On January 24, 2020, the Consumer Financial Protection Bureau (CFPB) issued a policy statement setting forth guidelines on how it intends to enforce the “abusiveness” standard under the Dodd-Frank Act. Section 103(a) of the Dodd-Frank Act authorizes the CFPB to bring enforcement actions against “covered persons” engaged in unfair, deceptive, and abusive acts and practices (UDAAP). “Abusive” conduct is defined as that which (1) materially interferes with a consumer’s ability to understand a term or condition of a product or service, or (2) takes unreasonable advantage of (i) a consumer’s lack of understanding of the material risks, costs, or conditions, (ii) a consumer’s inability to protect his or her interests in selecting or using a product or service, or (iii) a consumer’s reasonable reliance on a covered person to act in the interests of a consumer.
Guidance regarding the “abusiveness” standard has been relatively rare since its recent inception in 2011. Between 2011 and 2019, the CFPB initiated 32 enforcement actions with an abusiveness claim, but 30 of those actions also included unfairness or deception claims. In many of those cases, the abusiveness claim arose from the same conduct as the unfairness or deception claim, blurring the standards and leading to confusion over what constitutes an abusive act. Lack of guidance from the CFPB has added to this uncertainty, resulting in years of complaints and criticisms from industry participants. In 2018, the CFPB received numerous comments regarding the lack of a clear abusiveness standard, including one credit card issuer’s concerns that the lack of guidance “creates uncertainty, chills beneficial innovation, and leads to unnecessary compliance burdens for institutions trying in good faith to comply with the law.” In response to these concerns, the CFPB held a Symposium on Abusive Acts and Practices last year where moderators discussed policy issues related to the abusiveness standard and the need for a clearer standard.
The new policy statement attempts to remedy these concerns. First, the CFPB explains that it will use a cost/benefit approach in determining whether an act is abusive. If the CFPB concludes that the harms certain conduct causes consumers outweigh the benefits to consumers, the CFPB will challenge that conduct as abusive. Second, the CFPB will change the way it pleads abusive claims to clearly demonstrate why it believes the underlying facts constitute an abusive claim. The CFPB will seek to avoid challenging conduct as abusiveness if it merely relies on all or nearly all of the same facts that the CFPB alleges are unfair or deceptive. The CFPB intends to follow this same approach during examinations when citing covered persons for engaging in abusive acts or practices. Third, if a covered person can demonstrate that it was making a good-faith effort to comply with the abusiveness standard, the CFPB does not intend to seek monetary relief. In considering whether a covered person made a good-faith effort to comply, the CFPB intends to the consider the factors outlined in CFPB Bulletin 2013-06 regarding Responsible Business Conduct.
The new guidance provides much needed insight into the CFPB’s interpretations, but it will take time before the contours of the abusiveness standard truly begin to take shape. Only future enforcement actions and examinations will reveal (1) what constitutes a consumer harm and benefit and how those are weighed; (2) what kinds of underlying facts will establish an abusiveness claim under the CFPB’s new pleading approach; or (3) what types of actions are sufficient to demonstrate a good-faith effort to comply with the abusiveness standard. Still, the new policy is a necessary first step in clarifying what historically has been an ambiguous standard that has caused widespread uncertainty across the industry.