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 in complying with the law, and may impede or deter the provision of otherwise lawful financial products or services that could be beneficial to consumers."
The CFPB reports that it has brought 32 enforcement actions asserting an abusiveness claim, though only two of those cases consisted of "stand-alone" abusive claims. In the more than 30 cases, the challenged conduct was "dual pleaded" by the CFPB as involving both abusiveness and unfairness and/or deception, perhaps contributing to perceived ambiguity regarding the scope of the "abusive" standard. In its announcement, the CFPB stated that it intends to generally avoid "dual pleading" and to allege "'stand-alone' abusiveness violations that demonstrate clearly the nexus between cited facts and the [CFPB's] legal analysis." The CFPB may yet bring overlapping claims where it would "help clarify the scope of the abusiveness standard," but in such a case, abusiveness will be pled in a way that distinguishes it from other UDAAP allegations.
What the New CFPB Policy Means for the Financial Services Industry
Regulated institutions can take some comfort, at least, in the CFPB's pronouncement that they can avoid civil penalties by demonstrating a good-faith (even if unsuccessful) effort to comply with the law. A number of questions remain, however, concerning how the CFPB will apply its new cost-benefit analysis with respect to conduct that may be challenged as "abusive."
For example, it remains to be seen how the CFPB will evaluate conduct affecting categories of consumers differently, such that some are "benefited" by the same conduct that results in a net "harm" for others. It is also unclear, given the small number of stand-alone "abusiveness" claims brought by the CFPB, whether these changes will, in the near-term, result in fewer enforcement actions or merely, perhaps, a more streamlined approach to enforcement action pleadings through elimination of dually-pled claims. Finally, this policy statement is nonbinding, making it easier for future CFPB leadership to revisit these issues, although the CFPB has left open the possibility of engaging in a future rulemaking to provide further definition. For all of these reasons, only time will tell the extent of any impact of the CFPB's new framework.
In all events, regulated entities should remain mindful that state regulators may take different positions concerning the meaning of "abusiveness" in this regard. For example, on May 15, 2018, Maryland enacted the Maryland Consumer Protection Act, which prohibits "unfair, abusive or deceptive trade practices." Governors Gavin Newsom of California and Andrew Cuomo of New York have both recently proposed state budgets that would fund and create state versions of the CFPB, with power to "protect consumers against unfair, deceptive and abusive practices." For more information about the potential impact of California's proposed mini-CFPB in particular, see our recent Alert.
Jones Day will continue to monitor these developments.
Two Key Takeaways
1. The January 24, 2020, policy statement announced that the CFPB will:
- apply a cost-benefit analysis to any violations of "abusive" behavior (i.e., whether "the harm to consumers outweighs the benefit");
- generally avoid "dual pleading" of "abusiveness" with "unfairness" and/or "deception" claims; and
- only seek civil penalties from institutions that did not make a good-faith effort to comply with the law.
2. Only time will tell whether and how the CFPB's new policy will impact its supervision and enforcement activities. In all events, regulated entities must remain mindful of the potential that state regulators will take different approaches.
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