The CFPB announced yesterday that it is rescinding its January 2020 policy statement, “Statement of Policy Regarding Prohibition on Abusive Acts or Practices.”  The rescission is effective on the date the CFPB’s notice of the rescission is published in the Federal Register.

The rescission was foreshadowed by Acting Director Uejio in his statement to Bureau staff which he shared in a blog post early last month.  In the statement, Mr. Uejio stated that he planned to reverse policies of the Trump Administration “that weakened enforcement and supervision,” including by “rescind[ing] public statements conveying a relaxed approach to enforcement of the laws in our care.”

The policy statement contained the following three principles for how the Bureau would use its supervisory and enforcement authority to address abusive acts or practices:

  • The Bureau would focus on citing conduct as abusive in supervision and challenging conduct as abusive in enforcement if the Bureau concluded that the harms to consumers from the conduct outweighed its benefits to consumers (including its effects on access to credit).”
  • The Bureau would generally avoid challenging conduct as abusive where the alleged violation relied on all or nearly all the same facts as an unfairness or deception violation.  Where an abusiveness violation was alleged, the Bureau intended to plead its claim in a manner designed to clearly demonstrate the nexus between the cited facts and the Bureau’s legal analysis of the claim.  In the supervisory context, the Bureau intended to provide more clarity as to the specific factual basis for finding an abusiveness violation.
  • The Bureau generally would 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 a reasonable—albeit mistaken—interpretation of the abusiveness standard.

In its notice of the rescission, the CFPB offers the following explanation for its action:

  • Based on its review of, and experience in applying the policy statement, the Bureau concluded that the principles in the statement “do not actually deliver clarity to regulated entities” and, in fact, “afford the Bureau considerable discretion in its application and uncertainty to market participants.”  Not asserting abusiveness claims solely because they overlap with unfair or deceptive conduct or based on other principles in the statement “has the effect of slowing the Bureau’s ability to clarify its statutory abusiveness authority by articulating abusiveness claims as well as through the ensuing issuance of judicial and administrative decisions.”
  • By only citing conduct as abusive in supervision and challenging conduct as abusive in enforcement if the Bureau concluded that the harms to consumers from the conduct outweighed its benefits to consumers, the Bureau would be applying the abusiveness standard “differently from the normal considerations that guide the Bureau’s general use of its enforcement and supervisory discretion.”
  • Declining to apply the full scope of the statutory standard pursuant to the statement “has a negative effect on the Bureau’s ability to achieve its statutory objective of protecting consumers from abusive practices.”  In particular, the policy of not seeking civil money penalties and disgorgement for abusive acts or practices “is contrary to the Bureau’s current priority of achieving general deterrence through penalties and other monetary remedies and of compensating victims for harm caused by violations of the Federal consumer financial laws through the Bureau’s Civil Penalty Fund.”  Similarly, not citing or alleging conduct as abusive when that conduct is also unfair or deceptive “is contrary to the Bureau’s current priority of maximizing the Bureau’s ability to assert alternative legal causes of action in a judicial or administrative hearing.”  The Bureau will continue, however, to consider the factors that it typically considers in using its prosecutorial discretion (e.g. good faith, company size).
  • The policy standard was not required and “stated an intent to refrain from applying the abusiveness standard even when permitted by law.”  If Congress intended to limit the Bureau’s authority to fully apply the abusiveness standard, it could have prescribed a narrower prohibition but did not.  The Dodd-Frank language “provides sufficient notice for due process purposes.”

We thought the policy statement was a helpful step in the right direction by giving industry some idea of how the Bureau might apply abusiveness, and clarifying the appropriate weighing of cost and benefit from a particular practice.  At the same time, we believed it would have little practical impact on the Bureau’s supervisory and enforcement behavior because the Bureau did not frequently rely on abusiveness as the sole reason for enforcement or supervisory actions, and nothing in the policy statement changed how the Bureau intended to evaluate allegedly unfair or deceptive conduct.  Moreover, even for conduct labeled abusive, the policy statement prescribed essentially subjective, judgmental decisions to be made by the Bureau that did little to restrict the Bureau or provide guidance to industry.

Although the Bureau adopted the policy statement in lieu of engaging in rulemaking, it indicated that the policy statement did not foreclose the possibility of a future rulemaking to further define the abusiveness standard.  In a statement commenting on the Bureau’s rescission of the policy statement, the Consumer Bankers Association expressed disappointment that the Bureau “did not define its interpretation of ‘abusive’ so financial institutions know the rules of the road in advance of any supervision or enforcement action.”

Just as we viewed the policy statement as largely symbolic, we view the rescission in the same way.  The Bureau’s leadership is signaling the industry and the public that it wants to make a sharp break with the Trump-era CFPB, and that consumer protection, rather than industry considerations, will guide its enforcement and supervision efforts.  In our view, hearing that message is the primary takeaway from the rescission of the policy statement.