The CFPB Issued a Policy Statement on How It Will Interpret and Apply the Dodd-frank Act’s Abusiveness Standard, Providing Minimal Current Insight, but the Promise and Framework for Future Guidance

01.29.20

Effective January 24, 2020, the CFPB put out a policy statement to clarify what falls with Dodd-Frank’s prohibition against ​“abusive” conduct. As brief background, the CFPB is authorized under Dodd-Frank to use its supervisory and enforcement authority to prevent covered persons or service providers ​“from committing or engaging in an…abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.” So far the CFPB has not been clear about what conduct it deems ​“abusive.”

This lack of meaningful detail as to what conduct is ​“abusive” under the CFPB’s current rulings leaves businesses at risk of violating the law through new and innovative products and services, potentially stifling creation of beneficial products and services. The CFPB issued this Policy Statement to ​“provide[] a framework for the Bureau’s exercise of its supervisory and enforcement authority to address abusive acts or practices.” The Policy Statement truly is a framework, not clarification, as it gives little specific guidance, only the promise of future guidance within the stated framework. 

The CFPB provided three prongs to the framework for ​“abusiveness” claims going forward. 

First, in the only actual guidance contained in the Policy Statement, the CFPB explained that the ​“abusiveness” standard will focus on whether the conduct causes more harm to consumers than benefits. This stems from the priority the CFPB places on preventing harm to consumers and recognizes that though some products and services may cause harm to some, the benefits they create may outweigh the harm and render the products and services not ​“abusive.” According to the CFPB, the harms and benefits to consumers can be qualitative as well as quantitative. This is meant to encourage businesses to still develop and offer new products and services that provide consumers with benefits, including additional access to credit. 

Second, the CFPB will ​“generally avoid” raising claims for both ​“abusive” conduct and ​“unfair or deceptive” conduct based on the same facts, or if it does raise both sets of claims on the same facts, it will clearly detail the specific facts and legal theories that constitute ​“abusive” conduct. This will allow the CFPB to use future enforcement and supervision efforts to clarify the specific conduct it deems ​“abusive” within the specific fact patterns presented. Though the insights this will allow will come too late for the businesses subject to the enforcement or supervision, this truly should provide others more concrete examples of what is and is not ​“abusive” in the CFPB’s view. This will also create more opportunity for courts to define ​“abusive” conduct under Dodd-Frank. 

Third, the CFPB stated it does not intend to seek civil penalties or disgorgement as monetary relief for abusiveness violations IF the covered person made a good-faith effort to comply with the law. The idea here is to encourage businesses to develop new products that might be ​“abusive” by reducing the fear of substantial punitive monetary penalties where the businesses try to avoid abusive conduct. This is not a promise to not issue any monetary penalties where the business acted in good faith, as the CFPB warned it will still seek to redress specific consumer injury caused by the abusive acts or practices, even if the person exercised good-faith. Further, the CFPB warned that those who exercise bad-faith will still be vigorously pursued. 

Though not a solution to the lack of clarity on the ​“abusiveness” standard, this Policy Statement provides the promise of future clarity. This Policy Statement provides little cover for businesses exploring new products and services, as within this framework the CFPB reserves wide discretion to declare conduct ​“abusive” while providing no assurance of what conduct is NOT abusive. This wide subjective discretion held by the CFPB, along with the lack of current guidance, make it critical that businesses perform as complete an analysis as possible of current guidance before putting a potentially ​“abusive” new product or service out to the public. Further, businesses exploring new products and services might want to include in their business plans an analysis of the potential harms to consumers and how the benefits to consumers outweigh the harms. The analysis should take into account qualitative and quantitative harms and benefits. 

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