Consumer Financial Protection Bureau Issues Guidance Clarifying Abusiveness Standard

During the Consumer Financial Protection Bureau’s (“CFPB”) symposium series in June 2019, the featured panel discussed whether it was necessary for the Bureau to further define “abusive acts or practices” under the Dodd-Frank Act.  At the time, Bureau guidance provided that “[a]n act or practice is abusive when 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 consumer’s lack of understanding of the material risks, costs, or conditions of the product or service;

(B) a consumer’s inability to protect his or her interests in selecting or using a consumer financial product or service; or

(C) a consumer’s reasonable reliance on a covered person to act in his or her interests.

Some panelists advocated for more detailed guidance, while others suggested new legislation was the proper method for further defining “abusive” under the Act. The Bureau acknowledged the uncertainty surrounding the standards of abusiveness, and stated that it would continue to consider the issues. Since that time, commentators have been urging the Bureau to issue revised guidance.

On January 24, 2020, the Bureau issued a policy statement setting forth how it will apply the abusiveness standard in the exercise of its supervisory and enforcement authority going forward. The policy statement highlights three categories that the Bureau believes will provide greater certainty and “further[] the Bureau’s purpose in implementing and enforcing the prohibition on abusiveness in the Dodd-Frank Act. 

• First, the Bureau intends to focus on whether consumer harm outweighs consumer benefit. 
• Second, the Bureau will avoid “dual-pleading,” or alleging abusiveness on the same facts that it uses to allege unfair or deceptive acts and practices. 
  • When the Bureau alleges “stand-alone” violations of the abusiveness standard, it will demonstrate the clear nexus between the facts and the legal analysis of the claims.
• Finally, the Bureau does not intend to seek divil penalties or disgorgement for abusiveness where there has been a good-faith effort to comply with the standard (this will not affect whether the Bureau seeks restitution for the consumer). 
  • In determining good-faith, the Bureau will consider “all relevant factors,” which will include those considerations outlined in CFPB Bulletin 2013-06 regarding Responsible Business Conduct (these considerations are: (1) the nature, extent, and severity of the violations identified; (2) the actual or potential harm from those violations; (3) whether there is a history of past violations; and (4) a party’s effectiveness in addressing violations).

A lack of clear direction on the abusiveness standard has resulted in uncertainty amongst covered entities and an uneven application of the law.  This policy statement provides needed guidance for covered entities and those advising them to stay in compliance with the Act. 

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