WASHINGTON—The Consumer Financial Protection Bureau has issued a policy statement outlining its approach to the “abusiveness” standard in supervision and enforcement matters that has received initial support from credit unions, but been blasted by consumer groups.
In response, CUNA said it is analyzing the policy statement to determine its impact, but believes the action is a step towards ending an “I know it when I see it” approach to the Bureau’s Unfair, Deceptive, Acts or Practices (UDAAP) authority.
Consumer groups, however, are calling the agency’s new approach to the abusiveness standard and abuse itself.
CFPB Statement
“I am committed to ensuring we have clear rules of the road and fostering a culture of compliance – a key element in preventing consumer harm,” said CFPB Director Kathleen Kraninger. “We’ve developed a policy that provides a solid framework to prevent consumer harm while promoting the clarity needed to foster consumer beneficial products as well as compliance in the marketplace, now and in the future.”
In the policy statement, the Bureau leaves open the possibility of engaging in a future rulemaking to further define the abusiveness standard, the agency said.
Key Principles
Effective immediately, the Bureau’s policy statement identifies several key principles:
- Citing or challenging conduct as abusive in supervision and enforcement matters only when the harm to consumers outweighs the benefit
- Generally avoiding “dual pleading” of abusiveness and unfairness or deception violations arising from all or nearly all the same facts, and alleging “stand alone” abusiveness violations that demonstrate clearly the nexus between cited facts and the Bureau’s legal analysis
- Seeking monetary relief for abusiveness only when there has been a lack of a good-faith effort to comply with the law, except the Bureau will continue to seek restitution for injured consumers regardless of whether a company acted in good faith or bad faith
CUNA said it has long recommended the CFPB act to clarify the scope and meaning of “abusiveness,” including in its comprehensive white paper sent to the CFPB on common-sense reforms.
Consumer Groups Respond
Several major consumer groups are blasting the announcement by the CFPB.
“The CFPB’s new abusive policy limits the protection of consumers in ways Congress did not intend, curbs the CFPB’s ability to pursue lawbreakers in court, and undercuts the incentives that companies have to ensure they are complying with the law,” said Linda Jun, senior policy counsel at Americans for Financial Reform Education Fund. “The CFPB’s decision to hamstring its pursuit of abusive conduct is deeply disturbing. Congress defined ‘abusive’ and specifically gave the CFPB flexibility to enforce it because scammers are creative in the ways that they abuse consumers.”
While the statement purports to clarify the standard for abusiveness under the law, in fact it inserts a great deal of vagueness, and signals that the CFPB is prepared to give companies a pass when they commit abusive acts, the group added in its statement.
“Congress specifically required weighing of costs and benefits in the definition of ‘unfair’ but not ‘abusive’ but not every case is conducive to the quantifying of costs and benefits,” said Lauren Saunders, associate director of the National Consumer Law Center. “Should the CFPB have to measure and weigh the costs and benefits before it stops companies from scamming 9/11 firefighter heroes and NFL concussion victims out of millions of dollars in compensation funds, or when debt collectors use illegal tactics to file lawsuits in states where servicemembers do not live and contact their commanding officers?”
CFA Response
The Consumer Federation of America was also critical of the CFPB announcement.
“Today’s policy statement attempts to rewrite federal law without authorization from Congress or a court order,” said Professor Christopher Peterson, director of Financial Services for the Consumer Federation of America. “The new policy statement fabricates a ‘good faith’ exception that lets businesses engaging in abusive practices off the hook for financial penalties when they claim violations of the law were unintentional.”
The policy also imposes a new cost-benefit framework on law enforcement that will slow investigations and create an artificial barrier to protecting the public, according to the CFA.
“Every American consumer deserves law enforcement that is creative and flexible enough to protect them from abusive financial practices,” Peterson continued. “Today’s decision will embolden debt collectors, payday lenders, and other finance companies to be more reckless and indifferent to the welfare of their customers.”
The Full Statement
The full CFPB policy statement can be found here.