The Consumer Financial Protection Bureau began using the most dangerous tool of its arsenal of regulatory weapons in the last part of 2013, claims of Unfair Deceptive Acts and Practices.

The CFPB in the last several weeks has entered into a tentative consent decree with the nation’s largest nonbank servicer, Ocwen. This is based upon claims that it engaged in unfair and deceptive acts in the manner in which it serviced distressed borrower loans.

Similarly, it initiated claims against an online servicer CashCall Inc., claiming it collected monies that were not actually owed through a series of unfair and deceptive acts and practices. The agency also entered into a settlement with American Express claiming the credit card company engaged in deceptive acts and practices.

Lenders are concerned with the manner in which the CFPB relies upon deceptive acts and practices as a basis for regulatory enforcement with good reason.  There is a lack of guiding standards as to what amounts to an unfair or deceptive practice. The Dodd-Frank Act essentially leaves it to the CFPB’s discretion to establish the standard for enforcement.

The only clear thing is that UDAP is an ambiguous standard. The agency views anything that would tend to mislead even a minority of persons as deceptive and misleading, so long as a significant number of people could be misled. It appears from the variety and extent of the actions initiated by the CFPB in recent weeks that the agency is poised to utilize the undefined UDAP standards to the fullest extent in a variety of situations, and is expecting financial institutions to affirmatively avoid scenarios that could lead to consumers being misled in addition to when they consciously seek to mislead consumers.

Such a position is consistent with the CFPB’s overall regulatory agenda of making institutions affirmatively responsible for consumers. This standard coupled with the ambiguity of the statutory text signals to lenders that their compliance departments need to be on high alert and aware of recent enforcement actions and the shortcomings in their consumer facing operations that could lead to UDAP claims.