The CFPB Policy Statement on ‘Abusive Acts or Practices:’ What it Means
On Friday, the Consumer Financial Protection Bureau issued a policy statement providing a “common-sense framework” on how it intends to apply the “abusiveness” standard in supervision and enforcement matters–a clarification long-awaited by Mortgage Bankers Association and the real estate finance community.
“I am committed to ensuring we have clear rules of the road and fostering a culture of compliance – a key element in preventing consumer harm,” said CFPB Director Kathleen Kraninger. “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.”
Through this policy statement (https://files.consumerfinance.gov/f/documents/cfpb_abusiveness-enforcement-policy_statement.pdf), the Bureau provided clarification on how it intends to apply abusiveness in order to promote compliance and certainty. Commencing immediately the Bureau intends to apply the following principles during supervision and enforcement work by:
–Focusing on citing or challenging conduct as abusive in supervision and enforcement matters only when the harm to consumers outweighs the benefit;
–Generally avoiding “dual pleading” of abusiveness and unfairness or deception violations arising from all or nearly all the same facts, and alleging “stand alone” abusiveness violations that demonstrate clearly the nexus between cited facts and the Bureau’s legal analysis; and
–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.
Justin Wiseman, MBA Associate Vice President and Managing Regulatory Counsel, said the CFPB policy statement is a “big deal,” noting it’s “probably the only action we will see from the Bureau defining abusiveness in the near to medium-term.”
“The Bureau will make an effort going forward to distinguish between abusive conduct and unfair or deceptive conduct in UDAAP [Unfair, Deceptive or Abusive Acts or Practices] actions,” Wiseman said. “This is a big positive as that has not been their practice to date.”
Wiseman noted the Bureau relied heavily on stakeholder feedback, including MBA (with numerous citations), to determine the need for this policy statement and their rationale for providing clarity. The Bureau cited a May 14, 2018 MBA comment letter calling for the Bureau to address the “great deal of uncertainty” around the abusiveness standard “by describing in rulemaking or public guidance the circumstances under which the Bureau will bring ‘abusive’ cases under its UDAAP authority.”
“This is positive clarity from the Bureau and directly responsive to past MBA advocacy,” Wiseman said.
The Dodd-Frank Act is the first federal law to broadly prohibit “abusive” acts or practices in connection with the provision of consumer financial products or services. However, the Bureau notes uncertainty remains as to the scope and meaning of abusiveness. “This uncertainty creates challenges for covered persons in complying with the law and may impede or deter the provision of otherwise lawful financial products or services that could be beneficial to consumers.”
Currently, the statutory standard (12 US 5531(d)) for abusiveness defines an abusive act or practice as one that:
(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.
Wiseman pointed out one consequence of the Bureau issuing a policy statement rather than a rule is to protect national banks and national thrifts. “Dodd Frank says that state attorneys general cannot enforce Dodd-Frank’s generic UDAAP bans against national banks, but can enforce any CFPB rules,” he said. “As long as there is no abusiveness ‘rule,’ state attorneys general cannot use it from Dodd-Frank against them.”
However, Wiseman cautioned any enthusiasm about the policy statement “should be tempered by the fact that since it is a policy statement it can almost immediately be withdrawn or modified if a future Bureau was inclined to do so.” Indeed, the policy statement notes the Bureau “leaves open the possibility of engaging in a future rulemaking to further define the abusiveness standard.”