11 minute read | April.06.2023
On April 3, 2023, the Consumer Financial Protection Bureau (CFPB) issued a policy statement on its interpretation of the prohibition on abusive conduct under the Consumer Financial Protection Act (CFPA). Director Rohit Chopra said the policy statement would “provide a practical analytical framework for identifying abusive conduct.” Here’s what you need to know:
The CFPA prohibits unfair, deceptive, or abusive acts or practices (UDAAPs), and while there are longstanding policy statements—and decades of precedent—elucidating the meaning of “unfair” and “deceptive” conduct under the Federal Trade Commission Act (and, by extension, the CFPA), the CFPB had issued limited guidance on its views of “abusive” conduct. During one of his early visits to Capitol Hill, Director Chopra stated that he had “huge aspirations to create durable jurisprudence” regarding the meaning of “abusive” in the CFPA and suggested that the “CFPB may use rules and guidance to help articulate those standards.” The CFPB’s policy statement attempts to summarize the CFPB’s historical understanding of the term based on 43 different enforcement actions and “numerous” non-public examination citations alleging abusive conduct.
What should companies take away from the policy statement?
The policy statement said that an act or practice can be abusive under the CFPA if it meets one of four criteria, and the CFPB noted that—like deception claims—abusiveness “requires no showing of substantial injury to establish liability.” Here are the key items that companies should take away from the policy statement:
What does it mean to take “unreasonable advantage”?
The CFPB said “unreasonable” advantage depends on all facts and circumstances. While it doesn’t explain what type of advantage taking is “reasonable,” it does provide a few examples of what it might consider “unreasonable:”
Notably, the CFPB makes clear that “typical” (i.e., widespread) advantage taking may still be “unreasonable.” Again, these are just illustrative examples, and the CFPB makes clear that it might find other, unspecified conduct to be unreasonable as well.
Didn’t the CFPB issue a statement on abusiveness before?
This is not the first time the CFPB has issued a policy statement regarding its enforcement of the prohibition on abusive conduct. The CFPB previously issued guidance in 2020 to clarify how it intended to enforce compliance with the “abusiveness” standard in supervision and enforcement (covered by InfoBytes here). The following year, however, the CFPB’s acting director appointed by President Biden rescinded the guidance (covered by InfoBytes here).
The policy statement is open for public comment period until July 3, 2023. See CFPB Press Release on Abusive Conduct in Consumer Financial Markets.
Implications for potential enforcement activity
There are now policy statements explaining all three prongs of the CFPB’s UDAAP authority. Chopra noted that prior policy statements were “immensely influential in providing guidance to courts and the market” and that he expects the abusiveness statement to be helpful to “practitioners, enforcers, and industry.” However, unlike the FTC’s policy statements on deception and unfairness, which were based largely on judicial precedent and rulemakings, the April 3 “abusiveness” policy statement is based largely on the CFPB’s characterization of its prior assertions in complaints and consent orders that have rarely been subject to judicial scrutiny. It is not clear to what extent courts, other regulators and industry will embrace the policy statement’s approach to abusiveness.
Nonetheless, companies subject to the CFPB’s authority should view the abusiveness policy statement as an indication of where the CFPB will focus its enforcement and supervisory authority.
For more information on the policy statement, please contact Marshall Bell, John Coleman, Melissa Baal Guidorizzi, Sasha Leonhardt, Manley Williams or an Orrick attorney with whom you have worked in the past.