CFPB Director Chopra Pt. 1 · COMPLY: The Marketing Compliance Podcast

• 0:09
  Speaker 1: Hello comply podcast listeners.
• 0:11
  Speaker 1: Today's podcast is a discussion between Ronda McGill, senior director of client solutions at perform line and Tony Alexis partner at Goodwin law and former assistant director and head of the office of enforcement at the CFPB where he developed and managed the CFP B's enforcement strategy, consumer financial investigations and litigation.
• 0:31
  Speaker 1: During today's podcast, I discussed UDAP compliance under CFPB director Chopra, specifically the rescision of the CFBs guidance on abusiveness standard in 2020 and how it impacts organizations today.
• 0:44
  Speaker 1: The recent update to the UDAP examination manual to include discrimination under unfair, the recent notable UDAP enforcement actions.
• 0:53
  Speaker 1: Again, the CF PBS cracked down on repeat offenders and how that ties into UDAP as always thanks for listening and enjoy the show.
• 1:03
  Speaker 2: Um, so back in, um, 2020, the CFPB under director craning, um, released a policy statement that provided a framework on how the bureau intended to apply the abusiveness standard under UDAP, but in 2021, under a new administration acting director, um, at that time UA hope the CF P B soon rescinded that same policy.
• 1:27
  Speaker 2: So what do you think the implications of this are for organizations even a year later under now, director Rohe Chopra?
• 1:36
  Speaker 3: Uh, that's a good question.
• 1:38
  Speaker 3: You know, going back to 2020, uh, that was so long ago, if you think of that
• 1:43
  Speaker 2: Was like it
• 1:44
  Speaker 3: Yeah.
• 1:45
  Speaker 3: You consider what we've gone through.
• 1:47
  Speaker 3: Uh, when, when the CF issued that guidance, my sense was there was some people who didn't feel even the guidance provided, but so much, uh, you know, my sense is a lot of people were looking for what's the magic formula that can plug into my risk assessment that can plug into my compliance program and, uh, you know, and, and fix something, given the fact that it is now a regulatory violation mm-hmm.
• 2:16
  Speaker 3: And I don't think that the guidance really, uh, got you there.
• 2:20
  Speaker 3: My sense is Dave WIO probably took the position and, and I, you know, I don't know if it's good government or bad government, but he took the possession that he didn't want to be restrained on a going forward basis for four years, uh, to have, uh, guidance and guidelines with regard to, uh, you know, the abusive standard, uh, and, uh, you know, and got rid of it.
• 2:48
  Speaker 3: My sense from reading, it was like, I can't think of anything that was overly objectionable, uh, to today, but nevertheless, I think industry itself became somewhat, uh, concerned because when you're building compliance program, you take known risk and risk, you know, in addition to, uh, unfair and deception is abusive and you want to have as many parameters in order to help you guide your team and also to provide to the person on the line who is there day by day, what are the operational functions that I should be able to keep an eye out to make sure that I'm not behaving or the company's not behaving in a manner, but a consumer, uh, would, would feel was abusive or a regulator feel is abusive?
• 3:43
  Speaker 3: Uh, I, my sense is ultimately I, it, it, it doesn't really change too much.
• 3:50
  Speaker 3: My sense in the reason why I say this is because it's an incredibly new standard, uh, you know, it's, it's got about a decade of history of that decade history, even during the Bureau's most aggressive period or period it's, you know, abusive was not, uh, cited as the regulatory violation, you know, very often, you know, a handful of times.
• 4:18
  Speaker 3: And, and my sense is, uh, you know, like I said, the guidance is helpful not having the guidance.
• 4:25
  Speaker 3: Uh, I'm not too sure is all that risky.
• 4:28
  Speaker 3: Now what that said, the challenges director Chopra has specifically said in Congress and in speeches and other forums that he wants to build up abusive, uh, authority through litigation.
• 4:47
  Speaker 3: And, you know, as part of that litigation you'll have, uh, opinions from courts.
• 4:52
  Speaker 3: You'll have opinions from courts of appeals.
• 4:55
  Speaker 3: You'll have opinions from the regulatory, uh, you know, administrative court.
• 5:01
  Speaker 3: And at some particular point, uh, there, there will be kind of a, a system or body of knowledge that defines abusiveness in a consumer product, uh, environment.
• 5:15
  Speaker 2: Hmm.
• 5:15
  Speaker 2: Okay.
• 5:15
  Speaker 2: Thank you.
