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Financial Services Law Insights and Observations

CFPB issues statement intended to clarify “abusive” practices

Agency Rule-Making & Guidance CFPB UDAAP Abusive

Agency Rule-Making & Guidance

On January 24, the CFPB issued a policy statement applicable immediately to provide a “common-sense framework” for how the Bureau plans to apply the “abusiveness” standard in supervision and enforcement matters as authorized under Dodd-Frank. Under the new policy statement, the Bureau will only cite or challenge conduct as abusive if the agency “concludes that the harms to consumers from the conduct outweigh its benefits to consumers.” The Bureau will also generally avoid challenging conduct as abusive if it relies on all, or nearly all, of the same facts alleged to be unfair or deceptive. Should the Bureau include abusiveness allegations, the policy statement says it will “plead such claims in a manner designed to clearly demonstrate the nexus between the cited facts and the Bureau’s legal analysis of the claim.” With respect to supervision, the Bureau intends to clarify the specific factual basis for determining a violation of the abusiveness standard. In addition, “the Bureau generally does not intend to seek certain types of monetary relief for abusiveness violations” in instances where the Bureau determines that the person made “a good-faith effort to comply with the abusiveness standard.” However, the Bureau cautions that it will still pursue restitution for consumers in such instances, regardless of whether a person acted in good faith. The Bureau further emphasized that the issuance of the policy statement does not prevent the possibility of future rulemaking to further define the abusiveness standard.

As previously covered by InfoBytes, last June the Bureau held a symposium to examine how the “abusive” standard has been used in practice in the field. Academics and practitioners discussed whether consumer harm was required for a practice to be considered abusive or whether there was even a need to clarify the abusive standard, as it is already statutorily defined. Most panelists agreed that a guidance document or policy statement would be an important first step for the Bureau in providing clarity to the industry, noting that the industry has struggled with examples of how abusiveness is different from unfairness or deception and that the Bureau has been “inconsistent at times” in the application of the abusive standard. The Bureau notes that the symposium, along with stakeholder feedback, played an important part of the process leading to the issuance of the policy statement.

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