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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.