• 5:17
  Speaker 2: So, in March of this year, the CFPB announced that discrimination is now considered unfair under UDAP and they updated the examination model to reflect this change.
• 5:29
  Speaker 2: So what do you think of this change and how do you think it's going to impact the Bureau's supervisory and enforcement actions moving forward?
• 5:38
  Speaker 3: So, yeah, I mean, so think about, you know, some of the challenges that CFPB probably saw, uh, and, and especially, you know, during the pandemic and even not during the pandemic, otherwise the, of COA, which is the leading, uh, you know, regulatory tool that you have to bureau for discrimination, especially in the fair lending world only applies to credit.
• 6:05
  Speaker 3: And so if you're not talking about a credit deposit and that's like a credit card lending, those types of things, then those could run the risk of being a violation of AOA mm-hmm.
• 6:21
  Speaker 3: But if it's not credit, say it is a deposit product, or let's say it's opening a deposit account, uh, at, at, at that particular point, AOA to point of color would not apply again because its uh, its credits.
• 6:38
  Speaker 3: But let's just say that you got some, you know, incredibly, uh, dicey information from the financial institution that showed that they were systemically eliminating people that had, uh, you know, Latino names or in some cases, maybe middle Eastern names or currently right now, as we we're in a war, uh, between Ukraine and Russia, you saw a name that struck you as potential open a deposit account because you wanted to protect your obligations under other aspects of the law and under those circumstances.
• 7:20
  Speaker 3: And, and it turns out that you're wrong or that your method was over, you know, was too broad, is that discrimination and the answer.
• 7:30
  Speaker 3: Yeah, it, it, it could be, but the issue is it's not for that particular product in what, before Trump got there or director at Trump, I got there.
• 7:42
  Speaker 3: It was not part of, uh, of the regulatory toolkit in which you could address that issue.
• 7:51
  Speaker 3: My sense is that's what's going happen or that's the potential probably, uh, up this particular, uh, query the issue to me is he started off with the, and its now going to be examiners.
• 8:09
  Speaker 3: And I don't know if you, when reading it, if you'd also noticed you mentioned AI.
• 8:15
  Speaker 3: So yes, the algorithmic approach, uh, which could lead to discrimination, discrimination, and the issue, uh, is after the exam manual, you, you're probably going to have some aspect of your wider portfolio of people that you supervise and people who you enforce against will be socialized to it.
• 8:40
  Speaker 3: And others won't because it would not have been cautioned by examiners or given advice by examiners or told, you know, what's permissible and impermissible.
• 8:52
  Speaker 3: And then the issue becomes, if you're not, then I can see incredible risk for institutions that behave in a way, uh, and that, that in which they withhold or somehow change the, uh, parameters in which some products and services are offered, uh, you know, in order to meet some, uh, particular business need and as a result, they they're treating people differently for what's really the same product and service.
• 9:26
  Speaker 3: I think some of those companies may find themselves in, in a risk and in the crosshas.
• 9:32
  Speaker 3: So I, I, you know, I wonder if there's gonna be a disparity between what enforcement does and what supervision does.
• 9:40
  Speaker 2: Hmm.
• 9:40
  Speaker 2: That is definitely something to look out for.
• 9:42
  Speaker 2: And I guess as things are, as I'm looking at interest rates going up and everyone is kind of at a point of trying to re restructure and chase the business model to change it, to flow at the times, this is a definite, um, risk opportunity for people to really focus in on
• 9:59
  Speaker 3: Yes, we reach out to your experts
• 10:04
  Speaker 2: For sure.
• 10:05
  Speaker 2: Um, so to your knowledge, are there any recent notable UDAP enforcement actions, um, that could provide our attendees with some sense of where things are headed?
• 10:15
  Speaker 2: It sounds like definitely AI is one of the topics.
• 10:19
  Speaker 2: Um, but are there other, are there, are there actions that are happening out there that you're, you would want them to really focus in on?
• 10:28
  Speaker 3: So know I have to separate out what I've seen and then also, you know, I, I am a lawyer so what the C will tell me, but I would, again, still keep my eye on abusiveness.
• 10:42
  Speaker 3: My sense is I've heard it now cited far more often than I have in the past.
• 10:48
  Speaker 3: Uh, and you know, just between, uh, me and the audience under circumstances and what I'm like, why would you cite that particular conduct as abusiveness?
• 11:00
  Speaker 3: That's a very, very weak claim, uh, as opposed to this going with your four strong ones.
