On January 24, 2020, the Consumer Financial Protection Bureau (CFPB) announced a new policy regarding the prohibition on abusive acts or practices. The CFPB has clarified how it will define, supervise and enforce “abusive” standards under Dodd Frank § 1031(a) and (d). The Bureau’s announcement acknowledges that there has been uncertainty in this area. The Director intends the Policy Statement to help avoid adverse consequences which may “chill or overly deter covered persons from engaging in conduct that may be beneficial to consumers.” The Policy Statement is effective January 24, 2020 and will govern supervisory and enforcement conduct going forward. The full Policy Statement is available here.
Dodd Frank Abusiveness Standard
Section 1031(d) of Dodd Frank defines broad parameters for abusiveness. The practice may be determined to be abusive if it:
(1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or
(2) takes unreasonable advantage of—
(A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;
(B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.See 12 U.S.C. 5531(d).
Bureau’s Historical Prosecution of Abusiveness
The Policy Statement provides background on the Bureau’s enforcement activities specific to abusiveness. Since 2011, the Bureau “has brought 32 enforcement actions that included an abusiveness claim, including as recently as fall 2019.” However, more than 90% of the actions included both abusiveness and unfairness or deception claims. According to the Bureau, “only two enforcement actions contained just an abusiveness claim.” Demonstrating the challenge of amorphousness, the Bureau acknowledges “in many of those 30 actions, the abusiveness claim arose from the same course of conduct as the unfairness or deception claim.”
2019 Symposium – Differing Perspectives
Director Kraninger has been active in seeking input from various constituents since taking the helm. In June 2019, the Bureau held its Symposium on Abusive Acts or Practices. “Eight academics and practitioners with expertise in UDAAP issues engaged in dialogue…” According to the Statement topics included the following:
- “the necessity of clarifying the abusiveness standard (and if so, whether rulemaking or another tool should be used),
- the degree of uncertainty posed by the statutory language, the particular aspects of the standard most in need of clarification,
- the practical consequences of this uncertainty on consumer financial markets, and how the Bureau should enforce the abusiveness standard.”