The Consumer Financial Protection Bureau yesterday rescinded restrictions put in place by the previous leadership that established a two-part test to determine whether a company had engaged in abusive acts or practices, saying it intends to “exercise its supervisory and enforcement authority consistent with the full scope of its statutory authority,” which, for companies regulated by the CFPB, is as ominous as it sounds.
The test had been put into place last year by the CFPB when it was under the leadership of Kathleen Kraninger. It essentially stated that the CFPB would either go after a company for allegedly engaging in abusive acts or practices or actions deemed to be unfair and/or deceptive, but not both. Claims of engaging in abusive acts or practices would only be brought when the cost of a company’s conduct to consumers outweighed the benefit and when companies failed to show a good faith effort to comply with the standard. The CFPB noted at the time 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.
“Going forward, the CFPB intends to consider good faith, company size, and all other factors it typically considers as it uses its prosecutorial discretion,” the CFPB wrote in its announcement. “But a policy of declining to enforce the full scope of Congress’s definition of an abusive practice harms both the consumers who were taken advantage of and the honest companies that have to compete against those that violate the law.”
The old policy “undermined deterrence and was contrary to the CFPB’s mission of protecting consumers,” it said.
While there have been many calls for the CFPB to define what constitutes an abusive act or practice, Rohit Chopra, the likely director of the agency said during his confirmation hearing that, if confirmed, he will not seek to issue a formal policy and would instead opt to let the courts decide how to define the standard.