On March 11, 2021, the Consumer Financial Protection Bureau rescinded its “Statement of Policy Regarding Prohibition on Abusive Acts or Practices” announced in January 2020. The Statement attempted to clarify uncertainty surrounding the Bureau’s exercise of its abusiveness jurisdiction. However, new Bureau leadership determined that the Statement had the opposite effect, hampering understanding while creating potential harm to consumers and the market.
The Dodd-Frank Act prescribes that the Bureau may prevent or take action against businesses and persons under its jurisdiction who engage in unfair, deceptive, or abusive acts or practices in consumer financial transactions. An act or practice is abusive if it materially interferes with a consumer’s understanding of a material term or condition of a consumer financial product or service or takes unreasonable advantage of the consumer’s lack of understanding about material risks and costs of the transaction, the inability of the consumer to protect their interests in choosing or using the product or service, or the consumer’s reliance on the business or person to act in the consumer’s best interests.
The Bureau’s Statement on the abusiveness standard focused on applying three principles, including that the Bureau would:
1) “focus on citing conduct as abusive in supervision or challenging conduct as abusive in enforcement if the Bureau concluded that the harms to consumers from the conduct outweighed its benefits to consumers”;
2) “generally avoid challenging conduct as abusive that relied on all or nearly all of the same facts that the Bureau alleged are unfair or deceptive”; and
3) “generally not intend to seek certain types of monetary relief for abusiveness violations where the covered person was making a good-faith effort to comply with the abusiveness standard.”
New Bureau leadership felt that that the Statement’s principles instead interfered with its statutory objectives. According to the Bureau, the first principle lacked practical applicability because the “harms to consumers from the conduct outweighed its benefits to consumers” standard was different from other Bureau enforcement and supervisory considerations. Further, the Bureau believed the second principle was counterproductive because not pleading abusiveness would reduce the Bureau’s ability to clarify the abusiveness standard through enforcement. Lastly, the Bureau claimed the third principle-declining to pursue monetary relief when a covered person was making a good faith effort to abide by the abusive standard-gave the Bureau uncertain and wide discretion for violation penalties, while also preventing compensation to consumers who were harmed.
This early action by the Bureau portends a shift in perspective from the Trump administration to the new Biden administration. Many in the business community previously criticized the Bureau’s tendency to plead abusiveness in enforcement actions based on the same facts as deceptive or unfairness claims, and the lack of enforcement policy statements or other proactive guidance about the types of activities the Bureau considered abusive. By reversing the Statement, Bureau leadership is signaling its intent to return to multi-claim pleading and regulation by enforcement.
Businesses will be well advised to pay close attention to the Bureau’s enforcement actions going forward for indications of how it will enforce the abusiveness standard.
* Aaron Parry contributed to this post.