The Consumer Financial Protection Bureau (CFPB or Bureau) today issued an important policy statement on how it intends to apply the “abusiveness” standard in supervision and enforcement matters.
What happened
Adding a new prong to traditional unfair and deceptive acts or practices (UDAP) laws, the Dodd-Frank Act prohibits “abusive” acts or practices in connection with the provision of consumer financial products or services (thus, the new acronym UDAAP). But almost ten years after Dodd-Frank, there remains uncertainty as to the true scope and meaning of the term. The Bureau acknowledged this uncertainty in its policy statement, adding that it creates challenges for covered persons in complying with the law and may impede or deter the development and provision of otherwise lawful and beneficial financial products or services. The Bureau also noted the following, having previously solicited and reviewed public comments on what constitute abusive acts or practices and hosted a symposium to discuss the issue:
“To date, the CFPB has applied the abusiveness standard several times since it commenced operation in 2011. It has brought 32 enforcement actions that included an abusiveness claim, including as recently as Fall 2019. But 30 of those 32 enforcement actions had both an abusiveness and an unfairness or deception claim (i.e., only two enforcement actions contained just an abusiveness claim). And in many of those 30 actions, the ‘abusive’ acts or practices claim arose from the same course of conduct as the unfairness or deception claim.”
On the supervision side, the CFPB’s UDAAP examination procedures largely restate the language of the Dodd-Frank Act. And although the Bureau has issued 18 editions of Supervisory Highlights since 2012, these documents only rarely have described citations of abusive acts or practices in a manner that would provide guidance as to how the Bureau concluded that the statutory language used in Section 1031(d) applied to the conduct at issue. Moreover, the CFPB has mentioned the risk of abusive acts or practices in nonbinding guidance documents but has not set forth a detailed explication of the abusiveness standard within such documents.
In its new policy statement, the CFPB is finally issuing guidance on how it (or at least its current director) intends to apply the abusiveness standard. Commencing “immediately,” says the CFPB, it intends to apply the following principles in supervision and enforcement work:
- focusing on citing or challenging conduct as abusive only when the conduct’s harm to consumers outweighs the benefit
- generally avoiding “dual pleading” of abusiveness and unfairness or deception violations arising from the same facts, and alleging “stand alone” abusive acts or practices violations that demonstrate clearly the nexus between cited facts and the Bureau’s legal analysis
- seeking monetary relief for abusiveness only when there has been a lack of a good-faith effort to comply with the law, except the Bureau will continue to seek restitution for injured consumers regardless of whether a company acted in good faith or bad faith
In the policy statement, the CFPB expresses concern that the new abusiveness standard might inadvertently deter parties from conduct that might actually benefit consumers. As a result, the CFPB will craft a safe harbor where the covered person has in good faith attempted to comply with the law based on a reasonable but ultimately mistaken interpretation of the standard. When that occurs, the CFPB indicates it will not seek civil penalties or disgorgement in enforcement actions. Likewise, the CFPB will apply the same standard when requesting action as a result of violations in Matters Requiring Attention (MRA’s) and other supervisory requests.
In determining whether a covered person made a good-faith effort to comply with the abusiveness standard, the CFPB intends to consider all relevant factors, including but not limited to the considerations outlined in CFPB Bulletin 2013-06 regarding Responsible Business Conduct. Covered persons generally will be deemed to have acted in good faith if they based their conduct on a “reasonable” interpretation of Dodd-Frank’s abusive acts or practices language and any related judicial precedent or other authority.
In issuing the new guidance, Director Kathy Kraninger said that she is “committed to ensuring we have clear rules of the road and fostering a culture of compliance—a key element in preventing consumer harm. We’ve developed a policy that provides a solid framework to prevent consumer harm while promoting the clarity needed to foster consumer beneficial products as well as compliance in the marketplace, now and in the future.”
In the policy statement, the Bureau expressly left open the possibility of engaging in a future rule-making to further define the abusiveness standard.
Why it matters
This is a significant and positive development for industry, as previously there had been a lack of useful guidance with respect to the abusiveness standard. But readers should take careful note that this guidance lacks the force and effect of regulations, and as a practical matter it is only good while the current director remains in place. Future Bureau policy may change with a Democrat-appointed director. Further, just because the CFPB views abusiveness under the new standard, state attorneys general are free to view it differently, and they very well may take a broader view.