The Consumer Financial Protection Bureau yesterday issued a broad policy statement that bans abusive conduct in consumer financial markets — including debt collection — setting guardrails on a term that has confounded the financial services industry for more than a decade in terms that were described as being “tilted heavily” in favor of consumers.
A copy of the statement can be accessed by clicking here.
EDITOR’S NOTE: Sign up for a webinar on Thursday, April 6 to hear Joann Needleman and Manny Newburger break down the CFPB’s statement and what it means for the ARM industry. Register here.
This is not the first time that the CFPB has sought to define what constitutes “abusive” conduct within the confines of Unfair, Deceptive, or Abusive Acts or Practices (UDAAP). Congress added the extra “A” into UDAAP when it enacted the Consumer Financial Protection Act and gave birth to the CFPB. The previously issued guidance was rescinded back in 2020 when former Director Kathleen Kraninger was fired.
In summarizing what will constitute abusive conduct, the CFPB said that anything that obscures the important features of a product or service or leverages certain circumstances to take an unreasonable advantage. Those circumstances generally will focus on gaps in understanding, unequal bargaining power, and consumer reliance.
Where deceptive acts or practices tends to focus more on words, abusive acts or practices will focus on actions, said Rohit Chopra, the director of the CFPB, in remarks to the University of California Irvine School of Law yesterday. Chopra did mention debt collection during his remarks, noting that consumers don’t have a choice in deciding which collectors service their debts.
“Congress prohibited companies from leveraging unequal bargaining power, and that includes consumer reporting companies, servicers, and debt collectors who use the fact that their customers are captive to force people into less advantageous deals, extract excess profits, or reduce costs by providing worse service than they would provide if they were competing in an open market,” Chopra said.
While admitting that this type of relationship is not “per se abusive,” the CFPB said that companies may not take “unreasonable advantage of the absence of choice in these types of relationships.” In citing an example, the CFPB pointed to its enforcement action against JPay, which was the only government contractor offering prepaid debit cards to prisoners and was found to charge fees even if consumers didn’t want to do business with the company.