The CFPB's Policy Statement Concerning The Meaning Of 'Abusiveness'

In Short

The Situation: For the past 10 years, regulated entities and others have sought more definition concerning the nature and scope of claims the Consumer Financial Protection Bureau ("CFPB") might bring alleging "abusive" conduct in connection with the provision of consumer financial services or products.

The Result: On January 24, 2020, the CFPB issued a policy statement seeking to provide clarity in this area by announcing that it would only challenge conduct as abusive "when the harm to consumers outweighs the benefit."

Looking Ahead: It remains to be seen how the CFPB will apply this cost-benefit analysis and whether and how this new policy will impact its supervision and enforcement activities.

The CFPB's Policy Statement

On January 24, 2020, the CFPB issued a policy statement announcing what it described as a "common-sense framework" concerning its application of the "abusiveness" standard in supervision and enforcement matters. This policy statement is a result of the CFPB's Symposium on Abusive Acts or Practices held last summer. In sum, the CFPB announced that it will:

apply a cost-benefit analysis and challenge conduct as abusive "only when the harm to consumers outweighs the benefit"; generally avoid "dual pleading" an "abusiveness" claim with one predicated on alleged unfairness or deception; and seek civil penalties only where "there has been a lack of good-faith effort to comply with the law," though the CFPB will continue to seek restitution for consumers regardless of whether a company acted in good faith. The Dodd-Frank Act, enacted in 2010, was the first federal law broadly prohibiting "abusive" acts or practices in connection with the provision of consumer financial services or products. In addition to traditional unfair and deceptive acts or practices, Dodd-Frank authorizes the CFPB to bring enforcement actions against businesses that engage in unfair, deceptive, or abusive acts or practices ("UDAAP") in connection with transactions with consumers of financial products or services.

The statutory standard for what the CFPB has authority to declare an "abusive act or practice" is set forth in the Dodd-Frank Act and the CFPB examination manual. The broad language used to define the abusiveness standard has created uncertainty concerning the scope and meaning of abusiveness, which was expressed only in enforcement actions. In its statement, the CFPB stated that "[t]his uncertainty creates challenges for covered persons...