The Consumer Financial Protection Bureau on Friday announced a “common-sense framework” for how it will define abusive actions under the Dodd-Frank’s prohibition against Unfair, Deceptive, or Abusive Acts and Practices.
Mick Mulvaney, the former acting director of the CFPB, had announced back in October 2018 that the regulator would work on a proposed rule to define what constitutes an abusive act or practice.
While there have long been laws that banned practices deemed to be unfair or deceptive, the Dodd-Frank Wall Street Reform & Consumer Protection Act, which gave birth to the CFPB, added the word abusive into the financial services practices that the agency had purview over. And the CFPB has frequently used its enforcement authority to penalize firms for engaging in what the agency defined as abusive practices. But what constituted an abusive practice was undefined, until now.
While stopping short of issuing a proposed rule to define an abusive act or practice, the CFPB instead issued a series of criteria that it would use during its supervisory and enforcement activities to determine whether a specific act or practice was abusive. Those criteria are:
- 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
- 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
“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, in a statement. “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.”
The CFPB noted that in 30 of the 32 enforcement actions it has brought in which an abusiveness claim was made, an unfair or deceptiveness claim was also made. “It is difficult to discern from those actions unique fact patterns to which only the abusiveness standard would apply,” the CFPB said in its policy statement.
For the most part, the CFPB expects to use the unfair or deceptive standard and will only bring an abusive claim if it determines “that the harms to consumers from the conduct outweigh its benefits to consumers.” The CFPB also said that it would generally not seek monetary relief for abusive violations “where the covered person was making a good-faith effort to comply with the abusiveness standard.”