The CFPB has issued a policy statement to clarify the Dodd-Frank Act’s abusiveness standard. The policy statement, which is applicable as of January 24, 2020, states that it describes “certain aspects of how [the Bureau] intends to approach its use of the abusiveness standard in its supervision and enforcement matters going forward.”
In the Supplementary Information accompanying the policy statement, the Bureau states that it concluded that uncertainty as to the scope and meaning of the abusiveness standard is creating significant compliance challenges for businesses. Such challenges, the Bureau observes, “can impose substantial costs, including impeding innovation” and, as a result, “consumers may lose the benefits of improved products and services and lower prices.”
The Dodd-Frank Act provides that, to be declared abusive, an act or practice must: (1) materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service, or (2) take unreasonable advantage of (a) a lack of understanding on the part of the consumer 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 product or service, or (c) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.
The policy statement contains the following three components:
- Cost/benefit analysis. The Bureau will “focus in citing conduct as abusive in supervision and challenging conduct as abusive in enforcement if the Bureau concludes that the harms to consumers from the conduct outweigh its benefits to consumers (including its effects on access to credit).” The Bureau believes this focus will not only ensure consistency in its supervisory and enforcement decisions but will also ensure “that the Bureau is committed to using its scarce resources to address conduct that causes harm to consumers.”
- Citing or pleading abusiveness violations. Where an enforcement matter presents “a single course of conduct that could provide the factual basis for allegations of unfair, deceptive, or abusive acts or practices,” the Bureau will generally “avoid alleging an abusiveness violation that relies on all or nearly all the same facts as an unfairness or deception violation.” It will nevertheless allege “stand-alone” abusiveness violations “where doing so would be consistent with the abusiveness standard and this Policy Statement.” Where “stand-alone” abusiveness violations are alleged, the Bureau “will plead such claims in a manner designed to demonstrate clearly the nexus between the cited facts and the Bureau’s legal analysis of the claims.” In the supervisory context, the Bureau intends to apply the same approach as it uses for pleading abusiveness in enforcement actions, and in future editions of Supervisory Highlights, it will “describe the basis for abusiveness citations with greater clarity.”
- Monetary relief. The Bureau generally will not “seek monetary remedies for abusive acts or practices if the covered person made a good-faith effort to comply with the law based on reasonable—albeit mistaken—interpretation of the abusiveness standard.” In the supervisory context, the Bureau “will apply the same standard when requesting action as a result of violations in Matters Requiring Attention or other supervisory requests.” When a business has made a “good-faith but unsuccessful” compliance effort, the Bureau will still “seek legal or equitable remedies, such as damages and restitution” but, “absent unusual circumstances,” will not seek civil penalties or disgorgement. In determining if a business made a good-faith compliance effort, the Bureau will consider “all relevant factors, including but not limited to the considerations outlined in CFPB Bulletin 2013-06 regarding Responsible Business Conduct.” For purposes of the policy statement, a “reasonable” interpretation “is one based on the text of the abusiveness standard set forth in the Dodd-Frank Act, as well as prior precedent and guidance, including judicial precedent, the Bureau’s administrative decisions, rulemakings, supervisory guidance, and past allegations of abusive acts or practices in public enforcement actions.” (Released in June 2013, Bulletin 2013-06 was intended to describe the sorts of “responsible conduct” that might lead the Bureau to be more lenient in the context of an enforcement investigation.)
Although it elected to use a policy statement to clarify the meaning of abusive, the Bureau indicated in the Supplementary Information that it “does not foreclose the possibility of engaging in future rulemaking to further define the abusiveness standard.”
Although the policy statement is a helpful step in the right direction in giving industry some idea of how abusiveness may be applied in the future, we believe that its practical impact will be very limited. The Bureau has not frequently relied on abusiveness as the sole reason for enforcement of supervisory actions, and nothing in the policy statement will alter the manner in which the Bureau evaluates allegedly unfair or deceptive conduct. Moreover, even for conduct labeled abusive, the policy statement prescribes essentially subjective, judgmental decisions to be made by Bureau personnel (for example, weighing consumer harm and benefit, or whether a company was acting in “good faith”), which provide little restriction on the Bureau, and therefore little guidance to industry. So, we believe the policy statement will have little practical impact on the Bureau’s supervisory and enforcement behavior.