The Consumer Financial Protection Bureau will begin the process of defining what constitutes an “abusive” practice banks, payday lenders and other financial firms, the bureau’s director said.

The Dodd-Frank Act gave the CFPB the power to bring claims that companies engaged in Unfair, Deceptive and Abusive practices, giving the bureau more power to go after companies than other financial regulators have. But Congress never defined what constituted an abusive practice, leaving some confusion in the market and led to calls from industry to provide a firm definition.

““The word abusive is kind of a new one in the statutory context,...