Skip to content

How Does the Partial Rollback of Dodd-Frank Affect Payment Facilitators and UDAAP?

The US House of Representatives voted this week to repeal parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the 2010 legislation that brought significant changes to financial regulation in the United States after the Great Recession. Because Dodd-Frank led to the creation of the Consumer Financial Protection Bureau (CFPB), payment facilitators and processors may wonder whether changes in the law impact the way the government approaches its enforcement of unfair, deceptive, or abusive acts or practices - known as UDAAP. (Get our UDAAP guide for an in-depth explanation of these practices.)

The recent legislation, which passed 258-159, is aimed at relaxing rules for small- and medium-sized banks, which under the modified law would not have to undergo the same stress tests as banks that hold more than $250 billion in assets. These rules are intended to prevent another financial meltdown, but opponents have said the rules are too cumbersome for smaller institutions and that the new changes will help regional banks be more competitive by making it easier for them to lend money.

Absent of this recent rollback is any change to UDAAP. That means the CFPB still has the authority to go after unfair and deceptive practices, which are defined as ones that harm consumers financially and that consumers cannot reasonably avoid. The greater risk to UDAAP enforcement lies is within the bureau itself, with leader Mick Mulvaney. The CFPB Director has stated that the bureau is not particularly interested in pursuing UDAAP violations.

Does this mean payment facilitators shouldn't be concerned about merchants engaged in unfair or deceptive practices? Not so fast. Despite Mulvaney's statements, the CFPB last month slapped Wells Fargo with a whopping $1 billion UDAAP fine - 10 times bigger than the previous largest assessed in the bureau's history. The bank was found to have forcibly enrolled hundreds of thousands of borrowers in duplicative or unnecessary automobile insurance policies. The Wells Fargo fine, as well as a recent lead generation case the CFPB is aggressively pursuing, suggest that UDAAP still has teeth.

Regardless of government approaches to UDAAP enforcement, payment facilitators should remain wary of merchants offering high-risk services such as credit repair, debt collection, payday lending, lead generation sales, and extended warranties, as these merchants can still prompt steep card brand fines if they are found to be engaging in UDAAP violations. There are several steps payment processors and acquirers can take to avoid UDAAP violations and accompanying fines. These include:

    • Properly responding to consumer complaints

 

    • Performing internal policy audits

 

    • Educating staff

 

    • Practicing proper underwriting

 

    • Reviewing existing UDAAP policies

 

Most important, consistent merchant monitoring is a valuable tool for identifying and avoiding UDAAP violations.

For more information on these high-risk areas, get our UDAAP guide.

 

David Khalaf is a writing, communications, and marketing professional with specialties in media, investigations, content strategy, and writing instruction. His 20 years of writing, media, and communications work have included two top-tier universities (USC and UCLA), print and digital magazines, consulting firms, and technology companies.

His current work involves content strategy and development at LegitScript, a company that helps the world's leading search engines, payment service providers, and internet platforms and marketplaces do business with legitimate, legally operating entities in more than 80 countries and 15 languages around the world. LegitScript specializes in risk and compliance for highly regulated industries including CBD/cannabis, online gambling, cryptocurrencies, drugs, financial trading, online adult, scams and fraud, and more.

Recent Blog Articles

Synthetic identity fraud

What You Need to Know About Synthetic Identity Fraud

LegitScript noticed an increase in the sale of fraudulent document services, including fake IDs, synthetic identities, and artificial intelligence (AI) passport photo generators. Read further to understand how this trend appears to align with an emergence of more effective methods of stealing and fa...
proposed changes to DSHEA

Proposed Changes to DSHEA Could Impact You — Here’s How

According to the Pew Research Center, many US consumers believe that the current regulatory authority of the Food and Drug Administration (FDA) doesn't adequately protect them. Read further to discover the potential impact of the FDA's proposed changes to the Dietary Supplement Health and Education...

Problematic Product Spotlight: Tainted Royal Honey

Products Claiming to Enhance Sexual Performance Have Experienced a Surge in Popularity No longer relegated to the shelves of gas stations and corner stores, dietary supplements or other products claiming to enhance sexual performance have experienced a surge in popularity within e-commerce marketpla...
LegitScript updates advisory committee policies and seeks to invite new members.

LegitScript Relaunches Its Addiction Treatment Certification Advisory Committee — and Seeks New Members

In an effort to strengthen avenues of communication and identify opportunities for optimizing the client journey, LegitScript is relaunching its Addiction Treatment Certification Advisory Committee. Keep reading to learn how this may impact you. LegitScript Bolsters Collaboration Efforts With Organi...