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Banks often feel the effects of unfair, deceptive or abusive acts and practices (UDAAP) conducted by our non-bank competitors when federal or state policy makers respond with new laws and regulations; these new restrictions unfailingly burden banks—where few or no examples of the problems occurred—but often fail to reach the actual source of the problems.
ABA members strive to conduct their product and service promotions and delivery responsibly and to guard against unfair or deceptive acts and practices. We support uniform regulatory policies governing UDAAP that treat all charter types consistently and maintain a level playing field with respect to non-bank financial institutions. While prudential regulators should apply their supervisory prerogative to consider the risk profile and capacity of community banks in applying compliance oversight for UDAAP, ABA is concerned that prudential regulators are actually imposing additional supervisory expectations that expose banks to double jeopardy in the area of unfair, deceptive and abusive practices.
ABA strongly opposes predatory lending and believes that the conduct that is commonly ascribed as predatory occurs largely outside the market of direct lending by depository institutions. Accordingly, predatory lending is best addressed through more vigorous enforcement against non-bank creditors using the authority and principles that govern unfair, deceptive or abusive acts and practices in addition to other existing federal consumer protections for which banks are already held accountable.
Predatory lending is primarily the result of non-bank creditors and loan brokers engaging in practices that mislead vulnerable borrowers to enter into credit obligations in circumstances without appropriate information and/or under conditions that are harmful to their economic welfare. These predatory practices are already prohibited as violations of existing regulations, such as the Equal Credit Opportunity Act, the Truth-in-Lending Act, the Real Estate Settlement Procedures Act, section 5(a) of the Federal Trade Commission Act governing unfair or deceptive acts and practices, as well as several other specific consumer protections.
Under the Dodd-Frank Act, the Bureau of Consumer Financial Protection has been given authority to establish rules and guidance for unfair, deceptive and abusive acts or practices across all consumer financial service providers. The new statutory standard for "abusive" practices invites extensive uncertainty and litigation risk.