• 11:06
  Speaker 3: Um, and my sense is, you know, given the fact that the C F P B has also changed its administrative forum, they made some adjustments and some, uh, uh, some amendments in their administrative forum.
• 11:22
  Speaker 3: There may be an opportunity for, uh, Mr.
• 11:26
  Speaker 3: Chopra to get what he wished for, or, or stated.
• 11:29
  Speaker 3: And that is to have opportunities to litigate abusive claims in the administrative form, and know if an administrative form is going to be advantageous for anyone, uh, you know, spec, you know, industry or the CF P B.
• 11:47
  Speaker 3: Uh, but you know, that's one thing I'd keep my eye out on.
• 11:51
  Speaker 3: Uh, the other thing I would keep my eye out on in the UDAP space, uh, really would be the fact is, you know, because he has not had, but so many matters, but he has filed contested cases, uh, one against a credit reporting agency, uh, which he, at that point, uh, branded a repeated vendor because of, uh, the way, uh, it had conducted itself in, uh, the, no, not that was a payday lender, uh, in which it had repeated itself in, uh, some exam activity with MRIs.
• 12:36
  Speaker 3: But in addition with some of the MRIs, it had paid, uh, uh, dearly some, uh, uh, civil sanctions and some other sanctions with the department of justice, et cetera.
• 12:48
  Speaker 3: And that the label, my repeat offender, the question I have under those circumstances is, was that one of the catalysts that caused the CF P B to file the suit as opposed to consider, I don't know, it wasn't my case.
• 13:06
  Speaker 3: So I can't tell you what type of conditions, uh, that, that they imposed or were insisting on imposing that the, um, company, uh, did not want to undertake, but nevertheless, there's now a lawsuit against one company a as I started off with there, there is also a credit reporting agency, uh, which also was called, uh, you know, kind of fit the recidivous model in the language of the director, uh, because it had entered into a consent order with the CFPB a couple years ago.
• 13:42
  Speaker 3: And, um, despite that consent order, uh, they found that there was, uh, you know, according to the complaint, uh, there were allegations that it had, uh, repeated itself in terms of some of its misconduct, um, and, you know, boom got the recidivous label.
• 14:01
  Speaker 3: My sense is if I commit deception the first time and I commit fairness, the second time, I will probably be in the eyes of the director, a repeat offender.
• 14:13
  Speaker 3: Um, it doesn't have to be the exact prong under UDub.
• 14:18
  Speaker 2: Do you feel that in that instance, I, and if I'm not mistaken, they're going up the food train, food chain and even hitting like at the board level or the CEO level and saying, Hey, this is a problem.
• 14:30
  Speaker 2: And you need to, you need to get out of the business too.
• 14:33
  Speaker 2: Do you feel that there'll be more instances of enforcing folks out, um, that are in that repeat offender column?
• 14:41
  Speaker 3: Yeah.
• 14:42
  Speaker 3: You know, potentially I, I, I think the issue is that director Chopra, this is not his first time at the bureau, right?
• 14:53
  Speaker 3: It's his second time he learned a lot, the first time he was at the bureau.
• 14:58
  Speaker 3: My sense is to the extent that you want to address the widest amount of behavior that captures the most people that were either responsible, uh, or participated, uh, in the conduct, uh, or, or responsible for making sure that the conduct did not occur, then that person is a related person under the statute.
• 15:26
  Speaker 3: And it's my sense that, uh, he's more willing to use that particular tool note.
• 15:35
  Speaker 3: One of the critical issues that industry looks at both, uh, depository institution, banks, and non-banks has to do with leveling the planning field.
• 15:46
  Speaker 3: And that's one where there will be disparities in the playing field because the CFPB can't do that against a depository institution that's written into the statute.
• 15:58
  Speaker 3: Um, but for non-depository institutions, it seems that they might actually be fair game for the C to consider some form of activity, whether it's an injunction or it's actually, you know, the entire, uh, lawsuit that the person may be, uh, held responsible.
• 16:22
  Speaker 1: Thanks for listening to this episode of the comply podcast.
• 16:24
  Speaker 1: We hope you enjoyed the conversation between Rhonda and Tony, around you dot compliance under CFP director Chopra for additional insights into all things, marketing compliance.
• 16:34
  Speaker 1: You can head to content dot, perform line.com and be sure to check out the links and resources in the show notes.
• 16:40
  Speaker 1: Thanks again for listening.
• 16:41
  Speaker 1: And we'll see you next time.