CFPB publishes long-awaited framework for monitoring and enforcing “ abusive ” acts and practices
In an effort to promote compliance and certainty, the Consumer Financial Protection Bureau (CFPB or Bureau) issued an oft-promised and long-awaited press release on January 24. policy statement on how it intends to apply the “unreasonable” standard in supervision and enforcement. The Dodd-Frank Act (Act) is the first federal law to broadly prohibit “abusive” acts or practices in connection with the provision of financial products or services to consumers. The Act considers an act or practice to be abusive when it “(1) materially interferes with a consumer’s ability to understand a term or condition of a consumer financial product or service; or (2) derives an unreasonable advantage (A) from a lack of understanding on the part of the consumer of the material risks, costs or conditions of the product or service; (B) the consumer’s inability to protect the interests of the consumer in choosing or using a consumer financial product or service; or (C) whether the consumer reasonably relies on an insured person to act in the best interests of the consumer. “
However, the CFPB estimates that, nearly a decade after the Act came into force, uncertainty remains as to the scope and significance of the abuse and how to distinguish “abusive” actions from “deceptive” and “unfair” actions. The CFPB recognizes that this uncertainty “creates challenges for those covered with respect to compliance with the law and may hinder or discourage the provision of otherwise legal financial products or services that could be beneficial to consumers”.
According to the policy statement, which takes effect immediately, the CFPB intends to apply the following principles during monitoring and enforcement work:
- Focus on citing or challenging conduct as “abusive” in surveillance and law enforcement only when the harm to consumers outweighs the benefits to them (which in itself is a element of the “unfairness” standard).
- Generally avoid the “double plea” of abuse and unfairness or deception of violations arising from all or nearly all of the same facts, and allege “stand-alone” violations of abuse that clearly demonstrate the connection between the cited facts and the Office’s legal analysis and provide more clarity on the standard of abuse in its oversight activity.
- In general, seek pecuniary redress for abuse only when there has been no good faith effort to comply with the law (even if it is based on a reasonable – albeit erroneous – interpretation of the norm. abuse). However, the Bureau will continue to seek damages and restitution for aggrieved consumers, whether the company has acted in good faith or not. Likewise, in monitoring actions, the Office will apply the same standard when requesting action following violations cited in review reports as “Matters requiring attention” or other monitoring requests.
The Bureau has applied the abuse standard since it began operations in 2011. Thirty-two of its enforcement actions included a complaint of abuse, including as of fall 2019, and 30 of those 32 actions. enforcement contained both an abuse complaint and an injustice or deception claim (i.e., only two enforcement actions contained only an abuse claim). Since the abuse allegation stems from the same behavior as the allegation of unfairness or deception in many of these 30 actions, it has been difficult to identify particular or unique fact patterns to which only the standard of abuse would apply. In addition to the number of issues that the Bureau has resolved through a settlement agreement, there are few judicial or administrative decisions of the Bureau that provide substantive direction on the abuse standard. Further, as the CFPB acknowledges, the Office’s Unfair, Deceptive, or Abusive Acts or Practices Review Procedures (UDAAP) largely reaffirm the wording of the Act, and the Office’s 18 editions of Oversight Highlights “n seldom described citations of abusive acts or practices in a way that would provide advice. “
The “unfair” and “misleading” parts of the UDAAP are expressly derived from the long-standing text of the Federal Trade Commission Act (FTC Act) – which in turn has been incorporated into state UDAP laws. These standards were therefore the subject of detailed and usable procedures. agency advice of the FTC, informed by decades of state and federal case law further defining the contours of these two standards. The same cannot be said of the abuse standard.
Prior to the new policy statement, the only definition of “abusive” was taken from the agency’s guidelines in July 2013 released under the tenure of former CFPB director Richard Cordray in the context of consumer debt collection. However, these guidelines were widely viewed as insufficient to provide meaningful assistance to industry participants in assessing practices that the CFPB may deem “abusive”. And because the standard of abuse (unlike the standards of injustice and deception) does not appear in the FTC Act or any other state law on UDAP, it has received little interpretation from the agency beyond Mr. Cordray’s statement (although the CFPB has asserted that certain practices relating to payday, vehicle title and certain high-cost installment loans would be “abusive” in the context of particular regulations) . In practice, CFPB staff, when billing the UDAAP, simply alleged the three aspects of the UDAAP standard, that is, unfair, misleading and abusive. Importantly, this policy statement puts an end to that practice (or at least does for the remainder of Director Kraninger’s tenure).
The policy statement expressly notes that the CFPB leaves open the possibility of engaging in future regulation in order to better define the standard of abuse. Where possible, the CFPB also intends to develop models for advocacy and updates to its UDAAP review procedures in the future to provide more specificity and clarity on the standard of advocacy. abuse. Last year, the CFPB organized a Symposium on abusive acts or practices with academics and practitioners. These experts provided a variety of views on the need to develop a clearer understanding of the abuse standard; most agreed that the CFPB should seek to resolve the current uncertainty as to its meaning. In turn, the CFPB stated in its policy statement that the symposium, along with other stakeholder comments, “was an important part of the process leading up to the Bureau’s decision to release the policy statement.
Note that the law granted the 50 state attorneys general and state financial regulators individual UDAAP authority. In addition, these state attorneys general and regulators are not strictly required to adhere to the policy statement, as it is expressly not in the form of a rule of law on administrative procedures (although the statement of Skidmore deference in litigation against a state agency). In practice, however, it would likely take a fairly egregious case before anyone but the more aggressive attorneys general or state regulators sue in federal court for “abusive” behavior outside the bounds of the declaration. CFPB policy.