CFPB’s Policy Statement Attempts to Clarify “Abusive” Conduct

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:

What happened?

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:

1. Companies may not materially interfere with consumers’ understanding of terms and conditions. Under the policy statement, an act or omission can materially interfere if it obscures, withholds or de-emphasizes information relevant to the consumer’s understanding of the terms or conditions of the product or service.
   
   
   • The CFPB considers the use of buried disclosures, fine print, complex language and jargon to be examples of material interference.
   • So-called digital “dark patterns,” such as pop-ups, drop-downs, pre-checked boxes for default options and hiding important information behind multiple click-throughs, can impede a consumer’s ability to understand the product or service.
   • Intent to interfere is not required—material interference can be established with evidence that the natural consequence of the act or omission would be to impede the consumer’s ability to understand, or that the act or omission did in fact impede the consumer’s understanding.
     
     
2. Companies may not take unreasonable advantage of a consumer’s lack of understanding of the material risks, costs or conditions of a product or service. When there are gaps in a consumer’s understanding of material risks, costs or conditions of a product or service, entities may not take unreasonable advantage of that gap. According to the policy statement:
   
   
   • The company does not have to create the consumer’s misunderstanding of the product or service—“the consumer’s lack of understanding, regardless of how it arose, is sufficient.”
   • A consumer’s unreasonable lack of understanding can still be sufficient for a claim of abusiveness under the CFPA.
   • There is no minimum threshold of consumers who must not understand a product or service for an abusiveness claim. Even a small number of consumers failing to understand the product or service can be sufficient for an abusiveness claim.
     
     
3. Companies may not take unreasonable advantage of the inability of consumers to protect themselves in selecting or using a product or service. If there is an unequal bargaining power when a consumer selects a product or service or while the consumer is using the product or service, and as a result, the consumer cannot protect their interests, a company may not take unreasonable advantage of the consumer. According to the CFPB:
   
   
   • A consumer’s interests include monetary and non-monetary interests—including the consumer’s property, privacy or reputation—as well as the consumer’s interest in limiting the time or effort to obtain products and customer support assistance.
   • Even if consumers can protect their interests, if it is impractical, onerous or expensive to do so, a company cannot take advantage of that impediment.
   • A consumer’s inability to select a different provider up front or during the course of a customer relationship could demonstrate consumers’ inability to protect themselves.
     
     
4. Companies may not take unreasonable advantage of the consumer’s reasonable reliance on a covered person to act in the consumer’s interest. A company may not exploit or betray a consumer’s trust where the consumer may reasonably expect that the entity will make decisions or provide advice in the consumer’s interest. Reasonable reliance exists when a company:
   
   
   • Communicates to the person, or to the public generally, that it will act in its customers’ best interest.
   • Assumes the role of acting on behalf of consumers or helping them select providers in the market. The CFPB specifically referred to “brokers” and “intermediaries” as potentially being covered here.

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:”

• A product that is designed so that the company benefits when consumers default on their contractual obligations—which the CFPB describes as products that are “set up to fail.”
• The company seeks to deprive consumers of legal rights or takes advantage of consumer vulnerabilities that the company created.
• A company reaps benefits that it would not have otherwise obtained because of one of the statutorily identified consumer vulnerabilities. 

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).

What’s next?

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.